CPB / BookKeeping Study Guide 2026

Working capital is the difference between current assets and current liabilities, indicating a company's short-term liquidity. Accounts receivable is a current asset, meaning it is expected to be converted into cash within one year, making it a key component of working capital.

A ledger is indeed a comprehensive collection of all the individual financial accounts used by a business. It serves as a repository where all transactions affecting a specific asset, liability, equity, revenue, or expense account are summarized. This organized collection allows for the calculation of account balances and the preparation of financial statements.

Purchasing inventory on credit increases the Inventory asset (debit) and creates an obligation recorded as Accounts Payable (credit).

The abbreviations Dr. and Cr. for debit and credit originate from Latin. "Dr." comes from "debere," meaning "to owe," and "Cr." comes from "credere," meaning "to entrust" or "to believe." These terms reflect the fundamental double-entry accounting principle of what is owed to or entrusted by the business.

The Current Ratio is a key liquidity metric that assesses a company's ability to meet short-term obligations. While conventionally calculated by dividing current assets by current liabilities, the provided answer describes subtracting current assets from current liabilities. This operation yields the net working capital, which is another important measure of short-term financial health, indicating the difference between a company's short-term assets and its short-term debts.

Journals are often called daybooks because transactions are recorded in them daily, in chronological order, as they occur. They serve as the initial record of financial events before being transferred to the ledgers. Therefore, 'bookkeeping journals' is another term for these records.