ACC 231 EXAM EXAM SCRIPT 2026
QUESTIONS AND SOLUTIONS GRADED A+
◉ What is the definition of a liability? Answer: A present
responsibility to sacrifice assets (usually cash) in the future due to a
transaction that happened in the past.
◉ What are the two classifications of liabilities? Answer: Current
Liabilities (due within 1 year or the operating cycle) and Long-Term
Liabilities (due in more than 1 year).
◉ Why do management prefer classifying debt as long-term?
Answer: To improve liquidity ratios and make the company look less
risky.
◉ What are notes payable? Answer: Written promises to repay a
specific amount plus interest.
◉ How is interest calculated on notes payable? Answer: Interest is
calculated on an annual basis and must be adjusted for time if the
note is outstanding for less than a year.
◉ What must be recorded in the period it is incurred according to
the matching principle? Answer: Interest expense.
, ◉ What are accounts payable? Answer: Amounts owed to suppliers
with no formal interest.
◉ What do payroll liabilities include? Answer: Salaries payable,
withholdings (income taxes, FICA), and employer costs (matching
FICA, unemployment taxes).
◉ What is deferred revenue? Answer: Cash received before
goods/services are provided, representing an obligation to perform.
◉ What is the common mistake regarding sales tax? Answer: Sales
tax is a liability, not an expense to the seller.
◉ What is a contingent liability? Answer: An uncertain situation that
might result in a loss, such as lawsuits or warranties.
◉ What are the reporting rules for contingent liabilities? Answer: 1.
Probable AND Estimable: Record a liability and a loss. 2. Reasonably
Possible: Do not record, disclose in notes only. 3. Remote: Do not
record or disclose.
◉ What must be recorded in the same period as the sale regarding
warranties? Answer: Warranty expense.
QUESTIONS AND SOLUTIONS GRADED A+
◉ What is the definition of a liability? Answer: A present
responsibility to sacrifice assets (usually cash) in the future due to a
transaction that happened in the past.
◉ What are the two classifications of liabilities? Answer: Current
Liabilities (due within 1 year or the operating cycle) and Long-Term
Liabilities (due in more than 1 year).
◉ Why do management prefer classifying debt as long-term?
Answer: To improve liquidity ratios and make the company look less
risky.
◉ What are notes payable? Answer: Written promises to repay a
specific amount plus interest.
◉ How is interest calculated on notes payable? Answer: Interest is
calculated on an annual basis and must be adjusted for time if the
note is outstanding for less than a year.
◉ What must be recorded in the period it is incurred according to
the matching principle? Answer: Interest expense.
, ◉ What are accounts payable? Answer: Amounts owed to suppliers
with no formal interest.
◉ What do payroll liabilities include? Answer: Salaries payable,
withholdings (income taxes, FICA), and employer costs (matching
FICA, unemployment taxes).
◉ What is deferred revenue? Answer: Cash received before
goods/services are provided, representing an obligation to perform.
◉ What is the common mistake regarding sales tax? Answer: Sales
tax is a liability, not an expense to the seller.
◉ What is a contingent liability? Answer: An uncertain situation that
might result in a loss, such as lawsuits or warranties.
◉ What are the reporting rules for contingent liabilities? Answer: 1.
Probable AND Estimable: Record a liability and a loss. 2. Reasonably
Possible: Do not record, disclose in notes only. 3. Remote: Do not
record or disclose.
◉ What must be recorded in the same period as the sale regarding
warranties? Answer: Warranty expense.
