CHAPTER 3 Flashcards
The accounting Equation (TRUE OR FALSE)
All the processes in an accounting system must observe the equality of the accounting equation.
True
The basic accounting equation is Assets + Liabilities = Equity.
False
Assets = Liabilities + Equity
The terms ‘economic resource’ and ‘present obligation’ refer to ‘income’ and ‘expenses,’ respectively.
False
Assets and liabilities respectively
When determining the existence of an asset, legal ownership is always a necessary factor to consider.
False
Not always a necessary
Control is an essential aspect in the definition of an asset. Control means legal ownership.
False
An entity controls an economic resource if it has the exclusive reight to enjoy the economic benefits from the resource, including the ability to prevent others from enjoying those benefits.
True
A property that you do not have the right to use, sell, lease, transfer, or other similar rights may not be your asset, even if you are the legal owner of that property.
True
Legal obligations arise only from law.
False
A present oligation can result from a future event.
False
Past event
Equity is defined as a residual amount - being the difference between total assets and total liabilities.
True
Income is defined as increases in assets or decrease in liabilities that result in an increase in equity, other than those that relate to contributions by the business owner(s).
True
Both the definitions of income and expenses encompass changes in assets and liabilities but excluding those changes that relate the business owner’s investments to, or withdrawals from the business.
True
You own a business. Your business lacks capital so you provided additional cash. This transaction would result to income by your business.
False
Investment
The difference between income and expenses is profit or loss. There is profit if income exceeds expenses.
True
Physical possession is a necessary condition in order for control over an asset to exist.
False
An economic resource can produce economic bnefits in many ways, including the potential of the resource to provide the entity, directly or indirectly, with cash.
True
The settlement of a liabiity requires the transfer of an economic resource.
True
An intention to obtain control over an economic resource at a future time does not result to the recognition of an asset at present.
True
Your business has total assets of Php10M, total liabilities of Php6M and total equity of Php4M. This means that out of total Php10M resources, you have provided Php6M.
False
Income decreases equity, while expenses increase equity.
False
Total assets are Php10. Total liablities are Php6. Therefore, total equity is Php4.
True
Total assets are Php20. Total liabilities are Php16. Therefore, total equity is Php36.
False
Php4.
Total assets are Php80. Total equity is Php60. Therefore, total liabilities are Php20.
True
Total liabilities are Php60. Total equity is Php30. Therefore, total assets are Php30.
False
Php90.
Total income is Php100. Total expenses are Php40
Therefore, the difference of Php60 is profit.
True
Total income is Php50. Total expenses are Php60. Therefore, the difference of Php10 is loss.
True
Beginning equity is Php100. Profit during the period is Php20. If there are no other changes in equity, the ending balance of equity must be Php120.
True
Beginning equity is Php10. Loss during the period is Php4. If there are no other changes in equity, the ending balance of equity must be Php6.
True
Total assets are Php100. Total liabilities are Php40. Total equity, before income and expenses, are Php40. Therefore, profit is Php20.
True
Total assets are Php100. Total liabilities are Php60. Total equity, before income and expenses, is Php30. If the total income is Php50, total expenses must be Php30.
False
Total expenses must be Php40.
