FINANCIAL ACCOUNTING HBS CORE
EXAM QUESTIONS AND ANSWERS.
VERIFIED 2025/2026.
Accelerated Depreciation Methods - ANS Depreciation methods that recognize more
depreciation expense in the early years and less in the later years. Double-declining balance is
an example of an accelerated depreciation method.
Accounting Equation - ANS Assets = Liabilities + Owners' Equity. This equation is fundamental
and must always be true in double entry accounting.
Accounting Period - ANS The period of time for which the financial results are reported;
typically either a month or a quarter or a year.
Accounts Payable - ANS Liability account used to show the obligation to pay suppliers who
have provided goods or services on credit terms.
Accounts Payable Turnover - ANS Accounts Payable Turnover is a ratio that is used to
measure how efficiently a business is paying its vendors. It is calculated by dividing the credit
purchases for the period by the average accounts payable balance for the period. In the absence
of credit purchases information, we may use cost of goods sold as a substitute. The ratio
represents how many times the accounts payable turned over during the period. For most ratios
in this course, we use averages when calculating ratios with balance sheet numbers, but this is
not necessary and some may choose to use beginning or ending balances.
1 @COPYRIGHT 2025/2026 ALLRIGHTS RESERVED.
,Accounts Receivable - ANS Asset account used to show the claim to receive cash at some
future date for goods or services that have been supplied to a customer on credit terms.
Accounts Receivable Turnover - ANS Accounts Receivable Turnover is a ratio that is used to
measure how efficiently a business is collecting receivables from its customers. It is calculated
by dividing the credit sales for the period by the average accounts receivable balance for the
period. In the absence of credit sales information, we may use total sales as a substitute. The
ratio represents how many times the accounts receivable turned over during the period. For
most ratios in this course, we use averages when calculating ratios with balance sheet numbers,
but this is not necessary and some may choose to use beginning or ending balances.
Accrual - ANS A revenue amount that is recorded after the revenue is earned but before the
payment is received or an expense amount that is recorded after it has been incurred but
before the payment has been made. In either case, for an accrual the exchange of cash is
expected at some future point after the initial revenue or expense is recognized.
Accrual Accounting Method - ANS This is the accounting method taught in this course,
followed by most companies, and required under US GAAP and IFRS. The method follows the
revenue recognition principle, which says that revenue should be recognized in the period in
which it is earned and realizable, not necessarily when the cash is received and the matching
principle which says that expenses should be recognized in the period in which the related
revenue is recognized rather than when the related cash is paid.
Accrued Expenses - ANS Liability account used to record amounts at the end of an accounting
period to recognize expenses that were incurred in the period but for which no invoice has yet
been received nor payment has yet been made. Examples are salaries/wages payable, accrued
rent expense, accrued legal fees. When the accrual is made, the debit is to the appropriate
expense account (payroll expense, rent expense, legal expense) and the credit is to the accrued
expense account, which is a liability because it represents an obligation which will need to be
paid in the future. Remember accrued expenses are NOT expenses.
2 @COPYRIGHT 2025/2026 ALLRIGHTS RESERVED.
,Accrued Liability - ANS Liability accounts that record expenses that have been recognized on
the income statement but have not yet been paid. Similar to accrued expenses.
Accrued Payroll - ANS An accrued expense recorded at the end of a financial period for
amounts of payroll that have been worked but not yet paid. It is a common type of accrued
expense. See also Salaries/Wages Payable.
Accrued Revenue - ANS An asset account that records revenue that has been earned and
recognized on the income statement but not yet paid for by the customer. At the time of the
accrual, we debit the receivable account and credit the appropriate accrued revenue account.
When the cash transfer ultimately occurs, we debit the cash account and credit the receivable
account.
Accumulated Depreciation - ANS A contra asset account that includes the cumulative total of
all depreciation expenses recorded to date for specific assets. The credit balance in this account
offsets the debit balance in the asset account which shows the original value of the asset. When
the original asset value is netted against the accumulated depreciation for the asset you arrive
at the net book value of the asset.
Accumulated other comprehensive income - ANS An equity account that consists of
cumulative unrealized gains or losses on line items classified under other comprehensive
income. It includes items such as unrealized gains or losses on investments available for sale,
foreign currency gains or losses, and pension plan gains or losses.
Adjusting (Journal) Entries - ANS Entries made to adjust the balances of asset and liability
accounts to reflect changes in their values due to the passage of time or another implicit
transaction.
Allowance for Doubtful Accounts - ANS A contra asset account that nets against Accounts
Receivable. It is generally set up as an estimate of accounts that will ultimately prove to be
3 @COPYRIGHT 2025/2026 ALLRIGHTS RESERVED.
, uncollectible. It is then reduced when accounts are written off. It may be adjusted at period end
to reflect any updated estimates. May also be referred to as Reserve for Bad Debts.
Amortization - ANS The method for recognizing the expense of long-lived intangible assets
such as patents, copyrights, and brands, over the life of the assets. Amortization is usually
calculated similar to straight-line depreciation. Some companies use an accumulated
amortization account, while other companies may directly reduce the value of the associated
asset.
Annuity - ANS An investment where the purchaser receives the right to receive a fixed
amount each year for a lifetime or for a certain number of years.
Asset - ANS A resource that is owned or controlled by a business and is expected to provide
some future economic benefit to the business. Examples include cash, inventory, and
equipment. The business expects that its assets will help to produce cash inflow in the future.
Asset Turnover - ANS Asset Turnover is calculated by dividing the total sales for the period by
the average total assets. This calculation is used as a measure of efficiency in the DuPont
Framework. For most ratios in this course, we use averages when calculating ratios with balance
sheet numbers, but this is not necessary and some may choose to use beginning or ending
balances.
Average Collection Period - ANS Average Collection Period is a measure related to accounts
receivable turnover that shows the average number of days it took for a business to collect
payment from a customer. It can be calculated by dividing the average accounts receivable by
the credit sales per day. Alternatively, it can be calculated by dividing 365 by the Accounts
Receivable Turnover. For most ratios in this course, we use averages when calculating ratios with
balance sheet numbers, but this is not necessary and some may choose to use beginning or
ending balances.
Balance Sheet - ANS Financial report that shows the financial position of a company at a
specific point in time; a snapshot of the resources that are owned or controlled by company,
4 @COPYRIGHT 2025/2026 ALLRIGHTS RESERVED.
EXAM QUESTIONS AND ANSWERS.
VERIFIED 2025/2026.
Accelerated Depreciation Methods - ANS Depreciation methods that recognize more
depreciation expense in the early years and less in the later years. Double-declining balance is
an example of an accelerated depreciation method.
Accounting Equation - ANS Assets = Liabilities + Owners' Equity. This equation is fundamental
and must always be true in double entry accounting.
Accounting Period - ANS The period of time for which the financial results are reported;
typically either a month or a quarter or a year.
Accounts Payable - ANS Liability account used to show the obligation to pay suppliers who
have provided goods or services on credit terms.
Accounts Payable Turnover - ANS Accounts Payable Turnover is a ratio that is used to
measure how efficiently a business is paying its vendors. It is calculated by dividing the credit
purchases for the period by the average accounts payable balance for the period. In the absence
of credit purchases information, we may use cost of goods sold as a substitute. The ratio
represents how many times the accounts payable turned over during the period. For most ratios
in this course, we use averages when calculating ratios with balance sheet numbers, but this is
not necessary and some may choose to use beginning or ending balances.
1 @COPYRIGHT 2025/2026 ALLRIGHTS RESERVED.
,Accounts Receivable - ANS Asset account used to show the claim to receive cash at some
future date for goods or services that have been supplied to a customer on credit terms.
Accounts Receivable Turnover - ANS Accounts Receivable Turnover is a ratio that is used to
measure how efficiently a business is collecting receivables from its customers. It is calculated
by dividing the credit sales for the period by the average accounts receivable balance for the
period. In the absence of credit sales information, we may use total sales as a substitute. The
ratio represents how many times the accounts receivable turned over during the period. For
most ratios in this course, we use averages when calculating ratios with balance sheet numbers,
but this is not necessary and some may choose to use beginning or ending balances.
Accrual - ANS A revenue amount that is recorded after the revenue is earned but before the
payment is received or an expense amount that is recorded after it has been incurred but
before the payment has been made. In either case, for an accrual the exchange of cash is
expected at some future point after the initial revenue or expense is recognized.
Accrual Accounting Method - ANS This is the accounting method taught in this course,
followed by most companies, and required under US GAAP and IFRS. The method follows the
revenue recognition principle, which says that revenue should be recognized in the period in
which it is earned and realizable, not necessarily when the cash is received and the matching
principle which says that expenses should be recognized in the period in which the related
revenue is recognized rather than when the related cash is paid.
Accrued Expenses - ANS Liability account used to record amounts at the end of an accounting
period to recognize expenses that were incurred in the period but for which no invoice has yet
been received nor payment has yet been made. Examples are salaries/wages payable, accrued
rent expense, accrued legal fees. When the accrual is made, the debit is to the appropriate
expense account (payroll expense, rent expense, legal expense) and the credit is to the accrued
expense account, which is a liability because it represents an obligation which will need to be
paid in the future. Remember accrued expenses are NOT expenses.
2 @COPYRIGHT 2025/2026 ALLRIGHTS RESERVED.
,Accrued Liability - ANS Liability accounts that record expenses that have been recognized on
the income statement but have not yet been paid. Similar to accrued expenses.
Accrued Payroll - ANS An accrued expense recorded at the end of a financial period for
amounts of payroll that have been worked but not yet paid. It is a common type of accrued
expense. See also Salaries/Wages Payable.
Accrued Revenue - ANS An asset account that records revenue that has been earned and
recognized on the income statement but not yet paid for by the customer. At the time of the
accrual, we debit the receivable account and credit the appropriate accrued revenue account.
When the cash transfer ultimately occurs, we debit the cash account and credit the receivable
account.
Accumulated Depreciation - ANS A contra asset account that includes the cumulative total of
all depreciation expenses recorded to date for specific assets. The credit balance in this account
offsets the debit balance in the asset account which shows the original value of the asset. When
the original asset value is netted against the accumulated depreciation for the asset you arrive
at the net book value of the asset.
Accumulated other comprehensive income - ANS An equity account that consists of
cumulative unrealized gains or losses on line items classified under other comprehensive
income. It includes items such as unrealized gains or losses on investments available for sale,
foreign currency gains or losses, and pension plan gains or losses.
Adjusting (Journal) Entries - ANS Entries made to adjust the balances of asset and liability
accounts to reflect changes in their values due to the passage of time or another implicit
transaction.
Allowance for Doubtful Accounts - ANS A contra asset account that nets against Accounts
Receivable. It is generally set up as an estimate of accounts that will ultimately prove to be
3 @COPYRIGHT 2025/2026 ALLRIGHTS RESERVED.
, uncollectible. It is then reduced when accounts are written off. It may be adjusted at period end
to reflect any updated estimates. May also be referred to as Reserve for Bad Debts.
Amortization - ANS The method for recognizing the expense of long-lived intangible assets
such as patents, copyrights, and brands, over the life of the assets. Amortization is usually
calculated similar to straight-line depreciation. Some companies use an accumulated
amortization account, while other companies may directly reduce the value of the associated
asset.
Annuity - ANS An investment where the purchaser receives the right to receive a fixed
amount each year for a lifetime or for a certain number of years.
Asset - ANS A resource that is owned or controlled by a business and is expected to provide
some future economic benefit to the business. Examples include cash, inventory, and
equipment. The business expects that its assets will help to produce cash inflow in the future.
Asset Turnover - ANS Asset Turnover is calculated by dividing the total sales for the period by
the average total assets. This calculation is used as a measure of efficiency in the DuPont
Framework. For most ratios in this course, we use averages when calculating ratios with balance
sheet numbers, but this is not necessary and some may choose to use beginning or ending
balances.
Average Collection Period - ANS Average Collection Period is a measure related to accounts
receivable turnover that shows the average number of days it took for a business to collect
payment from a customer. It can be calculated by dividing the average accounts receivable by
the credit sales per day. Alternatively, it can be calculated by dividing 365 by the Accounts
Receivable Turnover. For most ratios in this course, we use averages when calculating ratios with
balance sheet numbers, but this is not necessary and some may choose to use beginning or
ending balances.
Balance Sheet - ANS Financial report that shows the financial position of a company at a
specific point in time; a snapshot of the resources that are owned or controlled by company,
4 @COPYRIGHT 2025/2026 ALLRIGHTS RESERVED.
