FINANCIAL ACCOUNTING FIRST COURSE
CERTIFICATION TEST PAPER 2026 FULL
QUESTIONS AND PRECISE CORRECT
ANSWERS GRADED A+
⩥ Deferred Taxes. Answer: Deferred Taxes arise from a temporary
difference in the timing between recognizing the tax expense for a given
period on the financial records compared to actually filing and paying
the taxes per the tax records. There are many valid reasons that the two
amounts may differ. Some examples include differences in depreciation
methods, differences in bad debt estimates and actual write offs, tax-loss
carry-forwards, and some pension payments and expenses. Deferred
taxes can be either an asset or a liability, and can be either current or
non-current, depending on when the temporary timing difference is
expected to reverse. At a given point in time, a balance sheet may show
both a deferred tax asset and a deferred tax liability.
⩥ Depreciation. Answer: The method for recognizing the expense of
long-lived physical (tangible) assets over the life of the assets. Common
methods include straight-line depreciation and double-declining balance
depreciation but other methods can also be used.
⩥ Depreciation Expense. Answer: A temporary account that shows the
depreciation for the current accounting period. It's an expense reported
on the income statement.
,⩥ Direct Method. Answer: Refers to the method of reporting the cash
flow from operating activities on the statement of cash flows by using
transactional data. Lists all cash collections and disbursements relating
to operating activities in the period to arrive at the increase or decrease
in cash from operations during the period.
⩥ Discount Rate. Answer: A percentage rate determined by a company
used to calculate the present value for a stream of future cash flows. The
discount rate is somewhat subjective and is meant to take all of the
factors that impact the time value of money into account, e.g.
opportunity cost, inflation, and risk.
⩥ Discounted Cash Flow. Answer: Valuation methodology that takes a
company's projected free cash flows and discounts them to arrive a
present value.
⩥ Dividends. Answer: Amounts paid to the shareholders of a company,
usually in the form of cash.
⩥ Double Declining Balance Depreciation. Answer: A common
accelerated deprecation method of calculating and recording
depreciation expense. It recognizes more depreciation expense in the
early years and less in the later years compared to straight-line
depreciation.
,⩥ Double Entry Accounting. Answer: The system of accounting that
requires that every transaction be entered using both debits and credits
and that the value of the debits must equal the value of the credits.
⩥ DuPont Framework. Answer: A framework of ratios that breaks down
Return on Equity (ROE) into the three components of Profitability,
Efficiency, and Leverage.
⩥ EBIAT. Answer: EBIAT is an acronym for Earnings Before Interest
After Taxes. It is a measure of how much income the business has
generated while ignoring the effect of financing and capital structure of
the business. It is calculated by adding back interest and taxes to net
income, and then calculating and subtracting income tax expense based
on the earnings before interest and taxes.
⩥ EBIT. Answer: Acronym for Earnings Before Interest and Taxes. Can
be calculated by adding interest and taxes back to Net Income.
⩥ EBITDA. Answer: Acronym for Earnings Before Interest, Taxes,
Depreciation, and Amortization. Used sometimes as a shortcut method to
approximate operating cash flows.
⩥ Employee Advances. Answer: Amounts paid to employees in advance
of the employee earning the amount. Equivalent to a loan to the
employee. These advances are made at the discretion of the management
, of the business and they are often repaid by deducting them from
subsequent payroll amounts.
⩥ Entity Concept. Answer: The entity concept refers to the fact that a
business is a separately identifiable entity. Thus, the accounts of a
business should be separate and distinct from the accounts of the owners
and managers of the business. In addition, financial records should be
kept and reported for each separate entity, especially in the case of multi-
national companies and large companies with subsidiaries.
⩥ Equity. Answer: Equity is the residual that belongs to the owners of
the business. If you add up all the resources of the business (assets) and
subtract all the claims that third parties (such as lenders and suppliers)
have against those assets, the residual (what is left over) is equity. Equity
includes two elements; first, money contributed to (invested in) a
business in exchange for some degree of ownership and second, earnings
that the business generates over time and retains in the business. Also
commonly known as shareholders' equity, stockholders' equity, or
owners' equity.
⩥ Expense. Answer: A cost associated with providing goods or services
to a customer.
⩥ Expenses. Answer: Costs associated with providing goods or services
to customers.
CERTIFICATION TEST PAPER 2026 FULL
QUESTIONS AND PRECISE CORRECT
ANSWERS GRADED A+
⩥ Deferred Taxes. Answer: Deferred Taxes arise from a temporary
difference in the timing between recognizing the tax expense for a given
period on the financial records compared to actually filing and paying
the taxes per the tax records. There are many valid reasons that the two
amounts may differ. Some examples include differences in depreciation
methods, differences in bad debt estimates and actual write offs, tax-loss
carry-forwards, and some pension payments and expenses. Deferred
taxes can be either an asset or a liability, and can be either current or
non-current, depending on when the temporary timing difference is
expected to reverse. At a given point in time, a balance sheet may show
both a deferred tax asset and a deferred tax liability.
⩥ Depreciation. Answer: The method for recognizing the expense of
long-lived physical (tangible) assets over the life of the assets. Common
methods include straight-line depreciation and double-declining balance
depreciation but other methods can also be used.
⩥ Depreciation Expense. Answer: A temporary account that shows the
depreciation for the current accounting period. It's an expense reported
on the income statement.
,⩥ Direct Method. Answer: Refers to the method of reporting the cash
flow from operating activities on the statement of cash flows by using
transactional data. Lists all cash collections and disbursements relating
to operating activities in the period to arrive at the increase or decrease
in cash from operations during the period.
⩥ Discount Rate. Answer: A percentage rate determined by a company
used to calculate the present value for a stream of future cash flows. The
discount rate is somewhat subjective and is meant to take all of the
factors that impact the time value of money into account, e.g.
opportunity cost, inflation, and risk.
⩥ Discounted Cash Flow. Answer: Valuation methodology that takes a
company's projected free cash flows and discounts them to arrive a
present value.
⩥ Dividends. Answer: Amounts paid to the shareholders of a company,
usually in the form of cash.
⩥ Double Declining Balance Depreciation. Answer: A common
accelerated deprecation method of calculating and recording
depreciation expense. It recognizes more depreciation expense in the
early years and less in the later years compared to straight-line
depreciation.
,⩥ Double Entry Accounting. Answer: The system of accounting that
requires that every transaction be entered using both debits and credits
and that the value of the debits must equal the value of the credits.
⩥ DuPont Framework. Answer: A framework of ratios that breaks down
Return on Equity (ROE) into the three components of Profitability,
Efficiency, and Leverage.
⩥ EBIAT. Answer: EBIAT is an acronym for Earnings Before Interest
After Taxes. It is a measure of how much income the business has
generated while ignoring the effect of financing and capital structure of
the business. It is calculated by adding back interest and taxes to net
income, and then calculating and subtracting income tax expense based
on the earnings before interest and taxes.
⩥ EBIT. Answer: Acronym for Earnings Before Interest and Taxes. Can
be calculated by adding interest and taxes back to Net Income.
⩥ EBITDA. Answer: Acronym for Earnings Before Interest, Taxes,
Depreciation, and Amortization. Used sometimes as a shortcut method to
approximate operating cash flows.
⩥ Employee Advances. Answer: Amounts paid to employees in advance
of the employee earning the amount. Equivalent to a loan to the
employee. These advances are made at the discretion of the management
, of the business and they are often repaid by deducting them from
subsequent payroll amounts.
⩥ Entity Concept. Answer: The entity concept refers to the fact that a
business is a separately identifiable entity. Thus, the accounts of a
business should be separate and distinct from the accounts of the owners
and managers of the business. In addition, financial records should be
kept and reported for each separate entity, especially in the case of multi-
national companies and large companies with subsidiaries.
⩥ Equity. Answer: Equity is the residual that belongs to the owners of
the business. If you add up all the resources of the business (assets) and
subtract all the claims that third parties (such as lenders and suppliers)
have against those assets, the residual (what is left over) is equity. Equity
includes two elements; first, money contributed to (invested in) a
business in exchange for some degree of ownership and second, earnings
that the business generates over time and retains in the business. Also
commonly known as shareholders' equity, stockholders' equity, or
owners' equity.
⩥ Expense. Answer: A cost associated with providing goods or services
to a customer.
⩥ Expenses. Answer: Costs associated with providing goods or services
to customers.
