HBS CORE FINAL EXAM STUDY GUIDE
TEST.
What Accounting Principle Does the Following Represent:
Real Estate prices in Orderville have increased dramatically over the last five years. Although the land
under Chad's office building is currently believed to be worth $500,000, it is recorded at $250,000
because that is the price he paid for it. - CORRECT ANSWER Historical Cost Principle
What is the Accounting Equation? - CORRECT ANSWER Assets = Liabilities + Equity
What Accounting Principle Does the Following Represent:
AQG Industries purchases $20,000 of product on credit from RSI Manufacturing. AQG records the
purchase as an increase in inventory and an increase in accounts payable. AQG feels that they will be
able to realize the value from the inventory and settle the obligation to RSI in the weeks to come. -
CORRECT ANSWER "Going Concern" Concept
A "note payable for a bank loan" is an example of a... - CORRECT ANSWER Liability
The principle of Conservatism, says that a company should choose measurement methods that
anticipate and record _____________ but don't anticipate and record _____________. - CORRECT
ANSWER future losses; future gains
What Accounting Principle Does the Following Represent:
A microfinance institution has been relying on government collateral subsidies to finance start-ups in
rural areas. However, the government has cut the program recently. The company reports this situation
in its financial statements as this might affect the decisions of stakeholders. - CORRECT ANSWER
Materiality
,Cost of Goods Sold, Rent Expense, and Wages Expense are examples of what type of account? -
CORRECT ANSWER Expense Account
Sales Revenue & Deferred Revenue decrease with: Debit or Credit? - CORRECT ANSWER Debit
Cost of Goods Sold, Accounts Receivable, Cash: Increase or Decrease with a Credit - CORRECT ANSWER
Decrease
These accounts increase with a debit or credit:
Cash, Depreciation Expense, Prepaid Rent - CORRECT ANSWER Debit
The accounts increase with a debit or credit:
Sales Revenue, Deferred Revenue - CORRECT ANSWER Credit
True or False: Transactions are only recorded when there is an exchange of cash - CORRECT ANSWER
False: This is true for Cash Basis Accounting, but not for Accrual Accounting.
The income statement reflects a company's: - CORRECT ANSWER Financial performance over a given
period of time
What represents the net income/(loss) for the year? - CORRECT ANSWER The difference between the
revenues/gains and expenses/losses.
Income Statement:
Examples of Permanent Accounts - CORRECT ANSWER -CASH AND CASH EQUIVALENTS
-RENT PAYABLE
-INVENTORY
Income Statement:
, Examples of Temporary Accounts - CORRECT ANSWER -COST OF GOODS SOLD
-SALES REVENUE
-RENT EXPENSE
Nominal Accounts - CORRECT ANSWER Accounts that are reset to zero at the end of each accounting
period. Nominal accounts include all revenue and expense accounts, and may also be referred to as
temporary accounts or Income Statement accounts. The net balance of nominal accounts is transferred
to retained earnings at the end of each accounting period.
Real Accounts - CORRECT ANSWER Accounts which contain cumulative balances since the inception of
the business. The balances in these accounts flow from one accounting period to the next. Real accounts
include all asset, liability, and owners' equity accounts and may also be referred to as permanent
accounts or Balance Sheet accounts.
Balance Sheet - CORRECT ANSWER Financial report that shows the financial position of a company at a
specific point in time; a snapshot of the resources that are owned or controlled by company, and how
those resources were financed. The balance sheet shows the balance of all asset, liability, and equity
accounts as of a given date.
What type of account is 'mortgage payable'? - CORRECT ANSWER long term liability account
T-Account - CORRECT ANSWER A T-account shows all the activity for a given account for a specific period
of time, or in other words, the T-account is the summary of several journal entries.
How quickly and easily an item can be converted to cash is known as: - CORRECT ANSWER liquidity
The trial balance for a business at a given point in time typically has much more detailed information
than what is depicted on the financial statements. What is the accounting concept that allows for the
information from the trial balance to be condensed to what is displayed on the financial statements? -
CORRECT ANSWER Materiality
The concept of materiality states that a business is not required to report information on financial
statements that would not impact the decision-making of the users of the financial statements.
TEST.
What Accounting Principle Does the Following Represent:
Real Estate prices in Orderville have increased dramatically over the last five years. Although the land
under Chad's office building is currently believed to be worth $500,000, it is recorded at $250,000
because that is the price he paid for it. - CORRECT ANSWER Historical Cost Principle
What is the Accounting Equation? - CORRECT ANSWER Assets = Liabilities + Equity
What Accounting Principle Does the Following Represent:
AQG Industries purchases $20,000 of product on credit from RSI Manufacturing. AQG records the
purchase as an increase in inventory and an increase in accounts payable. AQG feels that they will be
able to realize the value from the inventory and settle the obligation to RSI in the weeks to come. -
CORRECT ANSWER "Going Concern" Concept
A "note payable for a bank loan" is an example of a... - CORRECT ANSWER Liability
The principle of Conservatism, says that a company should choose measurement methods that
anticipate and record _____________ but don't anticipate and record _____________. - CORRECT
ANSWER future losses; future gains
What Accounting Principle Does the Following Represent:
A microfinance institution has been relying on government collateral subsidies to finance start-ups in
rural areas. However, the government has cut the program recently. The company reports this situation
in its financial statements as this might affect the decisions of stakeholders. - CORRECT ANSWER
Materiality
,Cost of Goods Sold, Rent Expense, and Wages Expense are examples of what type of account? -
CORRECT ANSWER Expense Account
Sales Revenue & Deferred Revenue decrease with: Debit or Credit? - CORRECT ANSWER Debit
Cost of Goods Sold, Accounts Receivable, Cash: Increase or Decrease with a Credit - CORRECT ANSWER
Decrease
These accounts increase with a debit or credit:
Cash, Depreciation Expense, Prepaid Rent - CORRECT ANSWER Debit
The accounts increase with a debit or credit:
Sales Revenue, Deferred Revenue - CORRECT ANSWER Credit
True or False: Transactions are only recorded when there is an exchange of cash - CORRECT ANSWER
False: This is true for Cash Basis Accounting, but not for Accrual Accounting.
The income statement reflects a company's: - CORRECT ANSWER Financial performance over a given
period of time
What represents the net income/(loss) for the year? - CORRECT ANSWER The difference between the
revenues/gains and expenses/losses.
Income Statement:
Examples of Permanent Accounts - CORRECT ANSWER -CASH AND CASH EQUIVALENTS
-RENT PAYABLE
-INVENTORY
Income Statement:
, Examples of Temporary Accounts - CORRECT ANSWER -COST OF GOODS SOLD
-SALES REVENUE
-RENT EXPENSE
Nominal Accounts - CORRECT ANSWER Accounts that are reset to zero at the end of each accounting
period. Nominal accounts include all revenue and expense accounts, and may also be referred to as
temporary accounts or Income Statement accounts. The net balance of nominal accounts is transferred
to retained earnings at the end of each accounting period.
Real Accounts - CORRECT ANSWER Accounts which contain cumulative balances since the inception of
the business. The balances in these accounts flow from one accounting period to the next. Real accounts
include all asset, liability, and owners' equity accounts and may also be referred to as permanent
accounts or Balance Sheet accounts.
Balance Sheet - CORRECT ANSWER Financial report that shows the financial position of a company at a
specific point in time; a snapshot of the resources that are owned or controlled by company, and how
those resources were financed. The balance sheet shows the balance of all asset, liability, and equity
accounts as of a given date.
What type of account is 'mortgage payable'? - CORRECT ANSWER long term liability account
T-Account - CORRECT ANSWER A T-account shows all the activity for a given account for a specific period
of time, or in other words, the T-account is the summary of several journal entries.
How quickly and easily an item can be converted to cash is known as: - CORRECT ANSWER liquidity
The trial balance for a business at a given point in time typically has much more detailed information
than what is depicted on the financial statements. What is the accounting concept that allows for the
information from the trial balance to be condensed to what is displayed on the financial statements? -
CORRECT ANSWER Materiality
The concept of materiality states that a business is not required to report information on financial
statements that would not impact the decision-making of the users of the financial statements.
