HBS CORE FINAL EXAM
QUESTIONS AND ACTUAL ANSWERS.
1. What Accounting Principle Does the Following Represent
ANSWERS >
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.
ANSWERS > Historical Cost Principle
2. What is the Accounting Equation?
ANSWERS > Assets = Liabilities + Equity
3. What Accounting Principle Does the Following Represent
ANSWERS >
AQG Industries purchases $20,000 of product on credit from RSI Manufactur-
ing. 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.
ANSWERS > "Going Concern" Concept
4. A "note payable for a bank loan" is an example of a...
ANSWERS > Liability
5. The principle of Conservatism, says that a company should choose measure-
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, ment methods that anticipate and record but don't anticipate and
record .
ANSWERS > future losses; future gains
6. What Accounting Principle Does the Following Represent
ANSWERS >
A microfinance institution has been relying on government collateral subsidies
to finance start-ups in rural areas. However, the government has cut the pro-
gram recently. The company reports this situation in its financial statements
as this might affect the decisions of stakeholders.
ANSWERS > Materiality
7. Cost of Goods Sold, Rent Expense, and Wages Expense are examples of what type
of account?
ANSWERS > Expense Account
8. Sales Revenue & Deferred Revenue decrease with
Debit or Credit?
ANSWERS > Debit
9. Cost of Goods Sold, Accounts Receivable, Cash
Increase or Decrease with a Credit
ANSWERS > Decrease
10. These accounts increase with a debit or credit
Cash, Depreciation Expense, Prepaid Rent
ANSWERS > Debit
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, 11. The accounts increase with a debit or credit ANSWERS >
Sales Revenue, Deferred Revenue ANSWERS > Credit
12. True or False ANSWERS > Transactions are only recorded when there is an
exchange of cash ANSWERS > False ANSWERS > This is true for Cash Basis Accounting, but not for Accrual
Accounting.
13. The income statement reflects a company's ANSWERS > ANSWERS > Financial performance
over a given period of time
14. What represents the net income/(loss) for the year? ANSWERS > The ditterence
between the rev- enues/gains and expenses/losses.
15. Income Statement ANSWERS >
Examples of Permanent Accounts ANSWERS > -CASH AND CASH EQUIVALENTS
-RENT PAYABLE
-INVENTORY
16. Income Statement ANSWERS >
Examples of Temporary Accounts ANSWERS > -COST OF GOODS SOLD
-SALES REVENUE
-RENT EXPENSE
17. Nominal Accounts ANSWERS > 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.
18. Real Accounts ANSWERS > Accounts which contain cumulative balances since the inception of the business. The
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QUESTIONS AND ACTUAL ANSWERS.
1. What Accounting Principle Does the Following Represent
ANSWERS >
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.
ANSWERS > Historical Cost Principle
2. What is the Accounting Equation?
ANSWERS > Assets = Liabilities + Equity
3. What Accounting Principle Does the Following Represent
ANSWERS >
AQG Industries purchases $20,000 of product on credit from RSI Manufactur-
ing. 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.
ANSWERS > "Going Concern" Concept
4. A "note payable for a bank loan" is an example of a...
ANSWERS > Liability
5. The principle of Conservatism, says that a company should choose measure-
https://www.stuvia.com/en-us/user/MBoffin
, ment methods that anticipate and record but don't anticipate and
record .
ANSWERS > future losses; future gains
6. What Accounting Principle Does the Following Represent
ANSWERS >
A microfinance institution has been relying on government collateral subsidies
to finance start-ups in rural areas. However, the government has cut the pro-
gram recently. The company reports this situation in its financial statements
as this might affect the decisions of stakeholders.
ANSWERS > Materiality
7. Cost of Goods Sold, Rent Expense, and Wages Expense are examples of what type
of account?
ANSWERS > Expense Account
8. Sales Revenue & Deferred Revenue decrease with
Debit or Credit?
ANSWERS > Debit
9. Cost of Goods Sold, Accounts Receivable, Cash
Increase or Decrease with a Credit
ANSWERS > Decrease
10. These accounts increase with a debit or credit
Cash, Depreciation Expense, Prepaid Rent
ANSWERS > Debit
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, 11. The accounts increase with a debit or credit ANSWERS >
Sales Revenue, Deferred Revenue ANSWERS > Credit
12. True or False ANSWERS > Transactions are only recorded when there is an
exchange of cash ANSWERS > False ANSWERS > This is true for Cash Basis Accounting, but not for Accrual
Accounting.
13. The income statement reflects a company's ANSWERS > ANSWERS > Financial performance
over a given period of time
14. What represents the net income/(loss) for the year? ANSWERS > The ditterence
between the rev- enues/gains and expenses/losses.
15. Income Statement ANSWERS >
Examples of Permanent Accounts ANSWERS > -CASH AND CASH EQUIVALENTS
-RENT PAYABLE
-INVENTORY
16. Income Statement ANSWERS >
Examples of Temporary Accounts ANSWERS > -COST OF GOODS SOLD
-SALES REVENUE
-RENT EXPENSE
17. Nominal Accounts ANSWERS > 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.
18. Real Accounts ANSWERS > Accounts which contain cumulative balances since the inception of the business. The
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