HBS CORE – ACCOUNTING EXAM
QUESTIONS AND ANSWERS. VERIFIED
2025/2026.
Fundamental Accounting Equation - ANS Assets = Liabilities + Owner's Equity
Asset - Definition - ANS Resources owned by a business
Liabilities - ANS Obligations to pay a third party
Owner's Equity - ANS Contributions from the owners' of a business. Assets - Liabilities
Differences between Liabilities and Owner's Equity - ANS Owners have the ability to make
decisions about how the business operates. Lenders/suppliers do not
What increases owner's equity? - ANS Profits
Matching Principle - ANS Expenses should be recognized in the same period in which the
related revenue is recognized rather than when the related cash is paid
1 @COPYRIGHT 2025/2026 ALLRIGHTS RESERVED.
,Components of the Accrual Accounting Method (3) - ANS Realization Principle. Matching
Principle. Going Concern
Realization Principle - ANS Revenue can only be recognized when the revenue is both earned
and realized/realizable
Going Concern - ANS A company is considered to be a going concern if the entity is expected
to remain in operation and be able to satisfy all commitments and obligations and realize the
benefits and values of all assets for the indefinite future. If there is evidence to the contrary, the
business may no longer be considered a going concern
If a business is labeled as a going concern, is that business healthy or unhealthy? Why? -
ANS Healthy. Going concern means its expected to remain in operation and satisfy all
commitments/obligations
Is deferred revenue an asset or liability? - ANS Liability
Deferred Revenue - Definition - ANS Liability that represents the obligation to provide future
goods/services
Conservatism - ANS For revenues and gains it means recording them when they are
reasonably certain but for expenses and losses it means recording them when they are
reasonably possible. For assets it means recording the lower valuation while for liabilities it
means recording the higher possible valuation.
Historical Cost Principle - ANS Transactions are recorded at the cost that existed when the
transaction occurred.
2 @COPYRIGHT 2025/2026 ALLRIGHTS RESERVED.
, Valuating Assets under Historical Cost Principle - ANS Financial value of assets is shown at
historical cost, rather than current market value. Example - Land appreciation
Entity Concept - ANS A business is a separately identifiable entity. Therefore, accounts of a
business should be completely separate from those of owners of the business
Money Measurement Principle - ANS Only values that can be measured in monetary terms
should be recorded in financial accounting records. Intangible assets will not be recorded
Is brand recognition/brand equity recorded as an asset on financial statements? - ANS No -
brand equity is an intangible asset
Categorize: Cash - ANS Asset
Categorize: Accounts Receivable - ANS Asset
Categorize: Notes Receivable - ANS Asset
Categorize: Interest Receivable - ANS Asset
Categorize: Inventory - ANS Asset
Categorize: Investments - ANS Asset
Categorize: Fixed Assets - ANS Asset
3 @COPYRIGHT 2025/2026 ALLRIGHTS RESERVED.
QUESTIONS AND ANSWERS. VERIFIED
2025/2026.
Fundamental Accounting Equation - ANS Assets = Liabilities + Owner's Equity
Asset - Definition - ANS Resources owned by a business
Liabilities - ANS Obligations to pay a third party
Owner's Equity - ANS Contributions from the owners' of a business. Assets - Liabilities
Differences between Liabilities and Owner's Equity - ANS Owners have the ability to make
decisions about how the business operates. Lenders/suppliers do not
What increases owner's equity? - ANS Profits
Matching Principle - ANS Expenses should be recognized in the same period in which the
related revenue is recognized rather than when the related cash is paid
1 @COPYRIGHT 2025/2026 ALLRIGHTS RESERVED.
,Components of the Accrual Accounting Method (3) - ANS Realization Principle. Matching
Principle. Going Concern
Realization Principle - ANS Revenue can only be recognized when the revenue is both earned
and realized/realizable
Going Concern - ANS A company is considered to be a going concern if the entity is expected
to remain in operation and be able to satisfy all commitments and obligations and realize the
benefits and values of all assets for the indefinite future. If there is evidence to the contrary, the
business may no longer be considered a going concern
If a business is labeled as a going concern, is that business healthy or unhealthy? Why? -
ANS Healthy. Going concern means its expected to remain in operation and satisfy all
commitments/obligations
Is deferred revenue an asset or liability? - ANS Liability
Deferred Revenue - Definition - ANS Liability that represents the obligation to provide future
goods/services
Conservatism - ANS For revenues and gains it means recording them when they are
reasonably certain but for expenses and losses it means recording them when they are
reasonably possible. For assets it means recording the lower valuation while for liabilities it
means recording the higher possible valuation.
Historical Cost Principle - ANS Transactions are recorded at the cost that existed when the
transaction occurred.
2 @COPYRIGHT 2025/2026 ALLRIGHTS RESERVED.
, Valuating Assets under Historical Cost Principle - ANS Financial value of assets is shown at
historical cost, rather than current market value. Example - Land appreciation
Entity Concept - ANS A business is a separately identifiable entity. Therefore, accounts of a
business should be completely separate from those of owners of the business
Money Measurement Principle - ANS Only values that can be measured in monetary terms
should be recorded in financial accounting records. Intangible assets will not be recorded
Is brand recognition/brand equity recorded as an asset on financial statements? - ANS No -
brand equity is an intangible asset
Categorize: Cash - ANS Asset
Categorize: Accounts Receivable - ANS Asset
Categorize: Notes Receivable - ANS Asset
Categorize: Interest Receivable - ANS Asset
Categorize: Inventory - ANS Asset
Categorize: Investments - ANS Asset
Categorize: Fixed Assets - ANS Asset
3 @COPYRIGHT 2025/2026 ALLRIGHTS RESERVED.
