2nd Handout

Question 1

shows how wealth is produced by listing the revenues earned and expenses incurred by the business

Answer 1

Income Statement

Question 2

shows why the net worth changed by listing the activities that caused it to increase or decrease

Answer 2

Statement of Owner’s Equity

Question 3

shows what happened to the cash by enumerating the activities of cash received and cash used by the business

Answer 3

Statement of Cash Flows

Question 4

shows how the wealth of the business stands by enumerating the assets, liabilities and net worth of the business

Answer 4

Statement of Financial Position

Question 5

defined as things of value owned by the business. They benefit the business, are being used in operating the business and are expected to have long life.

Answer 5

Assets

Question 6

defined as debts or obligations of the business owing to outside parties like the banks, financing companies and suppliers of goods and services.

Answer 6

Liabilities

Question 7

defined as the residual right or interest of the owner in the entity’s assets; after the creditors’ and suppliers’ claims are satisfied

Answer 7

Owner’s Equity

Question 8

source of completed transactions

Answer 8

source documents

Question 9

It is any financial event that changes the resources of a firm

Answer 9

BUSINESS TRANSACTIONS

Question 10

Three features of a transaction:

Answer 10

There is an exchange of values.
There are two parties.
It is in terms of money.

Question 11

Brief description of items that represent the accounting elements

Answer 11

ACCOUNT

Question 12

Assets are normally recorded as

Answer 12

Debit Balance

Question 13

Assets are classified into

Answer 13

Current and Non Current

Question 14

COMMONLY USED CURRENT ASSETS

Answer 14

Cash
Accounts Receivable
Notes Receivable
Accrued Interest Receivable
Inventories
Office Supplies
Prepaid Expenses

Question 15

any item on hand with monetary value that a bank would accept for deposit
Includes coins and currencies, personal checks, money orders, traveler’s check, made payable to the business and bank drafts
Also includes funds in the bank as savings or current deposit

Answer 15

Cash

Question 16

Amounts collectible.
Represents debtor’s oral promise to pay certain amount to the business and the right of the business to collect certain amount in peso.

Answer 16

Accounts Receivable

Question 17

Promissory note received by the business from its debtors and/or customers
Promissory note is a written promise to pay a certain amount on specified or determinable date

Answer 17

Notes Receivable

Question 18

Interest earned on notes receivable but not yet received in cash

Answer 18

Accrued Interest Receivable

Question 19

Assets held for sale in the normal operation of the business.
Examples are merchandise inventory, work in process inventory and raw materials inventory

Answer 19

Inventories

Question 20

Various supplies bought for use in the office but are still unused

Answer 20

Office Supplies

Question 21

Expenses paid in advance

Expenses not yet incurred or used

Answer 21

Prepaid Expenses

Question 22

COMMONLY USED NON CURRENT ASSETS are:

Answer 22

Land
Building
Furniture and Fixture
Office Equipment
Delivery Equipment

Question 23

Site owned by the business on which the business building is constructed
Not subjected to depreciation.

Answer 23

Land

Question 24

Structure owned by the business used in the operation of the business

Answer 24

Building

Question 25

Long-lived items used by the business including store furnishings, such as showcases, counters, containers, display racks, as well as furniture used for office purposes, such as desks, chairs, and cabinets

Answer 25

Furniture and Fixture

Question 26

Computers, printers, fax machines, aircons and air fan units

Answer 26

Office Equipment

Question 27

Cars and trucks used in delivering goods and services

Answer 27

Delivery Equipment

Question 28

ASSET CONTRA-VALUATION ACCOUNTS

Answer 28

Allowance for Doubtful Accounts | Accumulated Depreciation

Question 29

Refers to an amount estimated uncollectible on receivable in compliance with the principle of conservatism Contra account for related receivable Other terms used: Allowance for Uncollectible Accounts or Allowance for Bad Debts

Answer 29

Allowance for Doubtful Accounts

Question 30

Aggregate period costs of using a depreciable plant asset | Examples are accumulated depreciation of building, accumulated depreciation of machinery

Answer 30

Accumulated Depreciation

Question 31

Present obligation of the entity arising from past events, the settlement of which is expected to result in an outflow from the entity of resources embodying economic benefits.

Answer 31

LIABILITY ACCOUNTS

Question 32

LIABILITY ACCOUNTS Classified into

Answer 32

Current Liabilities | Non Current Liabilities

Question 33

Expected to be settled in the normal course of the enterprise’s operating cycle Due to be settled within 12 months of the Statement of Financial Position date.

Answer 33

Current Liabilities

Question 34

EXAMPLES OF CURRENT LIABILITIES

Answer 34

``` Accounts Payable Notes Payable Accrued Interest Payable SSS Premium Payable Withholding Tax Payable ```

Question 35

Obligation or debts to creditors for money borrowed or merchandise and other assets bought on credit Examples are obligations arising from purchases on account

Answer 35

Accounts Payable

Question 36

Promissory note issued by the business to its creditors for money borrowed or merchandise and other assets bought on credit

Answer 36

Notes Payable

Question 37

Interest incurred in the current period but not yet paid

Answer 37

Accrued Interest Payable

Question 38

Amount of employee and employer contribution to SSS which are not yet remitted to SSS

Answer 38

SSS Premium Payable

Question 39

Amount of income tax withheld from the salary of employees in behalf of BIR that the employer has to remit to BIR on the specified due date

Answer 39

Withholding Tax Payable

Question 40

EXAMPLES OF NON CURRENT LIABILITIES

Answer 40

Loans Payable | Mortgage Payable

Question 41

Arises for amounts borrowed

Answer 41

Loans Payable

Question 42

Supported by a chattel mortgage such as land which is attached to the liability and can be subject to attachment when business fails to pay

Answer 42

Mortgage Payable

Question 43

Residual amount after deducting liabilities from assets

Answer 43

OWNER’S EQUITY ACCOUNTS

Question 44

Owners Equity Accounts, Terminologies used:

Answer 44

Sole Proprietorship: Owner’s Capital Partnership: Partners’ Capital Corporation: Shareholders’ Equity

Question 45

If all assets are claimable by the owner, the accounting equation is simply: ASSETS = OWNER’S EQUITY.

Answer 45

ACCOUNTING EQUATION

Question 46

Business Activities: | Business Transactions generally classified into:

Answer 46

Financing Investing Operating

Question 47

includes investment made by owner, borrowed amounts from banks and other entities, drawings made by the owner and repayments to lenders

Answer 47

Financing

Question 48

includes acquisition of properties such as land, furniture, machineries and equipment as well as the eventual disposal of any of these on replacement or retirement date

Answer 48

Investing

Question 49

the earning activities of the enterprise such as selling of goods or services and incurring of services or expenses

Answer 49

Operating