HBS CORE – ACCOUNTING EXAM
QUESTIONS AND ANSWERS 100%
CORRECT
Fundamental Accounting Equation - ANSWER-Assets = Liabilities + Owner's Equity
Asset - Definition - ANSWER-Resources owned by a business
Liabilities - ANSWER-Obligations to pay a third party
Owner's Equity - ANSWER-Contributions from the owners' of a business. Assets -
Liabilities
Differences between Liabilities and Owner's Equity - ANSWER-Owners have the
ability to make decisions about how the business operates. Lenders/suppliers do not
What increases owner's equity? - ANSWER-Profits
Matching Principle - ANSWER-Expenses should be recognized in the same period in
which the related revenue is recognized rather than when the related cash is paid
Components of the Accrual Accounting Method (3) - ANSWER-Realization Principle.
Matching Principle. Going Concern
Realization Principle - ANSWER-Revenue can only be recognized when the revenue
is both earned and realized/realizable
Going Concern - ANSWER-A company is considered to be a going concern if the
entity is expected to remain in operation and be able to satisfy all commitments and
obligations and realize the benefits and values of all assets for the indefinite future. If
there is evidence to the contrary, the business may no longer be considered a going
concern
If a business is labeled as a going concern, is that business healthy or unhealthy?
Why? - ANSWER-Healthy. Going concern means its expected to remain in operation
and satisfy all commitments/obligations
Is deferred revenue an asset or liability? - ANSWER-Liability
Deferred Revenue - Definition - ANSWER-Liability that represents the obligation to
provide future goods/services
Conservatism - ANSWER-For revenues and gains it means recording them when
they are reasonably certain but for expenses and losses it means recording them
when they are reasonably possible. For assets it means recording the lower
valuation while for liabilities it means recording the higher possible valuation.
, Historical Cost Principle - ANSWER-Transactions are recorded at the cost that
existed when the transaction occurred.
Valuating Assets under Historical Cost Principle - ANSWER-Financial value of
assets is shown at historical cost, rather than current market value. Example - Land
appreciation
Entity Concept - ANSWER-A business is a separately identifiable entity. Therefore,
accounts of a business should be completely separate from those of owners of the
business
Money Measurement Principle - ANSWER-Only values that can be measured in
monetary terms should be recorded in financial accounting records. Intangible assets
will not be recorded
Is brand recognition/brand equity recorded as an asset on financial statements? -
ANSWER-No - brand equity is an intangible asset
Categorize: Cash - ANSWER-Asset
Categorize: Accounts Receivable - ANSWER-Asset
Categorize: Notes Receivable - ANSWER-Asset
Categorize: Interest Receivable - ANSWER-Asset
Categorize: Inventory - ANSWER-Asset
Categorize: Investments - ANSWER-Asset
Categorize: Fixed Assets - ANSWER-Asset
Categorize: Property, Plant & Equipment - ANSWER-Asset
Categorize: Prepaid Insurance - ANSWER-Asset
Categorize: Prepaid Rent - ANSWER-Asset
Categorize: Other Prepaid Expenses - ANSWER-Asset
Categorize: Goodwill - ANSWER-Asset
Categorize: Other Intangible Assets - ANSWER-Asset
Categorize: Deferred Tax Asset - ANSWER-Asset
Categorize: Accounts Payable - ANSWER-Liability
Categorize: Interest Payable - ANSWER-Liability
QUESTIONS AND ANSWERS 100%
CORRECT
Fundamental Accounting Equation - ANSWER-Assets = Liabilities + Owner's Equity
Asset - Definition - ANSWER-Resources owned by a business
Liabilities - ANSWER-Obligations to pay a third party
Owner's Equity - ANSWER-Contributions from the owners' of a business. Assets -
Liabilities
Differences between Liabilities and Owner's Equity - ANSWER-Owners have the
ability to make decisions about how the business operates. Lenders/suppliers do not
What increases owner's equity? - ANSWER-Profits
Matching Principle - ANSWER-Expenses should be recognized in the same period in
which the related revenue is recognized rather than when the related cash is paid
Components of the Accrual Accounting Method (3) - ANSWER-Realization Principle.
Matching Principle. Going Concern
Realization Principle - ANSWER-Revenue can only be recognized when the revenue
is both earned and realized/realizable
Going Concern - ANSWER-A company is considered to be a going concern if the
entity is expected to remain in operation and be able to satisfy all commitments and
obligations and realize the benefits and values of all assets for the indefinite future. If
there is evidence to the contrary, the business may no longer be considered a going
concern
If a business is labeled as a going concern, is that business healthy or unhealthy?
Why? - ANSWER-Healthy. Going concern means its expected to remain in operation
and satisfy all commitments/obligations
Is deferred revenue an asset or liability? - ANSWER-Liability
Deferred Revenue - Definition - ANSWER-Liability that represents the obligation to
provide future goods/services
Conservatism - ANSWER-For revenues and gains it means recording them when
they are reasonably certain but for expenses and losses it means recording them
when they are reasonably possible. For assets it means recording the lower
valuation while for liabilities it means recording the higher possible valuation.
, Historical Cost Principle - ANSWER-Transactions are recorded at the cost that
existed when the transaction occurred.
Valuating Assets under Historical Cost Principle - ANSWER-Financial value of
assets is shown at historical cost, rather than current market value. Example - Land
appreciation
Entity Concept - ANSWER-A business is a separately identifiable entity. Therefore,
accounts of a business should be completely separate from those of owners of the
business
Money Measurement Principle - ANSWER-Only values that can be measured in
monetary terms should be recorded in financial accounting records. Intangible assets
will not be recorded
Is brand recognition/brand equity recorded as an asset on financial statements? -
ANSWER-No - brand equity is an intangible asset
Categorize: Cash - ANSWER-Asset
Categorize: Accounts Receivable - ANSWER-Asset
Categorize: Notes Receivable - ANSWER-Asset
Categorize: Interest Receivable - ANSWER-Asset
Categorize: Inventory - ANSWER-Asset
Categorize: Investments - ANSWER-Asset
Categorize: Fixed Assets - ANSWER-Asset
Categorize: Property, Plant & Equipment - ANSWER-Asset
Categorize: Prepaid Insurance - ANSWER-Asset
Categorize: Prepaid Rent - ANSWER-Asset
Categorize: Other Prepaid Expenses - ANSWER-Asset
Categorize: Goodwill - ANSWER-Asset
Categorize: Other Intangible Assets - ANSWER-Asset
Categorize: Deferred Tax Asset - ANSWER-Asset
Categorize: Accounts Payable - ANSWER-Liability
Categorize: Interest Payable - ANSWER-Liability
