FINANCIAL ACCOUNTING EXAM Q&A 2026
STUDY GUIDE COMPLETE QUESTIONS WITH
SOLUTIONS GUARANTEED TO PASS
◉ Accounting Equation. Answer: Assets = Liabilities + Owners'
Equity. This equation is fundamental and must always be true in
double entry accounting.
◉ Accounting Period. Answer: The period of time for which the
financial results are reported; typically either a month or a quarter
or a year.
◉ Accounts Payable. Answer: Liability account used to show the
obligation to pay suppliers who have provided goods or services on
credit terms.
◉ Accounts Payable Turnover. Answer: Accounts Payable Turnover
is a ratio that is used to measure how efficiently a business is paying
its vendors. It is calculated by dividing the credit purchases for the
period by the average accounts payable balance for the period. In the
absence of credit purchases information, we may use cost of goods
sold as a substitute. The ratio represents how many times the
accounts payable turned over during the period. For most ratios in
this course, we use averages when calculating ratios with balance
,sheet numbers, but this is not necessary and some may choose to
use beginning or ending balances.
◉ Accounts Receivable. Answer: Asset account used to show the
claim to receive cash at some future date for goods or services that
have been supplied to a customer on credit terms.
◉ Accounts Receivable Turnover. Answer: Accounts Receivable
Turnover is a ratio that is used to measure how efficiently a business
is collecting receivables from its customers. It is calculated by
dividing the credit sales for the period by the average accounts
receivable balance for the period. In the absence of credit sales
information, we may use total sales as a substitute. The ratio
represents how many times the accounts receivable turned over
during the period. For most ratios in this course, we use averages
when calculating ratios with balance sheet numbers, but this is not
necessary and some may choose to use beginning or ending
balances.
◉ Accrual. Answer: A revenue amount that is recorded after the
revenue is earned but before the payment is received or an expense
amount that is recorded after it has been incurred but before the
payment has been made. In either case, for an accrual the exchange
of cash is expected at some future point after the initial revenue or
expense is recognized.
,◉ Accrual Accounting Method. Answer: This is the accounting
method taught in this course, followed by most companies, and
required under US GAAP and IFRS. The method follows the revenue
recognition principle, which says that revenue should be recognized
in the period in which it is earned and realizable, not necessarily
when the cash is received and the matching principle which says
that expenses should be recognized in the period in which the
related revenue is recognized rather than when the related cash is
paid.
◉ Accrued Expenses. Answer: Liability account used to record
amounts at the end of an accounting period to recognize expenses
that were incurred in the period but for which no invoice has yet
been received nor payment has yet been made. Examples are
salaries/wages payable, accrued rent expense, accrued legal fees.
When the accrual is made, the debit is to the appropriate expense
account (payroll expense, rent expense, legal expense) and the credit
is to the accrued expense account, which is a liability because it
represents an obligation which will need to be paid in the future.
Remember accrued expenses are NOT expenses.
◉ Accrued Liability. Answer: Liability accounts that record expenses
that have been recognized on the income statement but have not yet
been paid. Similar to accrued expenses.
◉ Accrued Payroll. Answer: An accrued expense recorded at the end
of a financial period for amounts of payroll that have been worked
, but not yet paid. It is a common type of accrued expense. See also
Salaries/Wages Payable.
◉ Accrued Revenue. Answer: An asset account that records revenue
that has been earned and recognized on the income statement but
not yet paid for by the customer. At the time of the accrual, we debit
the receivable account and credit the appropriate accrued revenue
account. When the cash transfer ultimately occurs, we debit the cash
account and credit the receivable account.
◉ Accumulated Depreciation. Answer: A contra asset account that
includes the cumulative total of all depreciation expenses recorded
to date for specific assets. The credit balance in this account offsets
the debit balance in the asset account which shows the original
value of the asset. When the original asset value is netted against the
accumulated depreciation for the asset you arrive at the net book
value of the asset.
◉ Accumulated other comprehensive income. Answer: An equity
account that consists of cumulative unrealized gains or losses on line
items classified under other comprehensive income. It includes
items such as unrealized gains or losses on investments available for
sale, foreign currency gains or losses, and pension plan gains or
losses.
STUDY GUIDE COMPLETE QUESTIONS WITH
SOLUTIONS GUARANTEED TO PASS
◉ Accounting Equation. Answer: Assets = Liabilities + Owners'
Equity. This equation is fundamental and must always be true in
double entry accounting.
◉ Accounting Period. Answer: The period of time for which the
financial results are reported; typically either a month or a quarter
or a year.
◉ Accounts Payable. Answer: Liability account used to show the
obligation to pay suppliers who have provided goods or services on
credit terms.
◉ Accounts Payable Turnover. Answer: Accounts Payable Turnover
is a ratio that is used to measure how efficiently a business is paying
its vendors. It is calculated by dividing the credit purchases for the
period by the average accounts payable balance for the period. In the
absence of credit purchases information, we may use cost of goods
sold as a substitute. The ratio represents how many times the
accounts payable turned over during the period. For most ratios in
this course, we use averages when calculating ratios with balance
,sheet numbers, but this is not necessary and some may choose to
use beginning or ending balances.
◉ Accounts Receivable. Answer: Asset account used to show the
claim to receive cash at some future date for goods or services that
have been supplied to a customer on credit terms.
◉ Accounts Receivable Turnover. Answer: Accounts Receivable
Turnover is a ratio that is used to measure how efficiently a business
is collecting receivables from its customers. It is calculated by
dividing the credit sales for the period by the average accounts
receivable balance for the period. In the absence of credit sales
information, we may use total sales as a substitute. The ratio
represents how many times the accounts receivable turned over
during the period. For most ratios in this course, we use averages
when calculating ratios with balance sheet numbers, but this is not
necessary and some may choose to use beginning or ending
balances.
◉ Accrual. Answer: A revenue amount that is recorded after the
revenue is earned but before the payment is received or an expense
amount that is recorded after it has been incurred but before the
payment has been made. In either case, for an accrual the exchange
of cash is expected at some future point after the initial revenue or
expense is recognized.
,◉ Accrual Accounting Method. Answer: This is the accounting
method taught in this course, followed by most companies, and
required under US GAAP and IFRS. The method follows the revenue
recognition principle, which says that revenue should be recognized
in the period in which it is earned and realizable, not necessarily
when the cash is received and the matching principle which says
that expenses should be recognized in the period in which the
related revenue is recognized rather than when the related cash is
paid.
◉ Accrued Expenses. Answer: Liability account used to record
amounts at the end of an accounting period to recognize expenses
that were incurred in the period but for which no invoice has yet
been received nor payment has yet been made. Examples are
salaries/wages payable, accrued rent expense, accrued legal fees.
When the accrual is made, the debit is to the appropriate expense
account (payroll expense, rent expense, legal expense) and the credit
is to the accrued expense account, which is a liability because it
represents an obligation which will need to be paid in the future.
Remember accrued expenses are NOT expenses.
◉ Accrued Liability. Answer: Liability accounts that record expenses
that have been recognized on the income statement but have not yet
been paid. Similar to accrued expenses.
◉ Accrued Payroll. Answer: An accrued expense recorded at the end
of a financial period for amounts of payroll that have been worked
, but not yet paid. It is a common type of accrued expense. See also
Salaries/Wages Payable.
◉ Accrued Revenue. Answer: An asset account that records revenue
that has been earned and recognized on the income statement but
not yet paid for by the customer. At the time of the accrual, we debit
the receivable account and credit the appropriate accrued revenue
account. When the cash transfer ultimately occurs, we debit the cash
account and credit the receivable account.
◉ Accumulated Depreciation. Answer: A contra asset account that
includes the cumulative total of all depreciation expenses recorded
to date for specific assets. The credit balance in this account offsets
the debit balance in the asset account which shows the original
value of the asset. When the original asset value is netted against the
accumulated depreciation for the asset you arrive at the net book
value of the asset.
◉ Accumulated other comprehensive income. Answer: An equity
account that consists of cumulative unrealized gains or losses on line
items classified under other comprehensive income. It includes
items such as unrealized gains or losses on investments available for
sale, foreign currency gains or losses, and pension plan gains or
losses.
