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1
...

Answer: FALSE

2
...

Answer: INCOME STATEMENT

3
...
AB Cruz started his service business
...
On January 1, 2020, Mr
...

b
...

c
...
Cruz paid PHP 5,000
and the balance on account
...
On January 31, 2020, Mr
...
Required: The total equity (Cruz, Capital account) as of January 31, 2020 is:
_______
...
75 it should be written as 100,001
...
There are only three elements of Financial statements mentioned in the Framework: assets,
liabilities, and equity
...
The right side of an account is referred to as a _________
...
Debit b
...
Footing d
...
CREDIT

6
...

Answer: TRUE

7
...
AB Cruz started his service business
...
On January 1, 2020, Mr
...

f
...

g
...
Cruz paid PHP 5,000
and the balance on account
h
...
Cruz is in need of cash so he withdraw PHP 2,000 cash of the
business
...

Note: If your answer is PHP 100,000
...

Answer: 15,000

8
...
Increase both assets and owner’s equity
...
Increase both assets and liabilities
c
...
Decrease both assets and liabilities
Answer: A
...


9
...
It affects the statement of financial position
b
...
It appears in the income statement
d
...
IT IS THE EXCESS OF EXPENSES OVER REVENUES

10
...
AB Cruz started his service business
...
On January 1, 2020, Mr
...


j
...

k
...
Cruz paid PHP 5,000
and the balance on account
...
On January 31, 2020, Mr
...

Required: The total assets of the business as of January 31, 2020 is: _______
...
75 it should be written as 100,001
...
Which of the following is considered as an asset to be presented in the statement of
financial position?
a
...
Accrued rent Expense
c
...
Advances from customers
Answer: A
...
Because of this book in 1494 entitles “Summa de Arithmetica, Geometria, Proportioni et
Proportionalita”, Friar Luca Pacioli was considered the father of Double-Entry Bookkeeping
...
The assets of the business at the start of the month is P 1,000,000 and the owner’s equity
is P800,000
...
At the end of the month, owner’s equity will become:
a
...
P800,00
c
...
1,150,000
Answer: B
...
Credits are used to record increases in:
a
...
Expenses, liabilities, and owner’s equity
c
...
Revenue, liabilities, owner’s equity
Answer: D
...
Who is the primarily responsible for the financial statements?
A
...
Company’s Management
C
...
The Philippine Securities and Exchange Commission
Answer: B
...
The basic accounting equation Principle dictates that a business owner’s personal
expenses should not be recorded on the books of the business
...
Income and Expenses are the elements that relate to financial position
...
The owner of the grocery store took home a lot of bread and a bottle of milk from the
grocery’s shelf was not recorded by the accountant
...
Will understate the assets of the business
...
Will overstate assets and owner’s equity
...
Is not a business transaction
...
Will understate assets and owner’s equity
...
WILL OVERSTATE ASSETS AND OWNER’S EQUITY
...
Prepaid expense is an example of a nominal account
...
Unlike expenses, liabilities and owner’s equity are on the right side of the accounting
equation
...

Answer: TRUE

21
...

Answer: FALSE

22
...

Paid P1,000 in partial payment of store supplies purchased 30 days previously
...

Paid P1,200 to owner of the business for his personal use
...

What was the amount of expenses during September?
a
...
P4,500 c
...
P2,000
Answer: D
...
A customer brought his car to your repairing shop and after the work was done, he made
a cash payment of P10,000 representing 50% of the repair bill and then issued a note for the
balance of P10,000 promising to pay after one month
...
This supports the principle of
a
...
Accrual c
...
Matching
Answer: B
...
Government accounting encompasses the process of analyzing, classifying, summarizing,
and communicating all transactions involving the receipt and disposition of government
funds and property and interpreting the results thereof
...
Net income which increases owner’s equity is considered a recovery on capital while
cash withdrawn by the owner is considered a recovery of capital
...
At the beginning of the year, the liabilities of DGP Advertising amounted to P120,000
but it decreased by P50,000 during the year
...
The owner’s equity at the start of the
year is
a
...
P1,060,000 c
...
P260,000
Answer: C
...
Ben Watch Repair Services has a total assets on January 1, 2019 totaled P70,000, and its
liabilities amounted to P40,000
...
At December 31, 2019, assets totaled P90,000 and
liabilities amounted to P57,000
...
P2,000 b
...
P3,000 d
...
4,000

28
...

Answer: TRUE

29
...

Answer: TRUE

30
...
P29,100 b
...
P49,950 d
...
P49,950

31
...
This could have been due to a
purchase of equipment for cash
...
Payment of owner’s liability out of the cash of the business decreases both assets and
liabilities
...
A current liability is an obligation that:
a
...

b
...

c
...

d
...

Answer: B
...


34
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rendered services for a customer in exchange for
P7,500 cash
...
Assets, no effect; Liabilities, P7,500 decrease; Owner’s Equity, P7,500 increase
b
...
Assets, P7,500 increase; Liabilities, P7,500 increase; Owner’s Equity, no effect
d
...
ASSETS, P7,500 INCREASE; LIABILITIES, NO EFFECT; OWNER’S
EQUITY P7,500 INCREASE

35
...
Referral Expense and Laboratory Fees are both recorded by Medex
...
Matching b
...
Cost d
...
MATCHING

36
...
During 2019, total assets decreased P40,000, and total
liabilities decreased P22,000
...
P262,000 b
...
P18,000 d
...
P262,000

37
...
, had a capital balance of P12,300 on June 30, 2020 and P23,800 on July 31,2020
...
What were the owner’s withdrawals during
July?
a
...
P22,100 c
...
P11,500
Answer: A
...
Which of the following transactions does not affect the owner’s equity in a sole
proprietorship?
a
...
Cash payments for expenses
c
...
Cash receipts for revenues
Answer: A
...
Which of the following statements is associated with the accrual basis of accounting?
a
...
Revenues are recognized in the period they are earned, regardless of the time period the
cash is received
c
...
A minimum amount of record keeping is required
...
REVENUES ARE RECOGNIZED IN THE PERIOD THEY ARE
EARNED, REGARDLESS OF THE TIME PERIOD THE CASH IS RECEIVED

Accounting
System that collects and processes (analyzes, measures, and records) financial information about
an organization and reports that information to decision makers

Balance Sheet
(Statement of Financial Position) reports the amount of assets, liabilities, and stockholders'
equity of an accounting entity at a point in time

Accounting Entity
Organization for which financial data are to be collected

Basic Accounting Equation
(Balance Sheet Equation): Assets = Liabilities + Stockholders' Equity

Income Statement
(Statement of Income, Statement of Earnings, Statement of Operations, Statement of
Comprehensive Income) reports the revenues less the expenses of the accounting period

Accounting Period
Time period covered by the financial statements

Statement of Stockholders' Equity
Reports the way that net income and the distribution of dividends affected the financial position
of the company during the accounting period

Statement of Cash Flows
(Cash Flows Statement) reports inflows and outflows of cash during the accounting period in the
categories of operating, investing, and financing

Notes
(Footnotes) provide supplemental information about the financial condition of a company,
without which the financial statements cannot be fully understood
Generally Accepted Accounting Principles
(GAAP) measurement and disclosure rules used to develop the information in financial
statements

Audit
Examination of the financial reports to ensure that they represent what they claim and conform
with GAAP

Primary Objective of Financial Reporting to External Users
Provide financial information about the reporting entity that is useful to existing and potential
investors, lenders, and other creditors in making decision about providing resources to the entity

Relevant Information
Can influence a decision; it is timely and has predictive and/or feedback value

Faithful Representation
Requires that the information by complete, neutral, and free from error

Separate-Entity Assumption
States that a business's activities are accounted for separately from those of its owners

Continuity (Going-Concern) Assumption
States that businesses are assumed to continue into the foreseeable future

Stable Monetary Unit Assumption

States that accounting information should be measured and reported in the national monetary
unit without any adjustment for changes in purchasing power

Mixed-Attribute Measurement Model
Applied to measuring different assets and liabilities

Assets
Probable future economic benefits owned or controlled by an entity as a result of past
transactions or events

Current Assets
Assets that will be used of turned into cash within one year; Inventory is always considered a
current asset regardless of the time needed to produce and sell it

Liabilities
Probable future sacrifices of economic benefits arising from present obligations of a business as
a result of past transactions or events

Current Liabilities
Obligations that will be settled by providing cash, goods, other current assets, or services within
the coming year

Stockholders’ Equity (Shareholders’ or Owners’ Equity)
Residual interest in assets of the entity after subtracting liabilities

Retained Earnings
Cumulative earnings of a company that have not been distributed to the owners and are
reinvested in the business

Transaction

(1) Exchange of assets or service for assets, services, or promises to pay between a business and
one or more external parties to a business or (2) a measurable internal event such as adjustments
for the use of assets in operations

Account
Standardized format that organizations use to accumulate the dollar effect of transactions on each
financial statement item

Transaction Analysis
Process of studying a transaction to determine its economic effect on the fundamental accounting
model

Par Value
Legal amount per share established by the board of directors; it represents the minimum amount
a stockholder must contribute and has no relationship to the market price of the stock

Common Stock
Account that is equal to the number of shares issued by a corporation times the par value per
share

Additional Paid-in Capital
(Paid-in Capital, Contributed Capital in Excess of Par) is the amount of capital contributed by the
shareholders less the par value of stock

Accounting Cycle
Process followed by entities to analyze and record transactions, adjust the records at the end of
the period, prepare financial statements, and prepare the records for the next cycle

Debit
(Dr) refers to the left side of the T-account

Credit
(Cr) refers to the right side of the T-account

Journal Entry
Accounting method for expressing the effects of a transaction on accounts in a debits-equalcredits format

T-Account
Tool for summarizing transaction effects for each account, determining balances, and drawing
inferences about a company's activities

Trial Balance
List of all accounts with their balances to provide a check on the equality of the debits and
credits

Operating (Cash-to-Cash) Cycle
Time it takes for a company to pay cash to suppliers, sell goods and services to customers, and
collect cash from customers

Time Period Assumption
Indicates that the long life of a company can be reported in shorter time periods

Revenues
Increases in assets or settlements of liabilities from ongoing operations

Expenses
Outflows or the using up of assets or increases in liabilities from ongoing operations incurred to
generate revenues during the period

Gains

Increases in assets or decreases in liabilities from peripheral transactions

Losses
Decreases in assets or increases in liabilities from peripheral transactions

Cash-Basis Accounting
Records revenues when cash is received and expenses when cash is paid

Accrual Basis Accounting
Records revenues when earned and expenses when incurred, regardless of the timing of cash
receipts or payments

Revenue Realization Principle
States that revenues are recognized when (1) goods or services are delivered, (2) there is
persuasive evidence of an arrangement for customer payment, (3) the price is fixed or
determinable, and (4) collection is reasonably assured

Expense Matching Principle
Requires that expenses be recorded when incurred in earning revenue

Operating Effects
Relate to receipts of cash from customers, payments to suppliers (employees, utilities, and other
suppliers of goods and service for operating the business), and any interest paid or investment
income received

Investing Effects
Relate to purchasing/selling investments or property and equipment or lending funds to/receiving
repayment from others

Financing Effects

Relate to borrowing or repaying banks, issuing stock to investors, repurchasing stock from
investors, or paying dividends to investors

Adjusting Entries
Entries necessary at then end of the accounting period to measure all revenues and expenses of
that period

Deferred (Unearned) Revenues
Previously recorded liabilities that need to be adjusted at the end of the accounting period to
reflect the amount of revenue earned

Accrued Revenues
Previously unrecorded revenues that need to be adjusted at the end of the accounting period to
reflect the amount earned and the related receivable account

Deferred Expenses
Previously acquired assets that need to be adjusted at the end of the accounting period to reflect
the amount of expense incurred in using the assets to generate revenue

Contra-Account
Account that is an offset to, or reduction of, the primary account

Net Book Value (Book Value, Carrying Value)
Of an asset is the difference between its acquisition cost and accumulated depreciation, its
related contra-asset account

Accrued Expenses
Previously unrecorded expenses that need to be adjusted at the end of the accounting period to
reflect the amount incurred and the related payable account

Permanent (Real) Accounts

Balance sheet accounts that carry their ending balances into the next accounting period

Temporary (Normal) Accounts
Income statement accounts that are closed to Retained Earnings at the end of the accounting
period

Closing Entry
Transfers balances in temporary accounts to Retained Earnings and establishes zero balances in
temporary accounts

Post-Closing Trial Balance
Should be prepared as an additional step of the accounting cycle to check that debits equal
credits and all temporary accounts have been closed

Corporate Governance
Refers to the procedures designed to ensure that the company is managed in the interests of the
shareholders

Sarbanes-Oxley Act
Law which strengthens US financial reporting and corporate governance regulations

Securities and Exchange Commission (SEC)
US government agency that determines the financial statements that public companies must
provide to stockholders and measurement rules that they must use in producing those statements

Financial Accounting Standards Board (FASB)
Private sector body given the primary responsibility to work out the detailed rules that become
generally accepted accounting principles

Public Company Accounting Oversight Board (PCAOB)

Private sector body given the primary responsibility to issue detailed auditing standards

Board of Directors
Elected by the stockholders to represent their interests; its audit committee is responsible for
maintaining the integrity of the company's financial reports

Unqualified (Clean) Audit Option
An auditor's statement that the financial statements are fair presentations in all material respects
in conformity with GAAP

Earnings Forecasts
Predictions of earnings for future accounting periods prepared by financial analysts

Institutional Investors
Managers of pension, mutual, endowment, and other funds that invest of the behalf of others

Private Investors
Include individuals who purchase shares in companies

Lenders (Creditors)
Include suppliers and financial institutions that lend money to companies

Cost Effectiveness
Requires that the benefits of accounting for and reporting information outweigh the costs

Material Amounts
Amounts that are large enough to influence a users' decision

Press Release
A written public news announcement normally distributed to major news services

Form 10-K
Annual report that publicly traded companies must file with the SEC

Form 10-Q
Quarterly report that publicly traded companies must file with the SEC

Form 8-K
Used by publicly traded companies to disclose any material event not previously reported that is
important to investors (e
...
, auditor changes, mergers)

Gross Profit (Gross Margin)
Net sales less cost of goods sold

Operating Income (Income from Operations)
Equals net sales less cost of goods sold and other operating expenses

Income before Income Taxes (Pretax Earnings)
Revenues minus all expenses except income tax expense



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