CBA Exam: Your Guide to Success in
Business Fundamentals
Net trade cycle - correct answer ✔✔=average collection period days inventory held-days payable
outstanding. Also known as the cash conversion cycle, measures the number of days that it takes to
collect cash, sell inventory and purchases on credit, liquidity ratio, helps the analyst understand why cash
flow generation has improved (or not)
Average collection period - correct answer ✔✔= net accounts receivable/ average daily sales -liquidity
ratio, represents the average # of days required to convert receivables into cash-the lower the better
Average daily sales - correct answer ✔✔= sales/365
Days inventory held - correct answer ✔✔=inventory/average daily cost of sales - liquidity measure,
average # of days it takes to sell inventory to customers, measures the efficiency of selling inventory, sign
of efficient management, the lower the better bc, the less time it takes to sell inventory the less $$ is tied
up in inventory, but if too low could mean under stocking and lost orders
Average daily cost of sales - correct answer ✔✔=cost of goods sold /365
Days payable outstanding - correct answer ✔✔=accounts payable/average daily cost of sales - liquidity
ratio, the higher the better, bc the firm can earn a return on the cash being held
Five account types - correct answer ✔✔Expense, revenue, asset, liability and equity
Sole proprietorship - correct answer ✔✔A business that is owned by one person, all assets, profits,
losses and debts fall under one owner, largest in #s, no income tax, profits roll into personal, smallest in
aggregate, do not have to register as forge in business in various states
Partner types - correct answer ✔✔General, limited or silent
,Corporation - correct answer ✔✔Legal entity created by either a state of federal statue authorizing
individuals to operate and enterprise
Corporation types - correct answer ✔✔Private closed, private not closed, quasi public
Private closed corporations - correct answer ✔✔35 shareholders
Private not closed - correct answer ✔✔5xx shareholders
Quasi public corporations - correct answer ✔✔Can buy stock on open market, but are government ran,
utility government
General patnership - correct answer ✔✔Two or more owners, net income rolls into each partner's
personal tax returns, do not have to register I foreign business in various states
C-corporation - correct answer ✔✔Any corporation that is taxed separately from the owners, pays a
dividend, most common corporation, must register with each state that business is conducted in, pay
federal and state income tax
Asset And expense T account - correct answer ✔✔Increase with debit, decrease with credit
Limited partnership - correct answer ✔✔Two or more owners, at least one general and one limited
partner
Equity, liability and revenue T accounts - correct answer ✔✔Increase with credit, decrease with debit
When the Fed buys securities - correct answer ✔✔Bank reserves increase, fewer funds area silane for
lending, borrowers/businesses are discouraged from lending, interest rates rise
When the Fed sells securities - correct answer ✔✔Bank reserves decrease, more funds are available for
lending, borrowers/businesses are encouraged to borrow, interest rates decline
, Adjusting journal entries - correct answer ✔✔Prepaids, unearned revenues, accrued expenses, accrued
revenues
Prepaid original entry - correct answer ✔✔Debit prepaid account, credit cash
Prepaid adjusting entry - correct answer ✔✔Debit expense account, credit prepaid account
Unearned revenue original entry - correct answer ✔✔Debit cash, credit unearned revenue
Unearned revenue adjusting entry - correct answer ✔✔Debit unearned revenue account, credit revenue
account
Unearned revenue account type - correct answer ✔✔Liability
Accrued expense original entry - correct answer ✔✔Debit expense account ($300), credit payable
account ($300)
Accrued expense adjusting entry - correct answer ✔✔Debit expense account ($700), debit payable
account ($300), credit cash ($1000)
Accrued revenue original entry - correct answer ✔✔No entry, because you are doing consulting, doing
work now, and billing later (in portions)
Accrued revenue adjusting entries - correct answer ✔✔Debit AR ($2500), credit consulting revenue
($2500)-sent billing to customer, and when bill is paid Debit cash ($5000), credit AR ($2500), credit
consulting revenue ($2500)
LIFO - correct answer ✔✔Last in first out inventory accounting method, the last unit is sold first, during
inflation, overstates cost of goods sold, understates inventory, matches current cost to current sales
FIFO - correct answer ✔✔First in first out, the first unit is sold first, during inflation, understates cost of
goods sold, overstates inventory, vales ending inventory at current cost
Business Fundamentals
Net trade cycle - correct answer ✔✔=average collection period days inventory held-days payable
outstanding. Also known as the cash conversion cycle, measures the number of days that it takes to
collect cash, sell inventory and purchases on credit, liquidity ratio, helps the analyst understand why cash
flow generation has improved (or not)
Average collection period - correct answer ✔✔= net accounts receivable/ average daily sales -liquidity
ratio, represents the average # of days required to convert receivables into cash-the lower the better
Average daily sales - correct answer ✔✔= sales/365
Days inventory held - correct answer ✔✔=inventory/average daily cost of sales - liquidity measure,
average # of days it takes to sell inventory to customers, measures the efficiency of selling inventory, sign
of efficient management, the lower the better bc, the less time it takes to sell inventory the less $$ is tied
up in inventory, but if too low could mean under stocking and lost orders
Average daily cost of sales - correct answer ✔✔=cost of goods sold /365
Days payable outstanding - correct answer ✔✔=accounts payable/average daily cost of sales - liquidity
ratio, the higher the better, bc the firm can earn a return on the cash being held
Five account types - correct answer ✔✔Expense, revenue, asset, liability and equity
Sole proprietorship - correct answer ✔✔A business that is owned by one person, all assets, profits,
losses and debts fall under one owner, largest in #s, no income tax, profits roll into personal, smallest in
aggregate, do not have to register as forge in business in various states
Partner types - correct answer ✔✔General, limited or silent
,Corporation - correct answer ✔✔Legal entity created by either a state of federal statue authorizing
individuals to operate and enterprise
Corporation types - correct answer ✔✔Private closed, private not closed, quasi public
Private closed corporations - correct answer ✔✔35 shareholders
Private not closed - correct answer ✔✔5xx shareholders
Quasi public corporations - correct answer ✔✔Can buy stock on open market, but are government ran,
utility government
General patnership - correct answer ✔✔Two or more owners, net income rolls into each partner's
personal tax returns, do not have to register I foreign business in various states
C-corporation - correct answer ✔✔Any corporation that is taxed separately from the owners, pays a
dividend, most common corporation, must register with each state that business is conducted in, pay
federal and state income tax
Asset And expense T account - correct answer ✔✔Increase with debit, decrease with credit
Limited partnership - correct answer ✔✔Two or more owners, at least one general and one limited
partner
Equity, liability and revenue T accounts - correct answer ✔✔Increase with credit, decrease with debit
When the Fed buys securities - correct answer ✔✔Bank reserves increase, fewer funds area silane for
lending, borrowers/businesses are discouraged from lending, interest rates rise
When the Fed sells securities - correct answer ✔✔Bank reserves decrease, more funds are available for
lending, borrowers/businesses are encouraged to borrow, interest rates decline
, Adjusting journal entries - correct answer ✔✔Prepaids, unearned revenues, accrued expenses, accrued
revenues
Prepaid original entry - correct answer ✔✔Debit prepaid account, credit cash
Prepaid adjusting entry - correct answer ✔✔Debit expense account, credit prepaid account
Unearned revenue original entry - correct answer ✔✔Debit cash, credit unearned revenue
Unearned revenue adjusting entry - correct answer ✔✔Debit unearned revenue account, credit revenue
account
Unearned revenue account type - correct answer ✔✔Liability
Accrued expense original entry - correct answer ✔✔Debit expense account ($300), credit payable
account ($300)
Accrued expense adjusting entry - correct answer ✔✔Debit expense account ($700), debit payable
account ($300), credit cash ($1000)
Accrued revenue original entry - correct answer ✔✔No entry, because you are doing consulting, doing
work now, and billing later (in portions)
Accrued revenue adjusting entries - correct answer ✔✔Debit AR ($2500), credit consulting revenue
($2500)-sent billing to customer, and when bill is paid Debit cash ($5000), credit AR ($2500), credit
consulting revenue ($2500)
LIFO - correct answer ✔✔Last in first out inventory accounting method, the last unit is sold first, during
inflation, overstates cost of goods sold, understates inventory, matches current cost to current sales
FIFO - correct answer ✔✔First in first out, the first unit is sold first, during inflation, understates cost of
goods sold, overstates inventory, vales ending inventory at current cost
