FINANCIAL ACCOUNTING CERTIFICATION
EVALUATION 2026 STUDY GUIDE
QUESTIONS AND ANSWERS
◉ Contra-Asset
Answer: An account that exists to adjust the net value of the asset on
the financial records of the company. It is called a contra-asset
account because it has a credit balance and its only purpose is to
modify the value of the related asset. The contra-asset account is
typically shown beneath the related asset in the chart of accounts
and in the financial reports. Examples of a contra-asset accounts are
Reserve for Bad Debts, which is a contra-asset account related to
Accounts Receivable, and Accumulated Depreciation, which is a
contra-asset related to Property, Plant, & Equipment.
◉ Cost of Goods Sold (COGS)
Answer: The expense corresponding to the cost of the inventory that
is sold to customers. May also be referred to as COGS or Cost of
Sales.
◉ Cost of Sales
Answer: The expense corresponding to the cost of the inventory that
is sold to customers. May also be referred to as Cost of Goods Sold
(COGS).
,◉ Credit
Answer: One half of an accounting entry. Credits increase the
balances in Revenue, Liability, and Owners' Equity accounts. Credits
reduce the balances in Asset and Expense accounts. Credits are
shown on the right side in journal entries, T-Accounts, and trial
balances.
◉ Credit Terms
Answer: When a seller agrees to provide goods or services to a
buyer and allows the buyer to remit payment at some future date.
The time allowed is typically a specified number of days from the
date the goods or services are provided, such as 30 days. May also be
referred to as "buying on credit" or "selling on credit."
◉ Current Asset
Answer: An asset that will be used or converted into cash within one
year or one operating cycle, whichever is longer.
◉ Current Assets
Answer: Cash and other assets that are expected to be converted
into cash within a year (or within one operating cycle, if the
company's operating cycle is longer than one year).
◉ Current Liabilities
,Answer: Obligations that will be settled or paid in cash within a year
(or within one operating cycle, if the company's operating cycle is
longer than one year).
◉ Current Ratio
Answer: The Current Ratio is a measure of a business' ability to pay
its short term obligations. It can be calculated by dividing current
assets by current liabilities.
◉ Days Inventory
Answer: Days Inventory is a measure related to inventory turnover
that shows the average number of days the inventory is held before
it is sold. It can be calculated by dividing average inventory by the
COGS per day. Alternatively, it can be calculated by dividing 365 by
the Inventory Turnover.
◉ Days Purchases Outstanding
Answer: Days Purchases Outstanding is a measure related to
accounts payable turnover that shows the number of days it takes a
business to pay its vendors. It can be calculated by dividing the
average accounts payable by the credit purchases per day.
Alternatively, it can be calculated by dividing 365 by the Accounts
Payable Turnover.
◉ Debit
, Answer: One half of an accounting entry. Debits increase the
balances in Asset and Expense accounts. Debits reduce the balances
in Revenue, Liability, and Owners' Equity accounts. Debits are shown
on the left side in journal entries, T-Accounts, and trial balances.
◉ Debt to Equity Ratio
Answer: The Debt to Equity Ratio is calculated by dividing the total
liabilities by the total equity. It is a common measure of leverage.
◉ Deductions
Answer: Tax term related to amounts that can deducted from "Gross
Income" or sales to arrive at taxable income. Deductions are similar
to expenses in financial reports but they are not always the same
and they are not always identical. Depending on the particular
country and its tax code, some expenses may not be deductible and
some deductions may not be expenses.
◉ Deferral
Answer: An amount that is recorded when payment is received for
revenue that is yet to be earned (such as deferred
revenue/unearned revenue) or when payment has been made prior
to an expense being incurred (such as prepaid insurance). In either
case, for a deferral the exchange of cash takes place before the actual
revenue or expense is recognized.
EVALUATION 2026 STUDY GUIDE
QUESTIONS AND ANSWERS
◉ Contra-Asset
Answer: An account that exists to adjust the net value of the asset on
the financial records of the company. It is called a contra-asset
account because it has a credit balance and its only purpose is to
modify the value of the related asset. The contra-asset account is
typically shown beneath the related asset in the chart of accounts
and in the financial reports. Examples of a contra-asset accounts are
Reserve for Bad Debts, which is a contra-asset account related to
Accounts Receivable, and Accumulated Depreciation, which is a
contra-asset related to Property, Plant, & Equipment.
◉ Cost of Goods Sold (COGS)
Answer: The expense corresponding to the cost of the inventory that
is sold to customers. May also be referred to as COGS or Cost of
Sales.
◉ Cost of Sales
Answer: The expense corresponding to the cost of the inventory that
is sold to customers. May also be referred to as Cost of Goods Sold
(COGS).
,◉ Credit
Answer: One half of an accounting entry. Credits increase the
balances in Revenue, Liability, and Owners' Equity accounts. Credits
reduce the balances in Asset and Expense accounts. Credits are
shown on the right side in journal entries, T-Accounts, and trial
balances.
◉ Credit Terms
Answer: When a seller agrees to provide goods or services to a
buyer and allows the buyer to remit payment at some future date.
The time allowed is typically a specified number of days from the
date the goods or services are provided, such as 30 days. May also be
referred to as "buying on credit" or "selling on credit."
◉ Current Asset
Answer: An asset that will be used or converted into cash within one
year or one operating cycle, whichever is longer.
◉ Current Assets
Answer: Cash and other assets that are expected to be converted
into cash within a year (or within one operating cycle, if the
company's operating cycle is longer than one year).
◉ Current Liabilities
,Answer: Obligations that will be settled or paid in cash within a year
(or within one operating cycle, if the company's operating cycle is
longer than one year).
◉ Current Ratio
Answer: The Current Ratio is a measure of a business' ability to pay
its short term obligations. It can be calculated by dividing current
assets by current liabilities.
◉ Days Inventory
Answer: Days Inventory is a measure related to inventory turnover
that shows the average number of days the inventory is held before
it is sold. It can be calculated by dividing average inventory by the
COGS per day. Alternatively, it can be calculated by dividing 365 by
the Inventory Turnover.
◉ Days Purchases Outstanding
Answer: Days Purchases Outstanding is a measure related to
accounts payable turnover that shows the number of days it takes a
business to pay its vendors. It can be calculated by dividing the
average accounts payable by the credit purchases per day.
Alternatively, it can be calculated by dividing 365 by the Accounts
Payable Turnover.
◉ Debit
, Answer: One half of an accounting entry. Debits increase the
balances in Asset and Expense accounts. Debits reduce the balances
in Revenue, Liability, and Owners' Equity accounts. Debits are shown
on the left side in journal entries, T-Accounts, and trial balances.
◉ Debt to Equity Ratio
Answer: The Debt to Equity Ratio is calculated by dividing the total
liabilities by the total equity. It is a common measure of leverage.
◉ Deductions
Answer: Tax term related to amounts that can deducted from "Gross
Income" or sales to arrive at taxable income. Deductions are similar
to expenses in financial reports but they are not always the same
and they are not always identical. Depending on the particular
country and its tax code, some expenses may not be deductible and
some deductions may not be expenses.
◉ Deferral
Answer: An amount that is recorded when payment is received for
revenue that is yet to be earned (such as deferred
revenue/unearned revenue) or when payment has been made prior
to an expense being incurred (such as prepaid insurance). In either
case, for a deferral the exchange of cash takes place before the actual
revenue or expense is recognized.
