Chapter 2

Question 1

“The word accounting comes from the word accountability. If you are going to be rich, you need to be accountable for your money.”

Answer 1

Robert Kiyosaki

Question 2

The most basic concept in accounting is whatconcept?

Answer 2

Entity Concept

Question 3

An accounting entity is an organization or a section of an organization that stands apart from other organizations and individuals as a separate economic unit.

Answer 3

Entity Concept

Question 4

Transactions of different entities should not be accounted for together. Each entity should be evaluated separately.

Answer 4

Entity Concept

Question 5

An entity’s life can be meaningfully subdivided into equal time periods for reporting purposes.

Answer 5

Periodicity Concept

Question 6

For the purpose of reporting to outsiders, one year is the usual accounting period.

Answer 6

Periodicity Concept

Question 7

“Books should be closed each year, especially in a partnership, because frequent accountingmakes for long friendship.”

Answer 7

Luca Pacioli, 1494

Question 8

starts in January and ends in December

Answer 8

Calendar Year

Question 9

starts in any month and ends after 12 months.

Answer 9

Fiscal Year

Question 10

The Philippine Peso is a reasonable unit of measure and that its purchasing power is relatively stable.

Answer 10

Stable Monetary Unit Concept

Question 11

This is the basis for ignoring the effects of inflation in the accounting records.

Answer 11

Stable Monetary Unit Concept

Question 12

A greater increase in the supply of money or credit than in the production of goods and services, resulting in higher prices and a fall in the purchasing power of money.

Answer 12

inflation

Question 13

GAAP stands for?

Answer 13

generally accepted accounting principles

Question 14

Accounting records and statements are based on the most reliable data available so that they will be as accurate and as useful as possible.

Answer 14

Objectivity Principle

Question 15

Reliable data are verifiable when they can be confirmed by independent observers.

Answer 15

Objectivity Principle

Question 16

This principle states that acquired asset should be recorded at their actual cost and not at what management thinks they are worth as

Answer 16

Historical Cost

Question 17

The total cost of producing or buying an item, which may include, e.g., its price plus the cost of delivery or storage.

Answer 17

actual cost

Question 18

A principle that states, “when goods are delivered or services are rendered or performed.”

Answer 18

Revenue Recognition Principle

Question 19

A principle that states, “goods and services are used up to produce revenue and not when the entity pays for those goods and services.”

Answer 19

Expense Recognition Principle

Question 20

Requires that all relevant information that would affect the user’s understanding and assessment of the accounting entity be disclosed in the financial statements.

Answer 20

Adequate Disclosure

Question 21

Financial reporting is only concerned with information that is significant enough to affect evaluations and decisions.

Answer 21

Materiality

Question 22

The firms should use the same accounting method from period to period to achieve comparability over time within a single enterprise.

Answer 22

Consistency Principle

Question 23

Under this assumption, the effects of transactions and other events are recognized when they occur and they are recorded in the accounting records and reported in the financial statements of the periods to why they relate.

Answer 23

Accrual Basis

Question 24

“Revenue as they earned, even not yet received and; Expenses as they incurred, even not yet paid”.

Answer 24

Accrual Basis

Question 25

Under this assumption, it does not record a transaction until cash is received or paid. Generally, cash receipts are treated as revenues and cash payments as expenses.

Answer 25

Cash basis accounting

Question 26

It will continue in operation for a foreseeable future.

Answer 26

Going Concern

Question 27

It is assumed therefore that the enterprise has neither the intention nor the need to liquidate its operations.

Answer 27

Going Concern

Question 28

This business organization has a single owner called the proprietor who generally is also manager.

Answer 28

Sole Proprietorship

Question 29

It tends to be small service-type (e.g. physicians, lawyers and accountants) business and retail establishments.

Answer 29

Sole Proprietorship

Question 30

A business owned and operated by two or more persons who bind themselves to contribute money, property or industry to a common fund, with the intention of dividing the profits among themselves.

Answer 30

Partnership

Question 31

A business owned by its stockholders.

Answer 31

Corporation

Question 32

It is an artificial being created by operation of law, having the rights of succession and the powers, attributes and properties expressly authorized by law or incident to its existence.

Answer 32

Corporation

Question 33

companies perform services for a fee (e.g. law firms, accounting and law firms, stock brokerage, beauty salons and recruitment agencies)

Answer 33

Service

Question 34

companies purchase goods that are ready for sale and then sell these to customers (e.g. car dealers, clothing stores and supermarkets)

Answer 34

Merchandising

Question 35

companies buy raw materials, convert them into products and then sell the products to other companies or to final consumers (e.g. paper mills, steel mills, car manufacturers and drug manufacturers)

Answer 35

Manufacturing

Question 36

The principal activities of the enterprise.

Answer 36

Operating activities

Question 37

Identify which activity in business organization this falls: Sale of services

Answer 37

Operating activities

Question 38

Identify which activity in business organization this falls: Purchase of supplies

Answer 38

Operating activities

Question 39

Identify which activity in business organization this falls: Payment of various expenses like salaries and other benefits to employees, utilities, taxes and repairs and maintenance, insurance, transportation and gasoline expense.

Answer 39

Operating activities

Question 40

The acquisition and disposal of long-term assets and other investments.

Answer 40

Investing Activities

Question 41

Identify which activity in business organization this falls: Purchase of equipment, furniture, automobile and land

Answer 41

Investing Activities

Question 42

Identify which activity in business organization this falls: Cost of developing and constructing office or building

Answer 42

Investing Activities

Question 43

Identify which activity in business organization this falls: Sale of used fixed assets

Answer 43

Investing Activities

Question 44

Identify which activity in business organization this falls: Loans and advances to other parties

Answer 44

Investing Activities

Question 45

Identify which activity in business organization this falls: Investments in equity or debt instruments

Answer 45

Investing Activities

Question 46

Activities that result in charges in the size and composition of the contributed equity and borrowings of the enterprise

Answer 46

Financing Activities

Question 47

Identify which activity in business organization this falls: Cash proceeds from issuing shares of stocks by a corporation

Answer 47

Financing Activities

Question 48

Identify which activity in business organization this falls: Cash proceeds and repayment of bank loans and other long-term barrowings.

Answer 48

Financing Activities

Question 49

Micro Enterprises

Answer 49

those with assets, before financing of P 3 million or less and employ not more than nine (9) workers.

Question 50

Small Enterprises

Answer 50

those with assets, before financing of above P 3 million to P 15 million and employ 10 to 99 workers.

Question 51

Medium Enterprises

Answer 51

those with assets, before financing of above P15 million to P100 million and employ 100 to 199 workers.