HBS Harvard Business School HBX Core Final Exam2024 Review Questions and Answers 100% Pass, Exams of Business Administration

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HBS Harvard Business School

HBX Core Financial

Accounting 2024 Exam Review

Questions and Answers 100%

Pass | Graded A+

David Mungai [Date] [Course title]

HBS Harvard Business School HBX

Core Financial Accounting 2024

Exam Review Questions and

Answers 100% Pass | Graded A+

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. - Answer>> Accelerated Depreciation Methods Assets = Liabilities + Owners' Equity. This equation is fundamental and must always be true in double entry accounting.

• Answer>> Accounting Equation The period of time for which the financial results are reported; typically either a month or a quarter or a year. - Answer>> Accounting Period Liability account used to show the obligation to pay suppliers who have provided goods or services on credit terms. - Answer>> Accounts Payable 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. - Answer>> Accounts Payable Turnover

Liability account used to record amounts at the end of an accounting period to recognize expenses that were incurred in the period 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. - Answer>> Accrued Expenses Liability accounts that record expenses that have been recognized on the income statement but have not yet been paid. Similar to accrued expenses. - Answer>> Accrued Liability 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. - Answer>> Accrued Payroll 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. - Answer>> Accrued Revenue 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. - Answer>> Accumulated Depreciation 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. - Answer>> Accumulated other comprehensive income 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. - Answer>> Adjusting (Journal) Entries 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. - Answer>> Allowance for Doubtful Accounts 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. - Answer>> Amortization 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. - Answer>> Annuity

they are issued by governments, utilities, and public companies to raise funds. - Answer>> Bonds Acronym for Compound Annual Growth Rate. It is a measure of the rate of return of an investment over a given period of time. - Answer>> CAGR Capital can have different meanings depending on its context. In many contexts, it refers to wealth of a business, whether accumulated in money or property. This wealth may be used to grow the wealth of the business by investing in projects or other companies; hence the terms, capital expenditures and capital budgeting. In other contexts, capital refers to the money invested in a business, almost synonymous with equity. - Answer>> Capital The cash flow related to the purchase of property and equipment. Capital expenditures is part of the free cash flow equation. - Answer>> Capital Expenditures The practice of recording the cost of the purchase as an asset, rather than recording it as an expense when an item is purchased. For example, when a long-lived asset is purchased, such as a machine, the cost of the machine is said to be capitalized because it is recorded as an asset in the accounts. In contrast, something small and immaterial, such as pens and pencils, may be expensed immediately. - Answer>> Capitalization Under the cash accounting method, a business records revenues and expenses only when cash is received or disbursed. Although this method is used by some small, private businesses, it is not an acceptable method under GAAP for publicly held companies. - Answer>> Cash Accounting Method

Cash conversion cycle is a measure of how long it takes a business from the time it has to pay for inventory from its suppliers until it collects cash from its customers. It can be calculated as the Days Inventory, plus the Average Collection Period, minus the Days Purchases Outstanding. - Answer>> Cash Conversion Cycle Short-term, highly liquid investments that can be quickly converted to cash. - Answer>> Cash Equivalents List of all of the accounts of a business. This list includes all asset, liability, equity, revenue, and expense accounts. The accounts and naming of accounts can vary from business to business. - Answer>> Chart of Accounts A problem with two variables in which the value of each variable impacts the value of the other variable so that changing either value impacts the other value. - Answer>> Circularity Common size financial statements divide each number on the balance sheet by total assets, and each number in the income statement by sales. This converts the financial statement items into ratios that help us see trends and can easily be compared from one company to another. - Answer>> Common Size Financial Statements The most typical stock or share type representing an ownership interest in the business. Although there can be different classes of common shares, owners of these shares usually have certain rights including the right to share proportionately in the profits of the business and the right to elect directors and vote on proposals made by the directors to the shareholders. - Answer>> Common Stock

related to Accounts Receivable, and Accumulated Depreciation, which is a contra-asset related to Property, Plant, & Equipment. - Answer>> Contra-Asset The expense corresponding to the cost of the inventory that is sold to customers. May also be referred to as COGS or Cost of Sales. - Answer>> Cost of Goods Sold (COGS) The expense corresponding to the cost of the inventory that is sold to customers. May also be referred to as Cost of Goods Sold (COGS). - Answer>> Cost of Sales One half of an accounting entry. Credits increase the balances in Revenue, Liability, and Owners' Equity accounts. Credits reduce the balances in Asset and Expense accounts. Credits are shown on the right side in journal entries, T-Accounts, and trial balances.

• Answer>> Credit When a seller agrees to provide goods or services to a buyer and allows the buyer to remit payment at some future date. The time allowed is typically a specified number of days from the date the goods or services are provided, such as 30 days. May also be referred to as "buying on credit" or "selling on credit." - Answer>> Credit Terms An asset that will be used or converted into cash within one year or one operating cycle, whichever is longer. - Answer>> Current Asset Cash and other assets that are expected to be converted into cash within a year (or within one operating cycle, if the company's operating cycle is longer than one year). - Answer>> Current Assets

Obligations that will be settled or paid in cash within a year (or within one operating cycle, if the company's operating cycle is longer than one year). - Answer>> Current Liabilities The Current Ratio is a measure of a business' ability to pay its short term obligations. It can be calculated by dividing current assets by current liabilities. - Answer>> Current Ratio Days Inventory is a measure related to inventory turnover that shows the average number of days the inventory is held before it is sold. It can be calculated by dividing average inventory by the COGS per day. Alternatively, it can be calculated by dividing 365 by the Inventory Turnover. - Answer>> Days Inventory Days Purchases Outstanding is a measure related to accounts payable turnover that shows the number of days it takes a business to pay its vendors. It can be calculated by dividing the average accounts payable by the credit purchases per day. Alternatively, it can be calculated by dividing 365 by the Accounts Payable Turnover. - Answer>> Days Purchases Outstanding One half of an accounting entry. Debits increase the balances in Asset and Expense accounts. Debits reduce the balances in Revenue, Liability, and Owners' Equity accounts. Debits are shown on the left side in journal entries, T-Accounts, and trial balances. - Answer>> Debit The Debt to Equity Ratio is calculated by dividing the total liabilities by the total equity. It is a common measure of leverage.

• Answer>> Debt to Equity Ratio Tax term related to amounts that can deducted from "Gross Income" or sales to arrive at taxable income. Deductions are similar to expenses in financial reports but they are not always the

When a temporary timing difference results in lower taxable income in the current period than the financial income reported, then there is an amount of tax that is going to be due in the future related to income reported in the current period. This amount is shown in the financial statements as a Deferred Tax Liability. A Deferred Tax Liability reflects an obligation to pay taxes in the future related to the income already reported in the financial statements. - Answer>> Deferred Tax Liability 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. - Answer>> Deferred Taxes 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. - Answer>> Depreciation A temporary account that shows the depreciation for the current accounting period. It's an expense reported on the income statement. - Answer>> Depreciation Expense 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. - Answer>> Direct Method 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. - Answer>> Discount Rate Valuation methodology that takes a company's projected free cash flows and discounts them to arrive a present value. - Answer>> Discounted Cash Flow Amounts paid to the shareholders of a company, usually in the form of cash. - Answer>> Dividends 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. - Answer>> Double Declining Balance Depreciation 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. - Answer>> Double Entry Accounting A framework of ratios that breaks down Return on Equity (ROE) into the three components of Profitability, Efficiency, and Leverage. - Answer>> DuPont Framework

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. - Answer>> Equity A cost associated with providing goods or services to a customer.

• Answer>> Expense Costs associated with providing goods or services to customers. - Answer>> Expenses Transactions that involve some activity, event, or exchange of resources from one party to another. Explicit transactions are often accompanied by invoices or other paper documentation that initiates the recording of the transaction. - Answer>> Explicit Transactions The amount that an asset could be sold for on the market at a given point in time; may not correspond to the value of the asset recorded in the financial records at any point in time. - Answer>> Fair Market Value The Financial Accounting Standards Board (FASB) is the governing body that issues accounting rules and standards in the United States. These rules and standards are often referred to as generally accepted accounting principles, or GAAP. - Answer>> FASB Financial Leverage is one of the three components of the DuPont Framework. For the purposes of the DuPont Framework, it is measured using the Leverage Ratio, also referred to as the Equity

Multiplier, but another measure of leverage is the Debt to Equity Ratio. - Answer>> Financial Leverage Section of the statement of cash flows that includes all cash flows associated with raising and paying back money to investors and creditors, or in other words, financing the business. - Answer>> Financing Section Goods at the final stage of the manufacturing process when they are complete and available for sale to customers. - Answer>> Finished Goods Inventory An inventory valuation method which determines the value of inventory sold as if the current units sold are the oldest units remaining in the inventory (First In First Out). In a period of steadily rising inventory costs, this method leaves the higher costs in the inventory account and recognizes the older, lower costs as an expense in Cost of Goods Sold. - Answer>> First In First Out (FIFO) The twelve month period over which the financial results of a company are reported. For many companies, the fiscal year equals the calendar year with the last day of the fiscal year being December 31. However, for other companies, the fiscal year may end on June 30 or on the last Friday in September or on some other date that is chosen by the company. For some companies, it can be 52 or 53 weeks with the year ending on a slightly different date each year depending on when the week ends. - Answer>> Fiscal Year Long-lived physical assets which are expected to provide value to the business for periods in excess of one year. Examples include buildings, vehicles, or machines. Also referred to as Property, Plant, & Equipment (PP&E). - Answer>> Fixed Assets

Reporting Standards) which are issued by the International Accounting Standards Board (IASB). - Answer>> GAAP Similar to revenue, a gain increases owners' equity. However, a gain relates to some activity that is outside the normal operations of the business, such as the sale of a long-lived asset for more than its net book value. - Answer>> Gain Historically, accounting systems were comprised of books for each accounts, known as ledgers. The general ledger would include all of the balances from all of the accounts or subsidiary ledgers included in the chart of accounts. - Answer>> General Ledger 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. - Answer>> Going Concern In a retail business, goods available for sales can be calculated as beginning inventory plus purchases of additional inventory in the period. This calculation can be useful in determining cost of goods sold, because at the end of a period, the goods available for sale during the period with either remain in inventory or be moved to cost of goods sold. This calculation is often used when using a periodic inventory system. - Answer>> Goods available for sale Goodwill is the excess of the amount paid to acquire a business over the fair market value of the business' net assets. It is called Goodwill because this excess is often associated with the assumed value of the otherwise undefined intangible aspects of the business. Although a company may feel that it has value in its

brands and name, goodwill is only recorded as the result of an acquisition. Self-generated brand value is not recorded as goodwill. - Answer>> Goodwill A method for calculating the terminal value of an indefinite stream of cash flows. The calculation gives the present value of infinite cash flows by dividing the cash flow in the final year of our projection by the difference between the discount rate and the growth rate. - Answer>> Gordon Growth Model The amount at which an asset is recorded in the financial records of the business. When an asset has just been purchased, this is normally the price that was paid to purchase the asset plus any costs to prepare the asset for service in the business. These extra costs may include delivery, installation, and testing. - Answer>> Gross Book Value The amount by which the revenue exceeds the cost of goods sold (or cost of sales). - Answer>> Gross Profit Gross Profit Margin is calculated by dividing the gross profit by the total sales for the period, and is used as a measure of profitability. It tells us what percentage of our revenue is left to cover other expenses after the cost of goods sold is subtracted. May also be referred to as Gross Profit Percentage. - Answer>> Gross Profit Margin The historical cost principle refers to the fact that transactions are recorded at the cost that existed at the time the transaction occurred. In the case of assets, it means that their value in the financial records is shown at historical cost, rather than current market value. When combined with the principle of Conservatism, it means that an asset's value may be reduced if it is deemed to