UPDATED HBX CORE FINANCIAL ACCOUNTING
2024-2025 QUESTIONS WITH VERIFIED
SOLUTIONS
Accelerated Depreciation Methods - CORRECT ANSWER 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 - CORRECT ANSWER Assets = Liabilities + Owners' Equity.
This equation is fundamental and must always be true in double entry accounting.
Accounting Period - CORRECT ANSWER The period of time for which the financial
results are reported; typically either a month or a quarter or a year.
Accounts Payable - CORRECT ANSWER Liability account used to show the obligation
to pay suppliers who have provided goods or services on credit terms.
Accounts Payable Turnover - CORRECT ANSWER 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.
Accounts Receivable - CORRECT ANSWER 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.
,UPDATED HBX CORE FINANCIAL ACCOUNTING
2024-2025 QUESTIONS WITH VERIFIED
SOLUTIONS
Accounts Receivable Turnover - CORRECT ANSWER 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 - CORRECT ANSWER 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 - CORRECT ANSWER 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 - CORRECT ANSWER Liability account used to record amounts at
the end of an accounting period to recognize expenses that were incurred in the period
,UPDATED HBX CORE FINANCIAL ACCOUNTING
2024-2025 QUESTIONS WITH VERIFIED
SOLUTIONS
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.
Accrued Liability - CORRECT ANSWER 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 - CORRECT ANSWER 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 - CORRECT ANSWER 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 - CORRECT ANSWER 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 - CORRECT ANSWER 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 - CORRECT ANSWER 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 - CORRECT ANSWER 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 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 - CORRECT ANSWER 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 - CORRECT ANSWER 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.
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