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OAE Business Education study materials
OAE Business Education study resources

OAE Business Education: Accounting and Finance

OAE Business Education · Work through your exam, one topic at a time.

All guide sections

Accounting and Finance

What the domain tests

This domain covers the accounting cycle, the accounting equation, debits and credits, financial statements, ratio analysis, budgeting, and personal finance. Questions often require classifying a transaction or interpreting a ratio.

Core rules

  • Assets = Liabilities + Equity. Every transaction keeps this equation in balance through double-entry bookkeeping.
  • Debit means left; credit means right. Assets and expenses normally have debit balances; liabilities, equity, and revenue normally have credit balances. Debits increase assets and expenses; credits increase liabilities, equity, and revenue.
  • The cycle: analyze transactions, journalize, post to ledger, prepare unadjusted trial balance, adjust, prepare adjusted trial balance, prepare statements, close temporary accounts.
  • Income statement measures profitability over a period; balance sheet reports assets, liabilities, and equity at a point in time; statement of cash flows explains operating, investing, and financing cash changes.
  • Accrual accounting recognizes revenue when earned and expenses when incurred, not necessarily when cash moves. Depreciation allocates an asset’s cost over its useful life; it is not a cash fund.
  • Liquidity ratios include current ratio (current assets ÷ current liabilities); solvency includes debt-to-equity; profitability includes gross margin.

Worked example

A firm buys equipment for $10,000, paying $4,000 cash and signing a $6,000 note. Equipment (asset) increases $10,000; cash (asset) decreases $4,000; notes payable (liability) increases $6,000. Net assets increase $6,000 and liabilities increase $6,000, so equity is unchanged. The balance sheet stays balanced: assets rise by $6,000 net, matched by a $6,000 liability.

Traps

Debit does not mean increase; it means left. Revenue is recognized under accrual rules, not simply when cash is received. The balance sheet is a snapshot, not a period statement. Depreciation reduces book value but does not create cash. A sale on account increases assets and equity, not cash.