FA

Question 1

Accrual Basis of Accounting

Answer 1

Accounting method where revenues and expenses are recorded when they are incurred, regardless of when cash is received or paid.

Question 2

Deferred Revenue

Answer 2

A liability that represents cash received before the related revenue is earned.

Question 3

Allowance for Doubtful Accounts

Answer 3

A contra-asset account used to estimate the portion of accounts receivable that may not be collected.

Question 4

Amortization

Answer 4

The allocation of the cost of an intangible asset over its useful life.

Question 5

Straight-Line Depreciation

Answer 5

A method of depreciation where an equal amount is allocated each year over the useful life of an asset.

Question 6

Double-Entry Accounting

Answer 6

An accounting principle where every transaction affects at least two accounts, maintaining the accounting equation.

Question 7

Contingent Liability

Answer 7

A potential liability that may occur depending on the outcome of an uncertain future event.

Question 8

Impairment Loss

Answer 8

The reduction in the recoverable amount of a fixed or intangible asset below its carrying amount.

Question 9

Prepaid Expense

Answer 9

An asset that represents payments made for expenses that will benefit future periods.

Question 10

Accrued Expense

Answer 10

An expense that has been incurred but not yet paid by the end of the accounting period.

Question 11

Revenue Recognition Principle

Answer 11

The principle that revenue is recognized when it is earned and measurable.

Question 12

Matching Principle

Answer 12

The principle that expenses should be recognized in the same period as the revenues they help generate.

Question 13

Retained Earnings

Answer 13

The accumulated net income of a company that is retained and not distributed as dividends.

Question 14

Earnings Per Share (EPS)

Answer 14

A financial metric showing the portion of a company’s profit allocated to each outstanding share of common stock.

Question 15

Materiality

Answer 15

The significance of financial information to decision-making, where omission or misstatement could influence economic decisions.

Question 16

Conservatism

Answer 16

The accounting principle of reporting the least optimistic estimate when two estimates are equally probable.

Question 17

Quick Ratio

Answer 17

A liquidity ratio that measures a company’s ability to meet its short-term obligations with its most liquid assets.

Question 18

Current Ratio

Answer 18

A liquidity ratio that measures a company’s ability to cover its current liabilities with its current assets.

Question 19

Debt-to-Equity Ratio

Answer 19

A financial ratio indicating the relative proportion of shareholders’ equity and debt used to finance a company’s assets.

Question 20

Working Capital

Answer 20

A measure of a company’s operational efficiency and short-term financial health, calculated as current assets minus current liabilities.

Question 21

Accrued Revenue

Answer 21

Revenue that has been earned but not yet received in cash or recorded.

Question 22

Operating Lease

Answer 22

A lease where the lessee does not assume ownership of the asset and payments are treated as operating expenses.

Question 23

Capital Lease

Answer 23

A lease that is capitalized on the balance sheet, with the leased asset and corresponding liability recorded.

Question 24

Goodwill

Answer 24

An intangible asset representing the value of a business’s reputation, customer base, and other non-tangible assets.

Question 25

Audit Opinion

Answer 25

A statement by auditors regarding the accuracy and fairness of a company’s financial statements.

Question 26

Qualified Opinion

Answer 26

An auditor’s opinion that financial statements are fairly presented except for certain issues.

Question 27

Adverse Opinion

Answer 27

An auditor’s opinion indicating that financial statements do not fairly represent the company’s financial position.

Question 28

Notes to Financial Statements

Answer 28

Explanatory notes that provide additional details and context for the figures in financial statements.

Question 29

Sarbanes-Oxley Act (SOX)

Answer 29

A law enacted to improve corporate governance and financial reporting by increasing accountability.

Question 30

Time Value of Money

Answer 30

The concept that money available today is worth more than the same amount in the future due to its earning potential.

Question 31

Discount Rate

Answer 31

The interest rate used to calculate the present value of future cash flows.

Question 32

Net Present Value (NPV)

Answer 32

The difference between the present value of cash inflows and outflows over a period.

Question 33

Internal Rate of Return (IRR)

Answer 33

The discount rate that makes the net present value of a project zero.

Question 34

Vertical Analysis

Answer 34

A financial analysis technique where each item in a financial statement is expressed as a percentage of a base amount.

Question 35

Horizontal Analysis

Answer 35

A financial analysis technique that compares financial data over time to identify trends.

Question 36

Common-Size Statement

Answer 36

A financial statement that presents all line items as percentages of a common base figure.

Question 37

Liquidity

Answer 37

A measure of how quickly an asset can be converted into cash.

Question 38

Solvency

Answer 38

A measure of a company’s ability to meet its long-term financial obligations.

Question 39

Economic Entity Assumption

Answer 39

The accounting assumption that a business is a separate entity from its owners or other businesses.

Question 40

Going Concern Assumption

Answer 40

The assumption that a business will continue to operate indefinitely.

Question 41

Historical Cost Principle

Answer 41

The accounting principle of recording assets at their original purchase price.

Question 42

Fair Value Accounting

Answer 42

An accounting approach where assets and liabilities are measured and reported at their current market value.

Question 43

Segment Reporting

Answer 43

The reporting of financial information by different business segments of a company.

Question 44

Deferred Tax Liability

Answer 44

A tax obligation that a company has accrued but is not due until a future period.

Question 45

Deferred Tax Asset

Answer 45

A tax benefit expected to be realized in future periods due to deductible temporary differences.

Question 46

Convertible Bonds

Answer 46

Bonds that can be converted into a predetermined number of shares of the issuing company.

Question 47

Earnings Management

Answer 47

The use of accounting techniques to produce financial statements that present an overly positive view of a company’s financial position.

Question 48

Hedging

Answer 48

A risk management strategy used to offset potential losses in one asset by taking an opposing position in a related asset.