FAR Flashcards by Kristine Amor Dapal Maramba

Robbers stole from ABC Corporation 25 computers worth P 500,000. The value of the loss should be classified as

A. An exchange.
B. A casualty
C. A cost.
D. A nonreciprocal transfer

D. A nonreciprocal transfer

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The use of historical cost methods in the preparation of financial statements is justified by which of the following accounting theory?

a. Conservatism.
b. Objectivity.
c. Relevance
d. Comparability.

b. Objectivity.

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Four types of money prices are used in measuring resources in financial accounting. This type which uses such concepts as present value, discounted cash flow, net realizable value, value in use, etc. is known as

A. Price in a current purchase exchange.
B. Price in past purchases of the enterprise.
C. Price based on future exchanges.
D. Price in a current sale of exchange

C. Price based on future exchanges.

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Comparability of financial statements of a single enterprise for one date or period of time with those of other dates or for other periods would be more informative if the following conditions exist, except

A. The presentations are in the same form.
B. The contents of the statements are identical.
C. Accounting principles are not changed at all.
D. Change in circumstances or the nature of the underlying transactions are disclosed

C. Accounting principles are not changed at all.

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Gross decreases in assets or gross increases in liabilities recognized and measured in conformity with GAAP that result from those types of profit-directed activities of an enterprise that can change owners’ equity refer to

A. Expenses.
B. Results of operations.
C. Revenue.
D. Net income.

A. Expenses.

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The principle which constitute the ground rules for financial reporting are termed “generally accepted accounting principles.” To qualify as “generally accepted,” an accounting principle must

A. Usually guide corporate managers in preparing financial statements which will be understood by widely scattered stockholders.

B. Guide corporate managers in preparing financial statements which will be used for collective bargaining agreements with trade unions.

C. Guide an entrepreneur of the choice of an accounting entity like single proprietorship, partnership, or corporation.

D. Receive substantial authoritative support

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The Generally Accepted Accounting Principles (GAAP) also apply to

A. The Board of Accountancy.
B. The Bureau of Internal Revenue. C. The Philippine Institute of CPAs. D. The Professional Regulation Commission

C. The Philippine Institute of CPAs.

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The issuing of accounting standards is the responsibility of the
A. PICPA
B. Accounting Standards Council
C. ASCP Council
D. CPE Council

B. Accounting Standards Council

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One of the following is not a pervasive measurement principle.

A. Initial recording of assets and liabilities.
B. Associating cause and effect.
C. Revaluation of assets.
D. Systematic and rational allocation

C. Revaluation of assets.

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The use of percentage-of-completion method of accounting for long-term construction contracts is a measurement of revenue under the

A. Objectivity principle.
B. Monetary principle.
C. Cost principle.
D. Realization principle.

D. Realization principle.

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Current assets are arranged normally on the balance sheet in the order of
A. The alphabet
B. Liquidity
C. Valuation
D. Materiality

B. Liquidity

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The basis for classifying assets as current or non-current is the period of time normally elapsed form the time the accounting entity expands cash to the time it converts

A. Inventory back into cash, or 12 months, whichever is shorter.

B. Receivables back into cash, or 12 months, whichever is longer.

C. Tangible fixed assets back into cash, or 12 months, whichever is longer.

D. A deposit on Machinery ordered, delivery of which will be made within six months

A. Inventory back into cash, or 12 months, whichever is shorter.

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Eloy Co. recorded a bad debt recovery using the allowance method of accounting for bad debts. Compare (X) the working capital before the recovery with (Y), the working capital after the recovery.

A. X equals Y.
C. S is less than Y.
B. X is greater than Y.
D. X is equal to or less than Y.

A. X equals Y.

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Generally accepted accounting principles

A. derive their authority from legal court proceedings.

B. have been specified in detail in the FRSC Conceptual Framework.

C. are fundamentally truths or axioms that can be derived from laws of nature.

D. derived their credibility and authority from general recognition and acceptance by the accounting profession.

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What is a possible danger if politics plays too big a role in developing IFRS?

A. User groups become active.
B. Individuals may infIuence the standards.
C. The IASB delegates its authority to elected officials.
D. Financial reporting standards are not truly generally accepted.

D. Financial reporting standards are not truly generally accepted.

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The qualifications of the members of BOA include all of the following, except.

A. Must be a natural-born citizen and a resident of the Philippines.

B. Must be of good moral character and must not have been convicted of crime involving moral turpitude.

C. Must be duly registered CPA with at least ten years of work experience in any scope of practice of accountancy.

D. Must have any pecuniary interest, directly or indirectly, in any school conferring an academic degree necessary for admission to the practice of accountancy

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To be relevant, an. information should have which of the following?

A. Confirmatory value
C. Understandability
B. Cost and benefit
D. Verifiability

A. Confirmatory value

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The failure to properly record an adjusting entry to accrue an expense results in

A. Overstatement of expense and an understatement of asset.

B. Understatement of expense and an overstatement of asset.

C. Understatement of expense and an overstatement of liability.

D. Understatement of expense and an understatement of liability.

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The statement of f i nancial position is useful for all of the following, except

A. assessing risk
C. evaluating financial flexibility
B. determining free cash flows
D. evaluating liquidity

B. determining free cash flows

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Compensation expense resulting from a compensatory stock option plan is generally.

A. Recognized in the period of exercise.

B. Recognized in the period of the grant.

C. Allocated over the periods of the employee’s service life to retirement.

D. Allocated to the periods benefited by the employee’s required service

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Windsor Company has outstanding both common stock and nonparticipating, non-cumulative preferred stock. The liquidation value of the preferred is equal to its par value. The book value per share of the common stock is unaffected by

A. A 2-for-1 split of the common stock.

B. The payment of a previously declared cash dividend on the common stock.

C. The declaration of a stock dividend on preferred payable in preferred stock when the market price of the preferred is equal to its par value.

D. The declaration of a stock dividend on common stock payable in common stock when the market price of the common is equal to its par value.

B. The payment of a previously declared cash dividend on the common stock.

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Which of the following is NOT an example of a derivative financial instrument?

A. A commercial bill contract.
C. A futures contract.
B. A forward exchange contract.
D. An option contract.

A. A commercial bill contract.

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Roweena, Inc., enters into a call option contract with Jane Investment Co. on January 2, 2021. This contract gives Roweena the option to purchase 1,000 shares of WSM stock at P100 per share. The option expires on April 30, 2021. WSM shares are trading at P100 per share on January 2, 2021, at which time Roweena pays P100 for the call option.

Assume that the price per share of WSM stock is P120 on April 30, 2021, and that the time value of the option has not changed. In order to settle the option contract, Roweena, Inc., would most likely

A. pay Jane Investment P20,000.

B. receive P400 from Jane Investment.

C. receive P20,000 from Jane Investment.

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Which among the following is not considered as a cash equivalent for purposes of a cash f I ow statement?

A. A 90-day T-bill

B. A 60-day money market placement

C. A three-year treasury note maturing on May 30, 2021 purchased by the enterprise on April 15, 2021

D. A three-year treasury note maturing on May 30, 2021 purchased by the enterprise on January 2, 2021

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Stockholders' equity is generally classif i ed into which two major categories? A. Earned capital and contributed capital. B. Contributed capital and donated capital. C. Appropriated capital and retained earnings. D. Retained earnings and unappropriated capital.

A. Earned capital and contributed capital.

At December 31, 2021, Mae Company was holding long-lived assets which it intended to sell. The company appropriately recognized a loss in 2021 related to these assets. On the income statement for 2003, this loss should be reported as A. Extraordinary item B. Component of income from continuing operations before income tax C. Separate component of selling or administrative expenses, disclosed net of tax D. Component of gain or loss from sale of discontinued operations, net of income tax

B. Component of income from continuing operations before income tax

It is also called the Language of business

Accounting

Accounting is what type of activity?

Service Activity

Accounting is a process of I_____, M______, and C_____ E idea to permit informed judgements and decisions by users of the information.

Identifying, Measuring and Communicating Economic idea

True of False: Accounting is a Art of Recording, Classifying and Summarizing in a significant manner

TRUE

What are the 7 Types of Business? SITFIRM

Services Infrastructure Trader Financial Insurance Raw Materials Manufacturing

It is a type of business where they selling people's time

Services

It is a type of business where they buying and selling products

Trader

It is a type of business where they Designing products, aggregating components and assembling finished products

Manufacture

Types of business where they growing or extracting raw materials activity

Raw Materials

It is a type of business where they selling the utilization of infrastructure

Infrastructure

It is a type of business where they Receiving deposits, lending and investing money

Financial

It is a type of business where they Pooling premiums of many to meet claims of a few

Insuranca

What are the 3 Business Organizations?

Sole Proprietorship Partnership Corporation

This business organization has a single owner who generally is also the manager. This tend to be small service-type (eg. physicians, lawyers and accountants) businesses and retail establishments.

Sole Proprietorship

Is 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. Each partner is personally liable for any debt incurred by the partnership.

Partnership

Is a business owned by its stockholders. 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

Corporation

What are the 3 Activities in Business Organizations

Financing Activities Investing Activities Operating Activities

Activities in Business Organizations: are the methods an organization uses to obtain financial resources from financial markets and how it manages these resources.

Financing Activities

Activities in Business Organizations: Managers use capital from financing activities to acquire other resources used in the transformation process-that, is, to transform resources from one form to a different form, which is more valuable, to meet the needs of the people.

Investing Activities

Activities in Business Organizations: Involve the use of resources to design, produce, distribute, and market goods and services.

Operating Activities

Fundamental Concept: is an organization or a section of an organization that stands apart from other organizations and individuals as a separate economic unit. Simply put, the transactions of different entities should not be accounted for together. Each entity should be evaluated separately.

Entity Concept

Fundamental Concepts: This concept allows the users to obtain timely information to serve as a basis on making decisions about future activities

Periodicity Concept

Fundamental Concept: It allows accountants to add and subtract peso amounts as though each peso has the same purchasing power as any other peso at any time. This is the basis for ignoring the effects of inflation in the accounting records.

Stable Monetary Unit Concept

Fundamental Concept: Accounting depicts the effects of transactions and other events and circumstances on a reporting entity’s economic resources and claims in the periods in which those effects occur, even if the resulting cash receipts and payments occur in a different period

Accrual Basis

Basic Principles: Accounting records and statements are based on the most reliable data available so that they will be as accurate and as useful as possible. Reliable data are verifiable when they can be confirmed by independent observers.

Objectivity Principle

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

Historical Cost

A principle where need to be recognized in the accounting period when goods are delivered or services are rendered or performed.

Revenue Recognition Principle

A principle where Expenses should be recognized in the accounting period in which goods and services are used up to produce revenue and not when the entity pays for those goods and services

Expenses Recognition Principle

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

Adequate Disclosure

A principle where Financial reporting is only concerned with information that is significant enough to affect evaluations and decisions. _____ depends on the size and nature of the item judged in the particular circumstances of its omission

Materiality

A principle where The firms should use the same accounting method from period to period to achieve comparability over time within a single enterprise. However, changes are permitted if justifiable and disclosed in the financial statement

Consistency Principle

What are the Elements of Financial Statements? In - Financial Position/Balance Sheet - Financial Performance/Income

Assets, Liabilities and Equity in Financial Position Income and Expenses in Financial Performance

Elements of Financials Statement: A present economic resource controlled by the entity as a result of past events. An economic resource is a right that has the potential to produce economic benefits

Assets

Element: A present obligation of the entity to transfer an economic resource as a result of past events.

Liability

Element: The residual interest in the assets of the entity after deducting all its liabilities

Equity

Element: Increases in assets, or decreases in liabilities, that result in increases in equity, other than those relating to contributions from holders of equity claims.

Income

Element: Decreases in assets, or increases in liabilities, that result in decreases in équity, other than those relating to distributions to holders of equity claims

Expenses

What is the accounting equation?

Assets = Liabilities + Owner's Equity

What is the Normal Balance of Assets, Liabilities and Owner's Equity What is the Normal Balance of Expenses and Income

Assets and Expenses both Increases in Debit and Decreases in Credit Liabilities, Owner's Equity and Income are Increases in Credit and Decreases in Debit

It is the Transferring the amounts from the general journal to appropriate accounts in the ledger

Posting

A grouping of accounts. Used to classify and summarize transactions and to prepare data for basic financial statements

Ledger

They encompass the conventions, rules, and procedures necessary to define what accepted accounting practice.

Generally Accepted Accounting Principles

This concept means associating effort with accomplishment.

Matching

This is the first step in the Accounting Cycle.

Analyze transactions from Source Documents

The journal entry that contains more than two accounts.

Compound Journal Entry

Listing of all ledger accounts, in order, with their respective debit or credit balances.

Trial Balance

Shows all the effects of a transaction in terms of debits and credits.

General Journal (Original entry)

A listing of all the accounts and their account numbers in the ledger is known as the _____

The Chart of Accounts

What are the 10 Accounting Cycle Steps? I,J,L,T, AE, FS, P, CJE, PCTB, RJE

Step 1: "Identification" of Events to be Recorded Step 2: Journal Step 3: Ledger Step 4: Trial Balance Step 5: Adjusting Entries Step 6. Financial Statements Step 7: Journalized and Posted Step 8: Closing Journal Entries Step 9: Post Closing Trial Balance Step 10: Reversing Journal Entries

The financial statements, are prepared on this basis of accounting in order to meet their objectives. Under this basis, the effects of transactions and other events are recognized when they occur and not as cash is received or paid. This means that the accountant records revenues as they are earned and expenses as they are incurred.

Accrual Basis

This is a basis where the accountant does not record a transaction until cash is received or paid. Generally, cash receipts are treated as revenues and cash payments as expenses.

Cash Basis

is the recognition of "an expense already incurred but unpaid", or "revenuebearned but uncollected". This adjustment deals with an amount unrecorded in any account, the entry, in effect, increases both a balance sheet and an income statement account.

Accrual

is the postponement of the recognition of "an expense already paid but not yet incurred," or of "revenue already collected but not yet earned". This adjustment deals with an amount already recorded in a balance sheet account; the entry, in effect, decreases the balance sheet account and increases an income statement account.

Deferrals

Accountants often use this to help transfer data from the unadjusted trial balance to the financial statements. This multi-column document provides an efficient way to summarize the data for financial statements.

Worksheet

The difference between net sales and cost of sales is called?

Gross profit

Merchandising computation for Income Statement

Net Sales - Cost of Sales = Gross profit +- Income or Expenses = Profit

Some businesses give discounts for prompt payment called ?

Cash Discount

The seller bears the shipping cost is called?

FOB Destination

The buyers shoulders the shipping cost is called?

FOB Shipping Cost

The seller pays the transportation costs before shipping the goods sold

Freight Prepaid

The freight entity collects from the buyer is called?

Freight Collect

Transportation In is ____ to the cost of cost of goods sold Added or Minus

Added

CHARACTERISTICS OF A PARTNERSHIP are: Mu, Di, Co, Mu, Li, Un, In, Pa

Mutual Contribution Division of Profit or Losses Co-ownership of Contributed Assets Mutual Agency Limited Life Unlimited Liability Income Taxes Partners' Equity Accounts

Kind of Partners: One who is liable to the extent of his separate property after all the assets of the partnership are exhausted.

General partner

Kinds of Partners: One who is liable only to the extent of his capital contribution. He is not allowed to contribute industry or services only.

Limited partner

Kinds of Partners: One who contributes money or property to the common fund of the partnership

Capitalist partner

Kinds of Partners: One who contributes his knowledge or personal service to the partnership

Industrial partner

Kinds of Partners: One whom the partners has appointed as manager of the partnership.

Managing partner

Kinds of Partners: One who is designated to wind up or settle the affairs of the partnership after dissolution

Liquidating partner

Kinds of Partners: One who does not take active part in the business of the partnership and is not known as a partner.

Dormant partner

Kinds of Partners: One who does not take active part in the business of the partnership though may be known as a partner.

Silent Partner

Kinds of Partners: One who takes active part in the business but is not known to be a partner by outside parties.

Secret Partner

Kinds of Partners: One who is actually not a partner but who represents himself as one.

Nominal partner or partner by estoppel

Legality of existence: One which has compiled with all the legal requirements or it's establishments

De Jure Partnership

Legality of existence: One which has failed to comply with all the legal requirements for it's establishments

De Facto Partnership