HBX FA Exam | Verified Exam Questions and Answers | Latest Updated
Study Material 2026
Question:
The Accounting Equation
Answer:
Assets = Liabilities + Owner's Equity
Question:
Accrual Method of Accounting
Answer:
transactions are recorded in the
period to which they relate, regardless of when cash is exchanged.
Question:
The Matching Principle
Answer:
a company is required to match its
expenses to the related revenues in the accounting period to which they relate.
Question:
Realization Principle
Answer:
if a business has performed the work and it
can reasonably expect to receive cash / accounts payable from the customer, it can recognize
revenue even though it has not yet received the cash. *Revenue is recognized when merchandise
is delivered.
Question:
Conservatism Principle
Answer:
Businesses should anticipate and record
future losses when they are probable as a liability. Anticipated Future gains, however, should not
be recorded until they are realized (turned into cash, cash equivalents, or good receivables).
,Question:
Accounting numbers are less likely to be overinflated or optimistic, which results in lower Net
Income, lower Assets and lower Stockholder's Equity
Relevance
Answer:
the info is useful and also capable of influencing the
users of the financial statement
Question:
Reliability
Answer:
the info faithfully represents the underlying
economics: Valid, Verifiable, Unbiased
Question:
Historical Cost Principle
Answer:
a good example of how accounting
standards require that reliable information be used to record transactions. Transactions are to be
recorded at the actual price that existed at the time of the transaction - - more reliable b/c it tracks
back to the actual amount that changed hands.
Question:
Upside - - businesses can not adjust value of assets based on assumptions, which alleviates an
overstatement of assets on financial statements (ex. Cardullo's Nutella shrotage)
Downside - - it might result in less relevant information if the values have changed since the
transaction took place. (ex. Land)
Consistency
Answer:
requires that the accounting methods be
consistently applied by the company over time in recording and reporting unless there is a sound
reason to change them. If the motivation is to more accurately match expenses to revenues, the
company may find this reason more compelling than consistency and decide to make the change.
, Question:
Materiality
Answer:
Something is MATERIAL if it is important or
significant.
Question:
Some material can be reported combined - - Trivial matters don't have to be recorded/reported in
DETAIL.
The Entity Concept
Answer:
A business is a separately identifiable entity,
and only the business that belongs to the business should be recorded in the financial statements
of a firm.
Question:
Avoids managers including their own personal expenses, firms making up entities that don't exist
- ex. Enron used special purpose entities to conceal many of the accounting transactions that
happened in the firm.
Money Measurement Principle
Answer:
only values that can be measured
in monetary terms get recorded in the financial statement
Question:
Events / circumstnaces that could have a financial impact on your business are not recorded in
accounts unless they can be reliably measured in monetary terms and they relate to a historical
transaction that has occurred.
Going Concern
Answer:
The business will continue to operate for the
foreseeable future - - allows accountants to make estimates and generate financial statement
under the assumption that the business is a going concern
Study Material 2026
Question:
The Accounting Equation
Answer:
Assets = Liabilities + Owner's Equity
Question:
Accrual Method of Accounting
Answer:
transactions are recorded in the
period to which they relate, regardless of when cash is exchanged.
Question:
The Matching Principle
Answer:
a company is required to match its
expenses to the related revenues in the accounting period to which they relate.
Question:
Realization Principle
Answer:
if a business has performed the work and it
can reasonably expect to receive cash / accounts payable from the customer, it can recognize
revenue even though it has not yet received the cash. *Revenue is recognized when merchandise
is delivered.
Question:
Conservatism Principle
Answer:
Businesses should anticipate and record
future losses when they are probable as a liability. Anticipated Future gains, however, should not
be recorded until they are realized (turned into cash, cash equivalents, or good receivables).
,Question:
Accounting numbers are less likely to be overinflated or optimistic, which results in lower Net
Income, lower Assets and lower Stockholder's Equity
Relevance
Answer:
the info is useful and also capable of influencing the
users of the financial statement
Question:
Reliability
Answer:
the info faithfully represents the underlying
economics: Valid, Verifiable, Unbiased
Question:
Historical Cost Principle
Answer:
a good example of how accounting
standards require that reliable information be used to record transactions. Transactions are to be
recorded at the actual price that existed at the time of the transaction - - more reliable b/c it tracks
back to the actual amount that changed hands.
Question:
Upside - - businesses can not adjust value of assets based on assumptions, which alleviates an
overstatement of assets on financial statements (ex. Cardullo's Nutella shrotage)
Downside - - it might result in less relevant information if the values have changed since the
transaction took place. (ex. Land)
Consistency
Answer:
requires that the accounting methods be
consistently applied by the company over time in recording and reporting unless there is a sound
reason to change them. If the motivation is to more accurately match expenses to revenues, the
company may find this reason more compelling than consistency and decide to make the change.
, Question:
Materiality
Answer:
Something is MATERIAL if it is important or
significant.
Question:
Some material can be reported combined - - Trivial matters don't have to be recorded/reported in
DETAIL.
The Entity Concept
Answer:
A business is a separately identifiable entity,
and only the business that belongs to the business should be recorded in the financial statements
of a firm.
Question:
Avoids managers including their own personal expenses, firms making up entities that don't exist
- ex. Enron used special purpose entities to conceal many of the accounting transactions that
happened in the firm.
Money Measurement Principle
Answer:
only values that can be measured
in monetary terms get recorded in the financial statement
Question:
Events / circumstnaces that could have a financial impact on your business are not recorded in
accounts unless they can be reliably measured in monetary terms and they relate to a historical
transaction that has occurred.
Going Concern
Answer:
The business will continue to operate for the
foreseeable future - - allows accountants to make estimates and generate financial statement
under the assumption that the business is a going concern
