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HBX Financial Accounting Questions and Correct Verified Answers Latest Version
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Assets Cash, inventory, equipment, prepaid assets, invoices Liabilities Accounts payables, salaries, sales taxes payable, unredeemed gift certificates, long term debt Owner's Equity Contributed capital, retained earnings Module 4 Explicit transactions triggered by some sort of activity...

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  • October 14, 2024
  • 48
  • 2024/2025
  • Exam (elaborations)
  • Questions & answers

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  • hbx financial accounting questions and correct ver
  • assets cash inventory equipment prepaid asset

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1 | P a g e | © copyright 2024/2025 | Grade A+




HBX Financial Accounting
Questions and Correct Verified
Answers Latest Version
Assets


✓ Cash, inventory, equipment, prepaid assets, invoices




Liabilities


✓ Accounts payables, salaries, sales taxes payable, unredeemed gift

certificates, long term debt




Owner's Equity


✓ Contributed capital, retained earnings




Module 4 Explicit transactions


✓ triggered by some sort of activity, event, or transfer of resources (usually

cash) from one party to another; often accompanied by invoices,

receipts, or other paper documentation that initiate the recording of

the transaction.




identifying explicit transactions:


Master01 | September, 2024/2025 | Latest update

, 1 | P a g e | © copyright 2024/2025 | Grade A+

✓ (1) A transfer of resources, usually cash

✓ (2) Invoices, receipts or other paper documentation

✓ (3) A specific event or activity that clearly triggers a journal entry

✓ (4) Clarity regarding when to record and how much to record




Implicit transactions


✓ arise due to the nature of the accrual accounting method, which

follows the revenue recognition principle and the matching principle.

Under this method, revenue should be recognized in the period in

which it is earned and realizable, not necessarily when the cash is

received. Expenses should be recognized in the period in which the

related revenue is recognized rather than when the related cash is

paid. In order to do this we must make adjusting journal entries, which

are implicit transactions. Implicit transactions do not involve a specific

triggering activity, event, or transfer of resources from one party to

another. Often, implicit transactions represent changes in value related

to the passage of time.




There are four basic types of adjusting journal entries:


(1) Recognizing expenses related to a prepaid asset




Master01 | September, 2024/2025 | Latest update

, 1 | P a g e | © copyright 2024/2025 | Grade A+

✓ Suppose a company pays cash for one year's worth of rent. They will

now have an asset account, prepaid rent, on their books. As each

month passes, that asset is worth less and less, and it will need to be

reduced or expensed accordingly.




2) Recognizing revenues related to deferred revenue (also called unearned

revenue)


✓ Suppose a company receives cash from a customer for a year-long,

monthly magazine subscription. The company will now have an

obligation to provide magazines to their customer. They will record a

liability, deferred revenue, on their books. As each month passes, and

the magazines are provided, the liability account needs to be reduced

and revenue needs to be recognized as earned.




(3) Accruing of unrecorded expenses


✓ Entries related to unrecorded expenses usually occur at the end of the

accounting period, during the closing process. The purpose of this type

of entry is to account for any expenses that weren't recorded

throughout the year because there was insufficient information. Some

examples would be accruing for property tax or interest expense, or

accounting for inventory shrinkage.




Master01 | September, 2024/2025 | Latest update

, 1 | P a g e | © copyright 2024/2025 | Grade A+

(4) Accruing of unrecorded revenues


✓ Similar to the accrual for unrecorded expenses, unrecorded revenues

are usually accounted for at the end of the accounting period. This

type of entry reflects revenues that have been earned but not yet

billed. For example, suppose a firm provides consulting services for a

client in December. At year end, the firm has yet to send the client a

bill for those services. Since the service has been provided, and the

client will be billed eventually, revenue must be recorded.




Key indicators to look for in identifying implicit transactions:


✓ (1) No transfer of resources

✓ (2) No invoices or other paper documentation

✓ (3) No specific event or activity that clearly triggers a journal entry, just

the passing of time

✓ (4) Judgement regarding when to record and how much to record




accrual method of accounting


✓ means that companies record both explicit and implicit transactions in

the period in which they are incurred, which is not necessarily the same

period in which cash was paid or received




Master01 | September, 2024/2025 | Latest update

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