Chapter 2 Flashcards
Business activities that are accountable
economic activities or transactions
It is an expression of monetary worth applied to a particular asset, group of assets, business entity, or services rendered.
Value
Two types of Business Transactions:
- External transactions
- Internal transactions
Are economic events involving the enterprise and other entities. These events or transactions may involve transfer of resources or obligation to or from the entities.
External transactions or exchanges
Are economic events in which only the enterprise participates.
Internal transactions
Are the quantitative information reported in the statement of financial position and income statement. Considered as the building blocks of the financial statements.
Accounting elements
The elements directly related to the measurement of financial position. These are the real accounts.
assets, liabilities and equity.
The elements directly related to the measurement of financial performance. They provide information on the changes in equity as the result of business operations
income and expenses.
Popularly known as income statement accounts. They are also called nominal accounts because their usefulness is limited to the year when they are incurred.
income and expenses
Are properties or rights on properties owned by the business. These items of value are used by the enterprise in their day to day activities.
Assets
Under the Revised Conceptual Framework, it is defined as a present economic
Asset
It is a right that has the potential to produce economic benefits
Economic resource
It is the time between acquisition of assets for processing and their realization in cash or cash equivalents.
operating cycle
Includes currency or cash items on hand
Cash
Are short term highly liquid investments that are readily convertible to known amounts of cash and so near their maturity that they present insignificant risk of changes in value because of changes in interest rates.
Cash equivalents
Investments which are readily marketable and represent temporary investment of funds available for current operations and are intended to meet working capital requirements.
Trading Securities
Are open accounts or those that are not supported by promissory notes.
Accounts receivable
A contra-asset account which is provided for possible losses from uncollected accounts.
Allowance for doubtful accounts
Amount collectible that are evidenced by a promissory note or a written promise to pay
Notes receivables
Goods held for sale by trading concern
Merchandise Inventory or merchandise
Inventories held by manufacturing firms advance
Finished goods, goods in process, raw materials and factory or manufacturing supplies
Rent paid in advance
Prepaid rent
Insurance paid in advance
Prepaid insurance
Stationary and other supplies purchased for use and are still unused.
Unused supplies
All other assets except current assets are non-current assets. These include tangibl intangible, operating and financial assets of a long-term nature.
Non-Current Assets
These are tangible assets which are held by the enterprise in production or supply goods or services, for rental to others, or for administrative purposes, and are expects be used during more than one period (PAS No.16)
Property, Plant and Equipment or Fixed Assets
A piece of lot or real estate used by the business
Land
A structure or building owned or controlled and used as office, store or factory of the enterprise
Building
Include typewriters, adding machines, calculators, computers
Office equipment
Include cash register, calculators
Store equipment
Include delivery truck or jeep used for transporting merchandise
Delivery equipment
Contra-account used to accumulate expired cost of fixed
assets. It is a deduction from property, plant and equipment.
Accumulated depreciation
Are assets held by an enterprise for the accretion of wealth
Investments
It is readily realizable and is intended to be held for not more than one year.
Current investment
It is intended to be held for more than one year.
Long-term investment
It is defined by PAS 38 as identifiable non-monetary assets without physical substance.
intangible assets
Right granted to authors, composers, playwrights, artists, publishers or distributors to publish and dispose of their works for a limited time.
Copyright
Right granted to operate a utility or to manufacture or to market a product of another company within a specified area
Franchise
Right granted to an inventor to manufacture or produce his inventions or products.
Patent
A symbol, sign, slogan or name used to mark a or to distinguish it from other products.
product
Trademark or brand name
An intangible advantage that increases earnings over what is normal.
Goodwill
It is defined as the present obligation of an entity to transfer an economic resource as a result of past events.
Liability
Amounts due to other parties when it is evidenced by a promissory note
Notes payable
Amounts due to suppliers for the purchase of goods or services on credit
Accounts payable
Expenses incurred but not yet paid
Accrued expenses
Unpaid interest on borrowings
Interest payable
Services rendered by employees but still unpaid
Salaries payable
Obligations due to banks for loans obtained (current portion)
Bank loans payable
Income received but not yet earned.
Deferred revenue
Amount due and payable by the enterprise to Social Security System
SSS premium payable
Amount due and payable by the enterprise to Philippine Health Insurance Corporation
Phil Health premium payable
Amount due and payable by the enterprise to BIR for the tax withheld from employees
Withholding tax payable
Economic obligations secured by collateral
Mortgage payable
Income received in advance but not yet earned and which will be realized as income over a period of more than one year or the normal operating cycle if it exceeds one year.
Deferred revenue
Represents residual interest in the assets of the enterprise after deducting all liabilities. It is otherwise known as net assets or net worth.
Equity
This includes the capital contribution of the owner made at the formation of the business or subsequent thereto.
Owners’ capital
This is used for recording the withdrawal of capital by the owner
Owner’s Drawing
For a corporation, equity accounts are ordinary share or common stock and preference share or preferred stock. (not a question)
No answer
Refers to the earnings of the enterprise.
Income
Income is defined as increases in assets or decreases in liabilities that results in increases in equity, other than those relating to contributions from equity holders. (Not a question)
No answer
Represents charges to clients or customers for services rendered
Service income
Charges to clients by professionals for services rendered.
Professional fees or professional income
Represent charges for the use of assets like equipment and spaces in buildings
Rent income
Represents charges to customers for repair services rendered.
Repair income
Represent charges to customers for laundry services rendered
Laundry income
Represents charges to passengers for transportation services rendered
Transportation income or fares earned
Represent amount of tickets sold to watchers of games, shows or movies
Ticket sales
Income earned by the business coming from other sources which is not the main line of business and could not be clearly identified
Miscellaneous income
Represent income from the sale of merchandise
Sales
Represent deduction from sales due to merchandise returned by customers
Sales returns
Represent deductions from selling price of goods with defec goods sent to customers but not as ordered. The goods are retained by customers.
Sales allowances
Deductions from the selling price due to payments of th within the discount period.
Sales discounts
It is defined as decrease in assets or increase in liabilities that results in decreases in equity, other than those relating to distributions to equity holders.
Expense
These accounts represent the value of the goods sold.
Cost Accounts
Represent the original acquisition price of the goods for resale
Purchases
Represent the cost of goods purchased but returned to suppliers because they are either damaged, defective or unacceptable
Purchase returns
Represent the reduction in the cost of defective or damaged goods bought but nor returned to the supplier
Purchase allowances
Represent the reduction in the amount to be paid to the supplier due to payment of account within the discount period
Purchase discounts
Represent the cost of transporting goods purchased from the suppliers to the store or the warehouse of the business
Freight in
Represents the value of services rendered by employees and laborers. Account titles like office salaries, sales salaries and the like may be used.
Salaries and Wages
Includes advertising or promotional expenses. This includes cost of publication in print media and propaganda in radio and television
Advertising expense
Amount paid or incurred for the use of properties
Rent expense
Amount paid to maintain company assets in good working
conditions
Repairs and Maintenance
Amount paid for services of conveyance or means of transportation of goods to customers
Transportation expense
Amount of taxes and other licenses paid to the government
Taxes and licenses
It is the portion of the cost of a fixed asset that is charged or allocated as expense for the period
Depreciation expense
Premiums on insurance policies charged to expense
Insurance expense
Amount of supplies used. Specifically termed as office supplies expense or store supplies expense
Supplies expense
Cost of light and water consumed by the business. An account title Water and Electricity or Heat, Light and Water may be used
Utilities expense
Represent value placed on activities that will promote goodwill and increase customers’ patronage.
Representation and Entertainment
Amount paid for postage, telephone and other forms of communication
Postage and Communications
Contributions of employer to the Social Security System
SSS Premiums
Relatively small amount paid for items or services which do not fall under the above accounts.
Miscellaneous expense
