MD#2 : The Statement of Financial Position and The Statement of Owner's Equity (1st Grading Period)

Question 1

• It shows the financial condition of a company as of a given time.
• It is a clear representation of the accounting equation Assets = Liabilities + Owner’s Equity.

Answer 1

Statement of Financial Position / Balance Sheet

Question 2

• It can be defined as resources or things of value that are owned by a company as the result of company transactions.

Answer 2

Assets

Question 3

• It is a company’s cash and its other assets that are expected to be converted to cash within one year of the date appearing in the heading of the company’s balance sheet.

Answer 3

Current Assets

Question 4

• These are classified and presented according to liquidity with the most liquid followed by those with lesser liquidity.
• It is always listed first followed by other current assets according to their proximity to cash.

Answer 4

Current Assets

Question 5

• It includes coins, currencies, checks, bank deposits, and other cash items readily available for use in the operations of the business.

Answer 5

Cash

Question 6

• These are short-term investments that are readily convertible to known amounts of cash which are subject to an insignificant risk to changes in value.

Answer 6

Cash Equivalents

Question 7

• These are stocks and bonds purchased by the enterprise and are to be held for only a short span of time or a short duration. They are usually purchased when a business has excess cash.

Answer 7

Marketable Securities

Question 8

• It includes the amounts collectible from any of the following accounts:
  1. Accounts Receivables
  2. Advances To Employees
  3. Accrued Income

Answer 8

Trade and Other Receivables

Question 9

• It is the amount from the customer to whom sales have been made or services have been rendered on account or credit.

Answer 9

Accounts Receivable

Question 10

• It is a promissory note issued by the client or the customer
  in exchange for services or goods received as evidence of his/her obligation to pay.

Answer 10

Notes Receivable

Question 11

• It is the amount of interest collectible on promissory notes received from the customers and clients.

Answer 11

Interest Receivable

Question 12

• It is a certain amount of money loaned to employees payable in cash or through salary deductions.

Answer 12

Advances To Employees

Question 13

• It is income already earned but not yet received.

Answer 13

Accrued Income

Question 14

• It represent the unsold goods at the end of the accounting period. This is applicable only to a merchandising business.

Answer 14

Inventories

Question 15

• It include supplies bought for use in the business or services and benefits to be received by the business in the future paid in advance.

Answer 15

Prepaid Expenses

Question 16

• These are accounts deducted from the related asset accounts. The following are the
  contra-asset accounts:
  1. Allowance For Bad Debts
  2. Accumulated Depreciation

Answer 16

Contra-Asset Accounts

Question 17

• These are losses due to uncollectible accounts. This is deducted from the Accounts Receivable account to get the net realizable value.

Answer 17

Allowance For Bad Debts

Question 18

• It represents the expired cost of property, plant and equipment as a result of usage and passage of time.
• This is deducted from the cost of the related asset account to get the carrying value or book value of the asset.

Answer 18

Accumulated Depreciation

Question 19

• It is an asset that is not expected to turn to cash within one year of date shown on a
  company’s balance sheet.
• It is also known as a long-term asset.

Answer 19

Non-Current Assets

Question 20

• It is an account on the asset side of a company’s balance sheet that represents the
  company’s investments, including stocks, bonds, real estate, and cash.
• These are assets that a company intends to hold for more than a year.

Answer 20

Long-Term Investment

Question 21

• These are tangible assets that are held for use in the production or supply of goods or services or for administrative purposes and which are expected to be used for more than one period.
• Examples of Property, Plant and Equipment are: Land, Building, and Equipment.

Answer 21

Property, Plant, and Equipment

Question 22

• It is a piece of lot or real estate owned by the enterprise on
  which a building can be constructed for business purposes.

Answer 22

Land

Question 23

• It is an edifice or structure used to accommodate the office, store, or factory of a business enterprise in the conduct of its operations.

Answer 23

Building

Question 24

• It includes typewriter, air-conditioner, calculator, filing cabinet, computer, electric fan, trucks and cars used by the business in its office, store or factory.
• Specific account titles may be used such as Office Equipment, Store Equipment, Delivery Equipment, Transportation Equipment, Machinery and Equipment.

Answer 24

Equipment

Question 25

• It include tables, chairs, carpets, curtains, lamp and lighting fixtures and wall decors.
• Specific account titles maybe used such as Office Furniture and Fixtures and Store Furniture ad Fixtures.

Answer 25

Furnitures and Fixtures

Question 26

• These are identifiable, non-monetary assets without physical substance held for use in the production or supply of goods or services, for rental to others, or for administrative purposes.

Answer 26

Intangible Assets

Question 27

• These are obligations of the company; they are amounts owed to creditors for a past transaction and they usually have the word “payable” in their account title.
• These are presented based on their maturity. Obligations presently due for payment are listed first.

Answer 27

Liabilities

Question 28

• It is :
  A. Expected to be settled in the entity’s normal operating cycle;
  B. Held primarily for the purpose of being traded; and
  C. Due to be settled within twelve (12) months after the Balance Sheet date.

Answer 28

Current Liability

Question 29

• It include payables from any of the following accounts:
  1. Accounts Payable
  2. Notes Payable
  3. Loan Payable
  4. Utilities Payable
  5. Unearned Revenue

Answer 29

Trade and Other Payables

Question 30

• It include debts arising from purchase of an asset or acquisition of services on account.

Answer 30

Accounts Payable

Question 31

• It includes debts arising from purchase of an asset or acquisition of services on account evidenced by a promissory note.

Answer 31

Notes Payable

Question 32

• It is a liability to pay the bank or other financing institution arising from funds borrowed by the business from these institutions payable within twelve months or shorter.

Answer 32

Loan Payable

Question 33

• It is an obligation to pay utility companies for services received from them.
• Examples of this are telephone services to PLDT, electricity to MERALCO, and water services to Maynilad.

Answer 33

Utilities Payable

Question 34

• It represent obligations of the business arising from advance payments received before goods or services are provided to the customer.
• This will be settled when certain goods and services are delivered or rendered.

Answer 34

Unearned Revenue

Question 35

• It include amounts owed to others for expenses incurred but not yet paid.
• Examples of these are salaries payable, utilities payable, taxes payable, and interest payable.

Answer 35

Accrued Liabilities

Question 36

• These are long-term liabilities or obligations which are payable for a period longer
  than one year.
• Examples of Non-Current Liabilities are as follows:
  1. Mortgage Payable
  2. Bond Payable

Answer 36

Non-Current Liabilities

Question 37

• It is a long-term debt of the business with security or collateral in the form of real
  properties.

Answer 37

Mortgage Payable

Question 38

• It is a certification of indebtedness under the seal of a corporation, specifying the terms of repayment and the rate of interest to be charged.

Answer 38

Bonds Payable

Question 39

• Along with liabilities, it can be thought of as a source of the company’s assets.
• It is sometimes referred to as the book value of the company, because it is equal to the reported asset amounts minus the reported liability amounts.
• It may also be referred to as the residual of assets minus liabilities.

Answer 39

Owner’s Equity

Question 40

“Owner’s Equity” are the words used on the balance sheet when the company is a ___.

Answer 40

Sole Proprietorship

Question 41

If the company is a corporation, the words ___ are used instead of Owner’s Equity.

Answer 41

Stockholder’s Equity

Question 42

Examples of stockholders’ equity accounts include:

Answer 42

A. Common Stock
B. Preferred Stock
C. Paid-in Capital in Excess of Par Value
D. Paid-in Capital from Treasury Stock
E. Retained Earnings
F. Accumulated Other Comprehensive Income

Question 43

The Two Form of Statement of Financial Position

Answer 43

• Account Form
• Report Form

Question 44

• It follows the accounting equation where assets are listed on the left-hand column of the report with the liabilities and owner’s equity listed on the right hand column.

Answer 44

Account Form

Question 45

• It shows in one straight column the assets, followed by liabilities and owner’s equity.

Answer 45

Report Form

Question 46

• It shows the changes in the CAPITAL or OWNER’S EQUITY as a result of additional investment or withdrawals by the owner, plus or minus the Net Income or Net Loss for the year.

Answer 46

Statement of Changes in Owner’s Equity or Statement of Owner’s Equity

Question 47

• It is an account bearing the name of the owner representing the original and additional investment of the owner of the business increased by the amount of net income earned during the year. - It is decreased by the cash or other assets withdrawn by the owner as well as the net loss incurred during the year.

Answer 47

Capital

Question 48

• It represents the withdrawals made by the owner of the business either in cash or other assets.

Answer 48

Drawing

Question 49

• It is a temporary account used at the end of the accounting period to close income and
  expense accounts.
• The balance of this account shows the Net Income or Net Loss for the period before it is closed to the capital account.

Answer 49

Income Summary