HBX Financial Accounting Exam | Verified Exam Questions and Answers
| Latest Updated Study Material 2026
Question:
Assets
Answer:
Cash, inventory, equipment, prepaid assets, invoices
Question:
Liabilities
Answer:
Accounts payables, salaries, sales taxes payable,
unredeemed gift certificates, long term debt
Question:
Owner's Equity
Answer:
Contributed capital, retained earnings
Question:
Module 4 Explicit transactions
Answer:
triggered by some sort of
activity, event, or transfer of resources (usually cash) from one party to another; often
accompanied by invoices, receipts, or other paper documentation that initiate the recording of the
transaction.
Question:
identifying explicit transactions:
Answer:
(1) A transfer of resources,
usually cash
,Question:
(2) Invoices, receipts or other paper documentation
(3) A specific event or activity that clearly triggers a journal entry
(4) Clarity regarding when to record and how much to record
Implicit transactions
Answer:
arise due to the nature of the accrual
accounting method, which follows the revenue recognition principle and the matching principle.
Under this method, revenue should be recognized in the period in which it is earned and
realizable, not necessarily when the cash is received. Expenses should be recognized in the
period in which the related revenue is recognized rather than when the related cash is paid. In
order to do this we must make adjusting journal entries, which are implicit transactions. Implicit
transactions do not involve a specific triggering activity, event, or transfer of resources from one
party to another. Often, implicit transactions represent changes in value related to the passage of
time.
Question:
There are four basic types of adjusting journal entries:
(1) Recognizing expenses related to a prepaid asset
Answer:
Suppose a
company pays cash for one year's worth of rent. They will now have an asset account, prepaid
rent, on their books. As each month passes, that asset is worth less and less, and it will need to be
reduced or expensed accordingly.
Question:
2) Recognizing revenues related to deferred revenue (also called unearned revenue)
Answer:
Suppose a company receives cash from a customer for a year-long, monthly
magazine subscription. The company will now have an obligation to provide magazines to their
customer. They will record a liability, deferred revenue, on their books. As each month passes,
and the magazines are provided, the liability account needs to be reduced and revenue needs to
be recognized as earned.
Question:
(3) Accruing of unrecorded expenses
,Answer:
Entries related to
unrecorded expenses usually occur at the end of the accounting period, during the closing
process. The purpose of this type of entry is to account for any expenses that weren't recorded
throughout the year because there was insufficient information. Some examples would be
accruing for property tax or interest expense, or accounting for inventory shrinkage.
Question:
(4) Accruing of unrecorded revenues
Answer:
Similar to the accrual for
unrecorded expenses, unrecorded revenues are usually accounted for at the end of the accounting
period. This type of entry reflects revenues that have been earned but not yet billed. For example,
suppose a firm provides consulting services for a client in December. At year end, the firm has
yet to send the client a bill for those services. Since the service has been provided, and the client
will be billed eventually, revenue must be recorded.
Question:
Key indicators to look for in identifying implicit transactions:
Answer:
(1) No transfer of resources
Question:
(2) No invoices or other paper documentation
(3) No specific event or activity that clearly triggers a journal entry, just the passing of time
(4) Judgement regarding when to record and how much to record
accrual method of accounting
Answer:
means that companies record both
explicit and implicit transactions in the period in which they are incurred, which is not
necessarily the same period in which cash was paid or received
Question:
Accruals
Answer:
transactions where cash changes hands after revenue or
, expense is recognized
Question:
Deferrals
Answer:
transactions where cash changes hands before revenue
or expense is recorded
Question:
Accruals and deferrals always involve revenues or expenses
Answer:
are
the essence of two important concepts we have already covered-revenue recognition and the
matching principle
Question:
As part of the 2013 year end close, your company evaluates any potential liabilities related to
2013 activities that will be paid in 2014. The company ran an advertising campaign in December
for which you agreed to pay $100,000, but you have not yet received the invoice.
What would the journal entry look like to record this obligation?
Answer:
In this case, your company has not received a bill but based on their evaluation concludes that
there are obligations coming from 2013 activities that will have to be settled in 2014. These
obligations are recorded as liabilities in 2013 because they relate to 2013 activities. You should
debit Advertising Expenses for $100,000 and credit Accrued Expenses (a liability account) for
$100,000.
Question:
Accruals
Answer:
transactions where cash changes hands after revenue or
expense is recognized, and you can think of them as either accruals related to revenue or accruals
related to expenses.
Question:
Accruals Examples
| Latest Updated Study Material 2026
Question:
Assets
Answer:
Cash, inventory, equipment, prepaid assets, invoices
Question:
Liabilities
Answer:
Accounts payables, salaries, sales taxes payable,
unredeemed gift certificates, long term debt
Question:
Owner's Equity
Answer:
Contributed capital, retained earnings
Question:
Module 4 Explicit transactions
Answer:
triggered by some sort of
activity, event, or transfer of resources (usually cash) from one party to another; often
accompanied by invoices, receipts, or other paper documentation that initiate the recording of the
transaction.
Question:
identifying explicit transactions:
Answer:
(1) A transfer of resources,
usually cash
,Question:
(2) Invoices, receipts or other paper documentation
(3) A specific event or activity that clearly triggers a journal entry
(4) Clarity regarding when to record and how much to record
Implicit transactions
Answer:
arise due to the nature of the accrual
accounting method, which follows the revenue recognition principle and the matching principle.
Under this method, revenue should be recognized in the period in which it is earned and
realizable, not necessarily when the cash is received. Expenses should be recognized in the
period in which the related revenue is recognized rather than when the related cash is paid. In
order to do this we must make adjusting journal entries, which are implicit transactions. Implicit
transactions do not involve a specific triggering activity, event, or transfer of resources from one
party to another. Often, implicit transactions represent changes in value related to the passage of
time.
Question:
There are four basic types of adjusting journal entries:
(1) Recognizing expenses related to a prepaid asset
Answer:
Suppose a
company pays cash for one year's worth of rent. They will now have an asset account, prepaid
rent, on their books. As each month passes, that asset is worth less and less, and it will need to be
reduced or expensed accordingly.
Question:
2) Recognizing revenues related to deferred revenue (also called unearned revenue)
Answer:
Suppose a company receives cash from a customer for a year-long, monthly
magazine subscription. The company will now have an obligation to provide magazines to their
customer. They will record a liability, deferred revenue, on their books. As each month passes,
and the magazines are provided, the liability account needs to be reduced and revenue needs to
be recognized as earned.
Question:
(3) Accruing of unrecorded expenses
,Answer:
Entries related to
unrecorded expenses usually occur at the end of the accounting period, during the closing
process. The purpose of this type of entry is to account for any expenses that weren't recorded
throughout the year because there was insufficient information. Some examples would be
accruing for property tax or interest expense, or accounting for inventory shrinkage.
Question:
(4) Accruing of unrecorded revenues
Answer:
Similar to the accrual for
unrecorded expenses, unrecorded revenues are usually accounted for at the end of the accounting
period. This type of entry reflects revenues that have been earned but not yet billed. For example,
suppose a firm provides consulting services for a client in December. At year end, the firm has
yet to send the client a bill for those services. Since the service has been provided, and the client
will be billed eventually, revenue must be recorded.
Question:
Key indicators to look for in identifying implicit transactions:
Answer:
(1) No transfer of resources
Question:
(2) No invoices or other paper documentation
(3) No specific event or activity that clearly triggers a journal entry, just the passing of time
(4) Judgement regarding when to record and how much to record
accrual method of accounting
Answer:
means that companies record both
explicit and implicit transactions in the period in which they are incurred, which is not
necessarily the same period in which cash was paid or received
Question:
Accruals
Answer:
transactions where cash changes hands after revenue or
, expense is recognized
Question:
Deferrals
Answer:
transactions where cash changes hands before revenue
or expense is recorded
Question:
Accruals and deferrals always involve revenues or expenses
Answer:
are
the essence of two important concepts we have already covered-revenue recognition and the
matching principle
Question:
As part of the 2013 year end close, your company evaluates any potential liabilities related to
2013 activities that will be paid in 2014. The company ran an advertising campaign in December
for which you agreed to pay $100,000, but you have not yet received the invoice.
What would the journal entry look like to record this obligation?
Answer:
In this case, your company has not received a bill but based on their evaluation concludes that
there are obligations coming from 2013 activities that will have to be settled in 2014. These
obligations are recorded as liabilities in 2013 because they relate to 2013 activities. You should
debit Advertising Expenses for $100,000 and credit Accrued Expenses (a liability account) for
$100,000.
Question:
Accruals
Answer:
transactions where cash changes hands after revenue or
expense is recognized, and you can think of them as either accruals related to revenue or accruals
related to expenses.
Question:
Accruals Examples
