FABM Chapter 4 Reviewer

Question 1

Financial statements are prepared on the assumption that the
the entity will continue in operation into the foreseeable future
without the need or intention to stop the operation

Answer 1

The Going Concern Concept

Question 2

If there is significant doubt that the business will continue in
operations (“____________”), the going concern
the assumption is forgone and financial statements will be
prepared under a Terminating concern basis

Answer 2

Going concern problem

Question 3

Presents financial information regarding an
entity

Answer 3

Accounting

Question 4

Can be a business, a person, an organization
or the government.

Answer 4

An entity

Question 5

Is a separate accounting entity from its
owners

Answer 5

A business

Question 6

In preparing financial reports about the business,
transactions of the ________ are excluded.

Answer 6

Owners

Question 7

The owner and the business are two separate and distinct parties

Answer 7

The accounting Entity Concept

Question 8

Transfer of goods from the main office to an outlet or
the branch shall be treated as part of the _______

Answer 8

Same Business

Question 9

In accounting means that a company
uses financial reporting based on its own chosen periods.

Answer 9

The periodicity concept

Question 10

This is an equal time period called the “_________” over
which the financial performance and financial condition of the
business are accounted for and reported to users of the
financial statements.

Answer 10

Accounting Period

Question 11

Reporting period can either be a _____________

Answer 11

Calendar Year or Fiscal Year

Question 12

The presumed indefinite life of the business is broken into distinct equal time periods called “accounting period’ over which the financial performance and financial condition of the
business are accounted for and reported to users of the financial statements.

Answer 12

Periodicity Assumption

Question 13

Income is recorded in the accounting period they are earned regardless of when they are collected whereas expenses are recorded in the period incurred regardless of when they are paid.

Answer 13

The accrual method

Question 14

An income that is already earned but is not yet
collected

Answer 14

Accrued Income

Question 15

An expense that is already incurred but not yet been paid

Answer 15

Accrued Expense

Question 16

An income that is already received but not yet earned

Answer 16

Deferred Income

Question 17

An expense that is already paid but not yet incurred

Answer 17

Prepaid Expense

Question 18

Only financial transactions are recorded and reported in terms of money such as the
Peso.

Answer 18

The monetary or measurement concept

Question 19

Non-financial information is not recorded but information relevant to users of financial statements is noted via a memo entry in the books.

Answer 19

Memo entry in the books.

Question 20

Income is recognized when it is realized or earned. Income is said to be realized when one of the contracting party performed his obligation on the contract, and thus have established a right to demand from the other party.

Answer 20

Realization Concept

Question 21

Ownership to the goods transfers to the buyer at the moment the goods leave the premises of the seller

Answer 21

Free on Board (FOB) shipping point+

Question 22

Ownership to the goods transfers to the buyer upon arrival at the warehouse of the buyer

Answer 22

FOB Destination

Question 23

Relates to the timing of recognition of an expense.

Answer 23

The matching Concept

Question 24

These are expenditures that benefit future accounting periods. These are recorded in accounting as assets.

Answer 24

Capital Expenditures

Question 25

These are expenditures that benefit only the current accounting period. These are recorded as expenses.

Answer 25

Period Expenditures

Question 26

Expenses may be recognized using:
a.___________ against the
revenues or cause and effect association.

Answer 26

Direct association or Matching of cost

Question 27

If the expenditure benefits several accounting periods, the cost of capital expenditure is spread as expense over the period it is benefited.

Answer 27

Systematic and rational allocation

Question 28

Properties held for use by the business such as buildings,
machinery, equipment, and improvements are initially
recorded as ___________ upon acquisition.

Answer 28

Assets

Question 29

Expenditures that cannot be associated with a particular income and have no expected future economic benefits are recognized outright as expenses in the year incurred.

Answer 29

Immediate Recognition

Question 30

Are not expenditures and will never be recognized as
expenses, such as:
a. Repayments of debts
b. Returns of capital to owners or equity participants.
c. Distributions of income to owners or equity participants.

Answer 30

Returns of claims

Question 31

Income is recorded when collected regardless of when earned while expense is recorded when paid regardless of when it is incurred. This concept does not properly measure income or loss for the period.

Answer 31

Cash basis of accounting

Question 32

In accounting, each transaction is portrayed as a two-fold effect on at least two elements of financial statements. This is one of the most important basic accounting concepts you appreciate.

Answer 32

The Duality Concept

Question 33

An income earned

Answer 33

Increase in asset AND increase in income

Question 34

A liability borrowed

Answer 34

Increase in asset AND increase in liability

Question 35

A capital contributed by the business owner

Answer 35

Increase in asset AND increase in capital

Question 36

A payment of expense

Answer 36

Decrease in asset AND increase in expense

Question 37

A payment of liability

Answer 37

Decrease in asset AND decrease in liability

Question 38

Returns of capital to the business owner

Answer 38

Decrease in asset AND decrease in capital

Question 39

A period that starts January 1 and ends December 31

Answer 39

Calendar Period

Question 40

A period that starts any day other than January 1 and ends any day other than December 31

Answer 40

Fiscal Period