FABM 2 1ST SEM

Question 1

Accounting is the process of identifying, measuring and communicating economic information to permit
informed judgement and decisions by users of the information.

Answer 1

American Accounting Association (AAA)

Question 2

Accounting as the art of recording, classifying and summarizing in a significant manner and in terms of
money, transactions and events which are in part at least of financial character, and interpreting the result
thereof.

Answer 2

American Institute of Certified Public Accountants(AICPA)

Question 3

Accounting as a service activity.

Answer 3

Accounting Standards Council(ASC)

Question 4

needed by an accountant are the economic transactions entered into by the business,
evidenced by supporting documents

Answer 4

Input

Question 5

Identification - answers “what transactions/accounts are concerned?
Measurement - answers “how much money is involved?
Recording - captures the transaction in the book of accounts of the business.

Answer 5

Process

Question 6

Communicating Useful Financial Information

Answer 6

Output

Question 7

• Is like a Static picture of portrait
• Presents company’s “POSITION” when it comes to the resources it owns (ASSETS), obligations
  claimed against it (LIABILITIES), and the owner’s residual interest (EQUITY).
• The date of this statement is always “as at” or “as of”.

Answer 7

Statement of Financial Position (Balance Sheet)

Question 8

• Is like a moving video clip
• Tells the reader about the “performance” and activities of the company for a certain period.
• Presents the revenues and expenses incurred by the company for a period of time.
• The date of SCI is always “ for the period ended”

Answer 8

Statement of Comprehensive Income (Income Statement)

Question 9

• Tells a specific story about the owner’s stake in the company.
• The SCE tells the reader about the beginning stake of the owner (beginning capital), any additional
  investments, withdrawal of resources, and share in net income or net loss.
• The date of the SCE is similar to SCI.

Answer 9

Statement of Changes in Equity

Question 10

• Tells a specific story about the cash transactions of the company.
• Cash is very vital resource owned and controlled by the business.
• Cash is most susceptible to theft and mismanagement.
• Cash can be used or derived from operating, investing and or financing activities.

Answer 10

Statement of Cash Flows

Question 11

• Complete set of financial statement also includes explanatory notes.
• These notes generally provide additional information needed by the readers but not captured by the first
  four statements.

Answer 11

Notes, comprising a summary of significant accounting policies and other explanatory
information.

Question 12

Some stories are true but not appropriate for a conversation. The same is true in
accounting. Some information are true and yet not significant for user’s decision making process.
Information is said to be relevant if it can assist a user in predicting a financial situation or
scenario (predictive value).

Answer 12

Relevance

Question 13

Information regarding current year expenses can assist the owners in
evaluating whether these are within budgeted limits(did the company overspend for the year?)

Answer 13

Faithful Representation

Question 14

-Is similar to the expression “apples to apples” comparison.
An entity’s information is said to be comparable if such information can be compared to another
entity.
A company’s cash account can be compared to a similar company’s cash account like competitor’s
account.
A keen user of financial information can expect that the composition of both cash accounts is
comparable and not dissimilar.
(eg. such accounts do not include goods for sale)
Information is also said to be comparable if it can be compared with the previous year.
Example:
An entity’s sales for the current year can be compared with the sale fro the previous year for
percentage increase or decrease, since both of the accounts contain similar transactions.

Answer 14

Comparability

Question 15

Means that different users can reach an agreement about the financial information.
Example:
An entity’s accountant records a cash receipt transactions of P100,000.00, then another
accountant would agree that transaction is indeed for P100,000.
Verifiability is about consensus.

Answer 15

Verifiability

Question 16

-People make decisions based on what they know at hand. Sometimes, crucial
information comes late in the picture and a decision has been made already. Timely financial
information ensures that such information is available to the users when they will make might be
misinformed.

Answer 16

Timeliness

Question 17

In general, business dealings are characterized to be brief, clear and concise.
In an organization’s day to day operations, information must be clearly and concisely scaled down
in order to be understandable. Complex yet relevant information, however, are not to be
eliminated. Useful financial information presumes that the users are willing to learn about these
complex information.

Answer 17

Understandability

Question 18

“a resource controlled by the
entity as result of past events and from which future economic benefits are expected to flow to the
entity”

Answer 18

ASSET

Question 19

Cash includes bills and coins on hand, bank accounts, and operating funds.
Cash deposited in banks under the company’s name are also classified as cash, unless they are
restricted.
Operating and working funds are also classified as cash. A common example of these working funds
is petty cash.

Answer 19

Cash or Cash Equivalents

Question 20

are amount owed by customers to the entity.
Ordinarily, entities sell on credit over cash.
- are called”open” accounts
since thery do not have documentary support other than the sales contract.

Answer 20

Trade Accounts Receivables

Question 21

are evidenced by a promissory note.
First is a principal amount of the amount collectible by the entity from the customer.
Second, notes receivables would have maturity dates which can be for 30, 60 or 90 days upon the
date of issue.
Last, it must have a corresponding interest(e.g., 6% or 7%)

Answer 21

Notes receivable

Question 22

-collectible amounts due to the cost of borrowing money. Interest is is
computed as principal, multiplied by interest rate, multiplied by the related time factor.

Answer 22

Interest Receivable

Question 23

These assets include fixed assets used in the normal operating cycle or production of the business.
These assets also include land and buildings being used by the company. Manufacturing plants,
manufacturing equipment, vehicles, furniture and fixtures, and leasehold improvements are also
included in this category.
- are depreciated over their estimated
useful life. However, land is not depreciated since such is deemed with perpetual benefit. PPE assets
are presented in the statement of financial position after deducting the related accumulated
depreciation.

Answer 23

Property, Plant and Equipment

Question 24

are those assets meeting the definition of an asset but without physical substance.
-include trademarks for brand names, patents for inventions, and copyrights for
artistic/literary works.
-definite useful lives are amortized over their useful
lives. Those with indefinite useful lives, however, are annually tested for impairment.

Answer 24

Intangible Assets

Question 25

Generally, investment properties are long-lived assets not used in production. The company’s
intention for these assets is to lease out or for long-term capital appreciation.

Answer 25

Investment Properties

Question 26

are living plants or animals held by the business for resale or for breeding. These assets includes
trees in plantations, plants, dairy, cattle, bushes, figs, and fruit trees.

Answer 26

Biological Assets

Question 27

“Present Obligation”….
arising from past events the settlement of which is expected to result in an outflow from the entity of resources embodying economic benefits (assets)

Answer 27

LIABILITIES

Question 28

are open accounts relating to purchase of goods and/or raw materials. If the seller has accounts
receivables for uncollected accounts, then the buyer will have accounts payable for unpaid amounts.

Answer 28

Trade Accounts Payable

Question 29

Unlike trade accounts payables, evidenced by a promissory note. If a seller receives a note receivable, the buyer then issues a note payable. As in the notes receivable, notes
payables would have a principal amount, maturity date, and interest rate.

Answer 29

Notes Payable

Question 30

are related to notes payable. considered as cost for borrowing money. Interests are computed as principal amount, multiplied by time factor and interest rate.

Answer 30

Interest Payable

Question 31

These accounts pertain to expenses incurred but not yet paid. Common examples of these accrued
expenses are salaries, rent and utilities

Answer 31

Other Accrued Expenses

Question 32

Income tax is computed at 30% of the corporate taxable income. For Sole proprietors, however,
their taxable income is subjected to the graduated tax rates. Income taxes are normally paid on the
15th of April of the succeeding year. Hence, they remain unpaid (payable) as of December 31 of the
current year.

Answer 32

Income Tax Payable

Question 33

These accounts represent bank loans as a source of financing for the entity.
- span of five years to almost 25 years. Also, most loans are serial loans. It means that principal repayment is due every year. Based on the definition, a portion of the serial loans will be current
while most of it is non-current.

Answer 33

Long-term Debt

Question 34

contracts of indebtedness sold to certain individuals. As in the case of long-term debt, such indebtedness will bear interest. A bond is sometimes evidenced with a bond certificate, unless
it is a scrip bond.

Answer 34

Bonds Payable