FINANCIAL ACCOUNTING EXAM PREP
GUIDE 2026 CORE ACCOUNTING
CONCEPTS AND SOLVED ITEMS
◉ Gross Profit
Answer: The amount by which the revenue exceeds the cost of goods
sold (or cost of sales).
◉ Gross Profit Margin
Answer: Gross Profit Margin is calculated by dividing the gross profit
by the total sales for the period, and is used as a measure of
profitability. It tells us what percentage of our revenue is left to
cover other expenses after the cost of goods sold is subtracted. May
also be referred to as Gross Profit Percentage.
◉ Historical Cost
Answer: The historical cost principle refers to the fact that
transactions are recorded at the cost that existed at the time the
transaction occurred. In the case of assets, it means that their value
in the financial records is shown at historical cost, rather than
current market value. When combined with the principle of
Conservatism, it means that an asset's value may be reduced if it is
deemed to have permanently lost value but it cannot be increased if
it is deemed to have gained value.
,◉ IASB
Answer: The International Accounting Standards Board (IASB) is the
governing body that issues accounting rules and standards known as
International Financial Reporting Standards, or IFRS. IFRS are
commonly used throughout the world.
◉ IFRS
Answer: IFRS stands for International Financial Reporting
Standards. IFRS are the accounting rules and standards issued by
the International Accounting Standards Board (IASB) which are
followed in many countries outside the United States (US). In the US
companies adhere to a slightly different set of accounting rules and
principles, referred to as GAAP (Generally Accepted Accounting
Principles) are issued by the Financial Accounting Standards Board
(FASB).
◉ Impairment
Answer: A permanent reduction in the value of an asset due to
technological or market factors that cause the asset to have less
value than it currently has in the accounts of the business.
Impairment typically applies to intangible assets such as goodwill or
patents.
◉ Implicit Transactions
, Answer: Transactions that do not involve a specific triggering
activity, event, or exchange of resources from one party to another,
and that are not accompanied by an invoice or other paper
documentation. Often, implicit transactions represent changes in
value related to the passage of time, such as depreciation, interest
expense, and the amortization of a prepaid expense. Implicit
transactions are often recorded using adjusting journal entries.
◉ Income Before Taxes
Answer: The amount shown on the Income Statement after all
expenses have been taken away from the revenue for the period but
before any tax expense for the period. May also be referred to as
Pretax Profit.
◉ Income Statement
Answer: Summarizes the earnings of a business (revenues minus
expenses) over a designated period of time. Shows activity during
the period for all nominal accounts.
◉ Income Tax Expense
Answer: The amount determined by multiplying the applicable
income tax rate by the income before taxes (or pretax profit) on the
Income Statement.
◉ Income Taxes Payable
GUIDE 2026 CORE ACCOUNTING
CONCEPTS AND SOLVED ITEMS
◉ Gross Profit
Answer: The amount by which the revenue exceeds the cost of goods
sold (or cost of sales).
◉ Gross Profit Margin
Answer: Gross Profit Margin is calculated by dividing the gross profit
by the total sales for the period, and is used as a measure of
profitability. It tells us what percentage of our revenue is left to
cover other expenses after the cost of goods sold is subtracted. May
also be referred to as Gross Profit Percentage.
◉ Historical Cost
Answer: The historical cost principle refers to the fact that
transactions are recorded at the cost that existed at the time the
transaction occurred. In the case of assets, it means that their value
in the financial records is shown at historical cost, rather than
current market value. When combined with the principle of
Conservatism, it means that an asset's value may be reduced if it is
deemed to have permanently lost value but it cannot be increased if
it is deemed to have gained value.
,◉ IASB
Answer: The International Accounting Standards Board (IASB) is the
governing body that issues accounting rules and standards known as
International Financial Reporting Standards, or IFRS. IFRS are
commonly used throughout the world.
◉ IFRS
Answer: IFRS stands for International Financial Reporting
Standards. IFRS are the accounting rules and standards issued by
the International Accounting Standards Board (IASB) which are
followed in many countries outside the United States (US). In the US
companies adhere to a slightly different set of accounting rules and
principles, referred to as GAAP (Generally Accepted Accounting
Principles) are issued by the Financial Accounting Standards Board
(FASB).
◉ Impairment
Answer: A permanent reduction in the value of an asset due to
technological or market factors that cause the asset to have less
value than it currently has in the accounts of the business.
Impairment typically applies to intangible assets such as goodwill or
patents.
◉ Implicit Transactions
, Answer: Transactions that do not involve a specific triggering
activity, event, or exchange of resources from one party to another,
and that are not accompanied by an invoice or other paper
documentation. Often, implicit transactions represent changes in
value related to the passage of time, such as depreciation, interest
expense, and the amortization of a prepaid expense. Implicit
transactions are often recorded using adjusting journal entries.
◉ Income Before Taxes
Answer: The amount shown on the Income Statement after all
expenses have been taken away from the revenue for the period but
before any tax expense for the period. May also be referred to as
Pretax Profit.
◉ Income Statement
Answer: Summarizes the earnings of a business (revenues minus
expenses) over a designated period of time. Shows activity during
the period for all nominal accounts.
◉ Income Tax Expense
Answer: The amount determined by multiplying the applicable
income tax rate by the income before taxes (or pretax profit) on the
Income Statement.
◉ Income Taxes Payable
