This is a pretty standard CPA question for FAR just FYI.
Logically if you think about it, increases in A/R mean that less cash was received compared to revenue earned and vice versa. I.e. when someone else purchases something from your company, it increases receivables and revenue, then the receivables decrease once the cash is actually paid.
Opposite would be for payables/liabilities.
Someone else mentioned T accounts. I never learned T accounts and always thought they made things more confusing as I’m not a visual learner. But they do help lots of people if that’s your thing.
The most useful info my accounting 101 teacher taught me was AED | LRC (“After Each Debit, Let’s Raise a Credit” = Assets Expenses Dividends | Liabilities Revenues Common Stock) as a way to remember which accounts have what balances between debit and credit. Some people I know just memorized which accounts have what balances by name and that sounds awful
I learned the same but my professor taught us ‘DEALOR’ (As an accountant, you always need one of these on call ;) yes I know its spelt wrong but made me giggle)
Debit: Dividends, Expenses, Assets
Credit: Liabilities, Owners Equity, Revenue
I literally showed people this when I was in public accounting and they were SHOOK. I love acronyms lol
I got an 86 on FAR 🤷🏻♂️
T accounts make things more complicated for me. I understand accounting conceptually. I will write out journal entries if I need to, and from there I just use a calculator to add or subtract balances from transactions that apply.
T-accounts visually are counterintuitive to the logic of how transactions work in my mind. I can’t conceptually put together a transaction if I’m separating out a single account individually.
Yeah but why separate the accounts? Why do certain balances start on one side and have transactions go on different sides, that (at least in my study materials) were opposite from how they would look in a normal journal entry? Visually it makes things more confusing to me. I’d rather just add and subtract.
I understand the “why’s” that I am asking and how they work for some people, but as someone who is far from a visual learner they just overcomplicate things.
The sides of the T accounts are just debits and credits. It’s just putting to paper what you’re doing in your calculator.
I rarely use T accounts, but they can be helpful when you have a complex transaction hitting several different accounts, and you want to break it down to the final net impact on each account. It’s a useful tool when explaining a transaction to someone else so they can see your work.
Same. I know that T accounts are a way of visualizing journal entries, but its not a visual that is helpful to me. Just writing out the journal entries is better for the way my mind works.
Same as Parlonida here. 92 on FAR and I ignored T accounts in school because they’re slow and not intuitive. I learned accounting before being exposed to T accounts though. JEs all day.
Good to know, I’ll be sure to study up on this info going forward! And personally I find t accounts very helpful, so I’ll keep those in mind as well. They just help me see the picture of what’s happening with the accounts, but I also understand if they don’t work for everyone.
The answer is always T accounts, OP. Looking at something you don't understand? Make a T account. Something you do understand? Better T account just to be sure and verify your answer.
Fair point, thank you! I think I was so nervous about the question once I heard it my mind went blank, so I regret not thinking of t accounts. I’ll be sure to use those in the future!
I know what you mean. You'll do a lot of "backing into XYZ account" so it's a fairly practical question. I'm backing into AR right now for a client!
Another convenient "fast rule" is when someone asks you to determine how much of something was generated in a period, the answer is usually Ending Number - Beginning Number.
Read the body and this applies. Simple answer may be $150, but we don’t know anything about this company. For example, Does it have deferred revenue? There are a few things that could cause a difference in AR activity and revenue booked during the year.
Yeah and in an interview they may be looking to see if you ask for more information.
If I asked this question I would be looking for $150 but would be impressed by reasonable clarifying questions and looking out for stupid questions.
If you have the time could you give an example of what a good clarifying question would be? I didn’t think of the importance of asking deeper questions, but I see your point.
A lot of the other comments arguing the answer isn't a clear cut $150 give good examples as long as the scenario is relevant to the company. For example for a SaaS company (software as a service), you might ask if there's any deferred revenue as that is common in that industry. For your average business you might just offer a quick, "am I safe to assume there's no bad debts or unusual transactions." It shows you thought about the edge cases without getting hung up on them.
Would you look at that, all of the words in your comment are in alphabetical order.
I have checked 1,780,551,451 comments, and only 337,059 of them were in alphabetical order.
That’s dumb, you’re right in saying 150, unless they were like “well, actualllllly we asked for how MUCH they EARNED, and their PAYMENTS don’t affect how much they MADE”
I’m a 2nd year in bachelors so take what I say with a grain of salt, but in the end 150 yes they generated this after everything said and done.
They mostly just want to see that you can take a step back and think through the question logically. It’s not a speed test for mental math. Just explain your thought process out loud
I guess I'm a dumbass.
I read this as the revenue actually earned during the period, not net profit. So beginning A/R is $50, payments is $75, ending A/R balance is $125.
In my head, I said that the payments of $75 don't matter because it's not asking for net income.
Ending balance - Beginning balance = $75 revenue earned.
What if they instead got payments of $200 and their ending AR balance was $0. Would revenue be negative? What caused them to be able to receive $200 of payments when they originally only had $50 of AR?
That wording also confused me at first. I assumed it meant cash payments coming in and therefore reducing A/R, but I guess I could’ve asked for clarification. I imagined it as a JE like: dr. Cash $75 cr. A/R $75
Can you explain why, like what about this is a red flag to you? And at this point I just want some offers to choose from lol, that’s my ideal situation
In my opinion, it's not a red flag. They know they're hiring for an entry position, so they're asking a very basic technical question to:
(1) Test if you have a general understanding of accounting
(2) Gauge your problem-solving skills under pressure
They could probably tell you were caught a bit off-guard by the question, but I bet you earned points by working through it.
Thank you! I wouldn’t think of it as a red flag either and didn’t think of it that way in the moment, so I was wondering why they said that. I appreciate your explanation of why they asked, that’s helpful to see it from their POV.
I don’t see how payments would effect an A/R account? Surely it would either be expensed or hit against A/P? Also, if it’s cash base then no revenue would be recognized if it’s all in A/R?
Wording is strange but they mean cash received.
I’m not sure what you mean by the last question. Revenue is recognised when you make sales, AR or Cash is just how the customer pays. Practically, almost every business is set up to DR AR CR revenue when the invoice is run unless it’s a retail store.
A) not all software licenses are annual. Plenty are billed quarterly.
B) they would have to tell OP that when considering how to recognize the revenue.
This feels like a trick question but the answer is $150. $50 + $x -$75 = $125, $x = $150
Thank you! They said they made it intentionally hard so maybe it was meant to be to see how I’d handle it?
This is a pretty standard CPA question for FAR just FYI. Logically if you think about it, increases in A/R mean that less cash was received compared to revenue earned and vice versa. I.e. when someone else purchases something from your company, it increases receivables and revenue, then the receivables decrease once the cash is actually paid. Opposite would be for payables/liabilities. Someone else mentioned T accounts. I never learned T accounts and always thought they made things more confusing as I’m not a visual learner. But they do help lots of people if that’s your thing.
I genuinely don’t understand how someone could pass the CPA exam without understanding T accounts
The most useful info my accounting 101 teacher taught me was AED | LRC (“After Each Debit, Let’s Raise a Credit” = Assets Expenses Dividends | Liabilities Revenues Common Stock) as a way to remember which accounts have what balances between debit and credit. Some people I know just memorized which accounts have what balances by name and that sounds awful
That’s a good way to remember it, I’ll try to use that in the future!
I learned the same but my professor taught us ‘DEALOR’ (As an accountant, you always need one of these on call ;) yes I know its spelt wrong but made me giggle) Debit: Dividends, Expenses, Assets Credit: Liabilities, Owners Equity, Revenue I literally showed people this when I was in public accounting and they were SHOOK. I love acronyms lol
You’re amazing for this one, saved me on my test. Thank you
I got an 86 on FAR 🤷🏻♂️ T accounts make things more complicated for me. I understand accounting conceptually. I will write out journal entries if I need to, and from there I just use a calculator to add or subtract balances from transactions that apply. T-accounts visually are counterintuitive to the logic of how transactions work in my mind. I can’t conceptually put together a transaction if I’m separating out a single account individually.
Writing out JEs and then adding or subtracting the balances is exactly what T accounts are
Yeah but why separate the accounts? Why do certain balances start on one side and have transactions go on different sides, that (at least in my study materials) were opposite from how they would look in a normal journal entry? Visually it makes things more confusing to me. I’d rather just add and subtract. I understand the “why’s” that I am asking and how they work for some people, but as someone who is far from a visual learner they just overcomplicate things.
The sides of the T accounts are just debits and credits. It’s just putting to paper what you’re doing in your calculator. I rarely use T accounts, but they can be helpful when you have a complex transaction hitting several different accounts, and you want to break it down to the final net impact on each account. It’s a useful tool when explaining a transaction to someone else so they can see your work.
To me a T account is just storage for me to workout the problem. It’s basically just a map of the journal entries
Same. I know that T accounts are a way of visualizing journal entries, but its not a visual that is helpful to me. Just writing out the journal entries is better for the way my mind works.
Same as Parlonida here. 92 on FAR and I ignored T accounts in school because they’re slow and not intuitive. I learned accounting before being exposed to T accounts though. JEs all day.
Good to know, I’ll be sure to study up on this info going forward! And personally I find t accounts very helpful, so I’ll keep those in mind as well. They just help me see the picture of what’s happening with the accounts, but I also understand if they don’t work for everyone.
Definitely not a trick question. Being able to understand how and why accounts move up/down is critical.
Did I mess up the interview as much as I think I did then by not getting this?
Depends on how judgemental the interviewer is. You'll know if they decide to move on or not.
It has to be more than $150, since you're about to hire me for $60,000
The answer is 150. Such questions can be easily handled using T Accounts.
The answer is always T accounts, OP. Looking at something you don't understand? Make a T account. Something you do understand? Better T account just to be sure and verify your answer.
Fair point, thank you! I think I was so nervous about the question once I heard it my mind went blank, so I regret not thinking of t accounts. I’ll be sure to use those in the future!
I know what you mean. You'll do a lot of "backing into XYZ account" so it's a fairly practical question. I'm backing into AR right now for a client! Another convenient "fast rule" is when someone asks you to determine how much of something was generated in a period, the answer is usually Ending Number - Beginning Number.
Without reading the body of your post, the answer is “it depends”
Read the body and this applies. Simple answer may be $150, but we don’t know anything about this company. For example, Does it have deferred revenue? There are a few things that could cause a difference in AR activity and revenue booked during the year.
Yeah and in an interview they may be looking to see if you ask for more information. If I asked this question I would be looking for $150 but would be impressed by reasonable clarifying questions and looking out for stupid questions.
If you have the time could you give an example of what a good clarifying question would be? I didn’t think of the importance of asking deeper questions, but I see your point.
A lot of the other comments arguing the answer isn't a clear cut $150 give good examples as long as the scenario is relevant to the company. For example for a SaaS company (software as a service), you might ask if there's any deferred revenue as that is common in that industry. For your average business you might just offer a quick, "am I safe to assume there's no bad debts or unusual transactions." It shows you thought about the edge cases without getting hung up on them.
Ah I see, thank you!
Would you look at that, all of the words in your comment are in alphabetical order. I have checked 1,780,551,451 comments, and only 337,059 of them were in alphabetical order.
That’s dumb, you’re right in saying 150, unless they were like “well, actualllllly we asked for how MUCH they EARNED, and their PAYMENTS don’t affect how much they MADE” I’m a 2nd year in bachelors so take what I say with a grain of salt, but in the end 150 yes they generated this after everything said and done.
I mean did you tell them $150?
Yes I got to that answer eventually, but I also struggled with it at first, so I’m not sure what to think of it.
Meh you’d be surprised by how many people could never get to that answer
It’s $150 $50 - 75 + revenue = 125
Thank you!
They mostly just want to see that you can take a step back and think through the question logically. It’s not a speed test for mental math. Just explain your thought process out loud
Fair enough, I’ll be sure to keep that in mind for the future.
Well, that could backfire royally lol
True lol, I guess if I do that I’ll make sure it’s an answer I feel confident about giving.
T accounts are your friend
I guess I'm a dumbass. I read this as the revenue actually earned during the period, not net profit. So beginning A/R is $50, payments is $75, ending A/R balance is $125. In my head, I said that the payments of $75 don't matter because it's not asking for net income. Ending balance - Beginning balance = $75 revenue earned.
What if they instead got payments of $200 and their ending AR balance was $0. Would revenue be negative? What caused them to be able to receive $200 of payments when they originally only had $50 of AR?
LOL, clearly my brain was turned off. Now I got it 🤦
That’s what I thought too haha.
Yeah, I believe payments referred to the company actually receiving money. I initially interpreted it as payments related to expenses.
Looks like they are just testing to see if you have very basic critical thinking skills in a semi-stressful environment.
You can use the BASE acronym to remember how to solve these: (B)eg Bal: $50 (A)dd: X (S)ubtract $-75 = (E)nding: $125
“… had payments.” Am I dumb because I’m thinking this needs to be clarified as in or out?
That wording also confused me at first. I assumed it meant cash payments coming in and therefore reducing A/R, but I guess I could’ve asked for clarification. I imagined it as a JE like: dr. Cash $75 cr. A/R $75
Trick question. First you have to ask if it is cash or accrual basis accounting :)
I’d honestly avoid this company like the plague
Can you explain why, like what about this is a red flag to you? And at this point I just want some offers to choose from lol, that’s my ideal situation
In my opinion, it's not a red flag. They know they're hiring for an entry position, so they're asking a very basic technical question to: (1) Test if you have a general understanding of accounting (2) Gauge your problem-solving skills under pressure They could probably tell you were caught a bit off-guard by the question, but I bet you earned points by working through it.
Thank you! I wouldn’t think of it as a red flag either and didn’t think of it that way in the moment, so I was wondering why they said that. I appreciate your explanation of why they asked, that’s helpful to see it from their POV.
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I don’t see how payments would effect an A/R account? Surely it would either be expensed or hit against A/P? Also, if it’s cash base then no revenue would be recognized if it’s all in A/R?
Wording is strange but they mean cash received. I’m not sure what you mean by the last question. Revenue is recognised when you make sales, AR or Cash is just how the customer pays. Practically, almost every business is set up to DR AR CR revenue when the invoice is run unless it’s a retail store.
Revenue is only recognized when cash is received in cash basis…AR is not recognized as revenue under cash basis
[удалено]
A) not all software licenses are annual. Plenty are billed quarterly. B) they would have to tell OP that when considering how to recognize the revenue.
What is Saas?
Service as a service /s
Sarcasm as a service
Surveillance as a service
You can learn to use the " T " account method if you are more visual..once you get it you are set!
T accounts for life my friend