IB Interview Questions: Accounting : Part-3

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In continuation to : IB Interview Questions: Accounting

In continuation : IB Interview Questions: Accounting : Part -2

The Balance Sheet

1. What’s the difference between Accounts Receivable (AR) and Deferred Revenue (DR)?

If a company is paid before a sale is earned and substantially complete, we record Deferred Revenue. If a company is paid after a sale is earned and substantially complete, then we record Accounts Receivable.




2. What does it mean to ‘Capitalize’ an item to the Balance Sheet?

Capitalization is the process of recording an expense on a Company’s Balance Sheet as an Asset and expensing it in proportion to its useful life over time.

An example of this would be the treatment of Property, Plant, and Equipment (PP&E). With PP&E, we initially record the purchase value of the asset to the Balance Sheet.

We then record Depreciation Expense over the estimated useful life of the PP&E as we use it up.

Each time we record Depreciation Expense it lowers the value of Net PP&E on the Balance Sheet (via Accumulated Depreciation).

3. What is the difference between a current and non-current Asset/Liability?

Current Assets are Assets that are expected to turn into cash within a year (or one operating cycle), while non-current assets are expected to turn into cash beyond a year.

Similarly, Current Liabilities reflect obligations due within one year (or one operating cycle), while non-current liabilities are due beyond one year.

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