HBX FINANCIAL ACCOUNTING FINAL EXAM | QUESTIONS WITH VERIFIED SOLUTIONS | 100% CORRECT
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Course
HBX Core
Institution
HBX Core
HBX FINANCIAL ACCOUNTING FINAL EXAM | QUESTIONS WITH VERIFIED SOLUTIONS | 100% CORRECT
What is the purpose of accounting? - Allows us to understand what's going on within a business.
Accounting Equation - Assets = Liabilities + Owners' Equity
Accrual method of accounting - Tra...
Accrual method of accounting - Transactions are recorded in the period to which they
relate, regardless of when cash is exchanged.
Conservatism - The requirement to record EXPECTED expenses or loss when they're
probable, but only record gains/revenue when they're realized. (Prevents companies
from making themselves look overly favorable).
Materiality - Trivial matters don't have to be recorded in financial statements of the
business. (trivial bc it won't impact decision making of person using those reports).
The entity concept - The idea that personal financial activity is kept separate from
business financial activity
Money measurement Principle - Only values that can be measured in monetary terms
should be recorded on financial statements
Going concern - Assumption that a business will keep operating as it has been in the
future (ex. don't write of merchandise that could be sold in the foreseeable future)
Relevance & reliability - Relevance ensures information on financial statements are
relevant to user.
Reliability ensures info on financial statements accurately reflect underlying transactions
(valid, verifiable, & unbiased)
Historical Cost - Transactions are recorded at the actual price or cost that existed at the
time a transaction occurred.
Consistency Principle - Uses same accounting methods over time.
, Assets - Resources owned or controlled by an entity that will produce benefits in the
future.
Liabilities - Obligations to pay a third party for resources provided to an entity
Owners' equity - funds contributed by owners & profits generated by the business
Revenue - Money a business receives from providing goods or services to a customer
Expenses - Costs associated with providing goods or services to a customer
Double Entry Accounting - The recording of debit and credit parts of a transaction.
Debit goes on the left, credit goes on the right.
How do debits and credits affect assets, liabilities, equity, expenses, and revenues
respectively? - Assets and expenses increase with a debit and decrease with a credit.
Liabilities, owner's equity and revenue increases with a credit and decreases with a
debit.
Trial Balance - A list of all of the business' accounts that have balances at that date.
Asset and expense accounts have debit balances. Liability, equity & revenue accounts
have credit balances.
Retained Earnings - Net profit remaining after dividends are paid to shareholders.
Part of owner's equity.
Property, plant, and equipment - Asset account
Cash equivalents - Asset account.
Short-term investments of excess cash that are very liquid and easily converted to cash.
Prepaid insurance - Asset account
Unexpired balance of insurance that has been paid in advance. reflects the value of the
insurance coverage to the business
inventories - asset account.
Inventory is the product that is being sold
Notes Receivable - Asset Account.
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