1 Flashcards
(143 cards)
1
Q
Record and analyze business transactions.
A
RECORDING
2
Q
Communicate financial information to all interested parties.
A
REPORTING
3
Q
Help the owners or managers make decisions.
A
ANALYZING.
4
Q
TYPES OF BUSINESS
A
SERVICE, MERCHANDISING, MANUFACTURING
5
Q
an entity that provides services to customers
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Service business
6
Q
an entity that purchases goods from merchandise suppliers and sells the same to its customers on their original condition
A
Merchandising business
7
Q
an entity that converts raw materials into finished products made for sale to customers
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Manufacturing business
8
Q
TYPES OF OWNERSHIP STRUCTURE (Forms of Business Organization)
A
Proprietorship, Partnership, Corporation, Cooperative
9
Q
is a business that is owned and operated by a single individual (the owner is called proprietor).
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Proprietorship
10
Q
— is a business that is owned by two or more persons (the owners are called partners).
A
Partnership
11
Q
— is a business whose equity is divided into shares of stock and is created by operation of law (the owners are called stockholders).
A
Corporation
12
Q
— is a business whose equity is divided into members’ interest, created by operation of law to foster the welfare of its members, and is exempted from income taxation. (the owners are called members).
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Cooperative
13
Q
Minimum of 5 incorporators but unlimited number of owners.
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Corporation
14
Q
Minimum of 15 incorporators but unlimited number of members.
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Cooperative
15
Q
Statement of Financial Position Elements (Shows the Financial Condition of the Business)
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Assets, Liabilities, Equity
16
Q
— economic resources that have values, owned or controlled by the business.
A
Assets
17
Q
economic or legal obligations that a business owes to other persons
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Liabilities
18
Q
- is the owner’s interest in, or claim to, the assets of a business. It is the difference in the amounts of assets and liabilities. It is sometimes referred to as “net assets”.
A
Equity
19
Q
Statement of Profit or Loss Elements
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Income, Expenses, Profit (Loss)
20
Q
Shows the Results of Operations
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Statement of Profit or Loss
21
Q
inflows of assets resulting from revenues or gains.
A
Income
22
Q
result from the sale of goods or performance of services in the normal operating business cycle
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Revenues
23
Q
— are decreases in assets or increases in liability resulting from cash spent, use of resources or incurrence of liability in order to produce revenue.
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Expenses
24
Q
decrease equity.
A
Expenses, loss
25
are income aside from revenues and those from transactions directly involving owners.
Gains
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increases equity.
Income, Profit
27
the excess (deficit) of revenue over expenses for a given accounting period.
Profit (Loss)
28
THE ACCOUNTING PROCESS (Functions of Accounting)
Recording, Classifying, Summarizing, Interpreting
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this is more popularly known as BOOKKEEPING, which involves putting into records the business transactions and events. This can be done manually, with the use of mechanical devices or electronically, or with the use of computer.
Recording
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this involves the grouping of similar items together in order to make the recording of the different transactions and events more systematic. This function is set up in the CHART OF ACCOUNTS.
Classifying
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this involves the preparation and presentation of financial statements.
Summarizing
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this involves the analysis of financial statements (by developing financial ratios and explaining their significance) for the benefit of the readers or users.
Interpreting
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is a measurement and communication process designed to provide useful and timely financial information.
Accounting
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The relationship between the three basic accounting elements of the Statement of Financial Position — Assets, Liabilities, and Equity — can be expressed in the form of a simple equation known as
Accounting Equation
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PRESENTATION EQUATION
Assets= Liabilities + Equity
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is always maintained for every transaction that is recorded.
The equality of the accounting equation
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left side of the equation
DEBIT
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right side of the equation
CREDIT
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The equity is increased by the amount
invested by the owner
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The equity is decreased by the amount
withdrawals
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is an economic event or condition that directly changes an entity's financial condition or directly affects its results of operations.
Business Transaction
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takes place when a business exchanges a thing or things of value for another.
accounting transaction
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is the value received or paid for by the business
DEBIT
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is the value parted with or given up by the business
CREDIT
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the period at the end of which financial statements are prepared.
Accounting Period
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a 12-month period ending December 31
Calendar Year
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a 12-month period not ending December 31
a 12-month period not ending December 31
48
Natural Business Year
a 12-month period which ends at the time the business activity is at its lowest
49
are accounting reports prepared at the end of an accounting period (usually one year) that provide financial information regarding the transactions that have been recorded and summarized.
Financial Statements
50
The principal financial statements which are the end-products of accounting are the:
Statement of Profit or Loss
Statement of Changes in Equity
Statement of Financial Position
Statement of Cash flows
51
— also called as the Income Statement, is a statement, which shows the revenue and expenses for a specified period of time. It shows the results of operations.
Statement of Profit or Loss
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is a statement, which shows the summary of changes in the equity for a given period of time. This statement supplements the Statement of Financial Position.
Statement of Changes in Equity
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is a statement which shows the assets, liabilities and equity of the business as of a specific date. It shows the financial condition of the business. This statement is called as the Balance Sheet for small and medium-sized businesses.
Statement of Financial Position
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is a summary of cash inflows and cash outflows for a specific period of time, such as a month or a year.
Statement of Cash flows
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Every business transaction affects at least
at least two accounts (items).
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is used because you are recording the amount involved in a transaction twice.
The "double-entry system"
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— is a method of recording the business transactions in terms of the dual effect on the accounting elements (i.e., assets, liabilities, equity, income and expenses)
Double-Entry Method of Bookkeeping
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is an accounting device used to classify and store information about the increases and decreases in a particular item.
An Account
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is so called because of its T shape. It is used to show the increase or decrease in an account (item) caused by a transaction.
T account
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It is a convenient tool to analyze and record the effect of a transaction in a particular account (item).
T account
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On the Top of the T is
the title or name of the Account
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Amounts recorded on the left side are called
DEBIT amounts
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amounts recorded on the right side are called
CREDIT amounts.
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Entering transactions in T accounts is called
POSTING
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— is a listing of all the balances of the different accounts (assets, liabilities, equity, revenues and expenses), as of a given time
Trial Balance
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Purposes of the Trial Balance:
To check the accuracy of posting (recording in the T accounts) by testing the equality of the debits and credits.
It aids in locating errors in posting.
It serves as a basis in the preparation of the financial statements.
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BUSINESS TRANSACTION FLOW
Source Documents- Journal Entries- Ledger Accounts- Trial Balance- Financial Statements
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— are the business forms and papers evidencing or supporting a transaction which serve as the basis for recording in the books of accounts
Source Documents
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— are the accounting books where business transactions are recorded
Books of Accounts
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Books of Accounts consists of
GENERAL JOURNAL and the GENERAL LEDGER.
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a two-column journal, which is called the "book of original entry" because this is the first book where the business transactions are recorded.
GENERAL JOURNAL
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— also called the "book of final entry' because this is the book where the business transactions are finally recorded. The ledger serves the same purpose as the T account but more formal and detailed.
The General Ledger
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The process of recording in the journal is called
JOURNALIZING
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the process of recording in the general ledger is called
POSTING
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It is an all-purpose journal in which all the business transactions may be recorded.
two-column general journal.
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Each entry made in the general journal includes the following information, entered in this order:
The date of the transaction.
The name of the account debited as well the amount.
The name of the account credited as well as the amount.
A posting reference (PR) indicating the account number of the account.
A short explanation of the transaction.
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is a list of all account titles and their account (code) numbers used for journalizing business transactions.
Chart of Accounts
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The accounts are normally listed in the order in which they appear in
the financial statements.
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identifies the account.
An account number
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All Statement of Financial Position accounts are called
REAL ACCOUNTS
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all Statement of Profit or Loss accounts are called
NOMINAL ACCOUNTS
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When recording an expense paid in advance, two methods are acceptable
the asset method and the expense method
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an asset account (Prepaid Expense) is used
asset method
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an expense account is used
expense method
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is a book or file by a business where accounts are kept on separate pages or cards.
General Ledger
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This is the preferable method by the Bureau of Internal revenue (BIR).
Trial Balance of Totals
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Trial balance which is widely used in practice
Trial Balance of Balances
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is prepared to check the accuracy of posting to the general ledger and to prove the equality of the debits and credits.
A trial balance
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The following errors cannot be detected by the trial balance:
1 . No entry was made for a given transaction.
2. A joumal entry was not posted to the general ledger.
3. A joumal entry was posted twice.
4. Incorrect accounts were used to record a given transaction.
5. Incorrect amounts were recorded for a given transaction.
90
digits are incorrectly interchanged. (eg. P 890 is recorded as P 980.
Error of Transposition
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which means error in placing the decimal point. (eg. P 150.00 is recorded as P 15.00)
Slide error or transplacement error
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If the difference is divisible by nine (9), the error would probably be an error in
transposition or error in transplacement.
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If the difference is divisible by two,(2), the error would probably be in
in posting to the wrong side
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ii. A difference of 10, 100, 1 ,000, etc., would probably indicate a simple error
in addition either in the trial balance or the general ledger.
95
an entry made in the general journal to correct an error discovered.
Correcting Entry
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When the merchandise is sold, the revenue is reported as
Sales
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When the merchandise is sold, its cost is recognized as
Cost of Goods Sold
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Cost of Goods Sold, which is subtracted from sales to arrive at
Gross Profit
99
Other expenses deducted to Gross Profit arrive at
the net profit
100
Unsold merchandise at the end of a given period is called
Merchandise Inventory
101
There are two methods of accounting or recording for merchandise purchases:
Periodic and Perpetual
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Under this method every time a purchase of merchandise is made, it is charged or recorded (debited) to an account called PURCHASES. When a sale is made. A revenue account called SALES is recorded (Credited)
Periodic Inventory method
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This method of accounting is used by a merchandisinq concern.
Periodic Inventory method
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— Under this method, an account called MERCHANDISE INVENTORY (instead of Purchases) is used to record acquisition of merchandise. When a sale is made, two entries will be made; the first is to record the revenue account called sales and the second is to record the cost by charging or debiting to an account called COST OF GOODS SOLD
Perpetual Inventory method
105
This method is normally used by a manufacturinq concern.
Perpetual Inventory method
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In normal business practices, before purchases are made by the purchasing department, it will require an approved
Purchase Requisition
107
is a written request form to buy a certain item or items. Forms are generally pre-numbered consecutively to prevent misuse or loss.
Purchase Requisition Form
108
— is a buyer's formal order form indicating therein the merchandise requested in the purchase requisition form. The pre-numbered purchase order and requisition forms will support the purchase evidenced by an Invoice.
Purchase Order Form
109
is a discount given to the buyer for early payment of a purchase made on credit.
Purchase Discount
110
— is the period of time within which an invoice must be paid to be entitled to a discount.
Discount Period
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- is a special discount (outright deduction) from the list price offered by a seller to buyers if the order is in large quantity.
Trade Discount
112
— this means that payment is required at the time the merchandise is delivered.
CASH OR COD (Cash on Delivery)
113
CASH OR COD (Cash on Delivery)
2/10, n/30
114
this means that a 2% discount of the gross invoice price is allowed if payment is made up to the end of the month and the gross price is due 60 days from the invoice date.
2/EOM, n/60
115
this means that a 2% discount of the gross invoice price is allowed if payment is made by the 10th of the following month, and the gross price is due 60 days from the invoice date.
2/10/EOM, n/60
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is the term when payment for the merchandise is to be made as agreed upon by the seller and the buyer.
Credit Term
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is the time in which the buyer is allowed to pay.
Credit Period
118
— this represents the transportation costs and other costs incidental to the purchase of the merchandise.
Freight In
119
— this means Free on Board up to the shipping point. Freight charges will be shouldered by the seller up to the shipping point before loading to a common carrier. Once the goods are loaded, the buyer will pay for the freight charges.
FOB Shipping Point
120
— this means Free on Board up to the point of destination. The seller will pay for the freight charges up to the buyer's destination.
FOB Destination
121
this means that the buyer is to pay the freight when the merchandise arrives. If the term is FOB destination, the buyer can deduct the cost of the freight when paying the invoice.
Freight Collect
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— this means that the seller has paid the freight on the goods at the time of shipment. If the term is FOB shipping point, the seller can collect the cost of the freight from the buyer.
Freight Prepaid
123
are reductions in the purchase price of merchandise bought, resulting from merchandise returned to the seller or from the seller's reduction in the original purchase price.
Purchase Returns and Allowances
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an indirect tax shouldered by the buyer
Value-added Tax
125
the amount recorded (list price minus by the trade discounts). Trade discount is not recorded.
The net invoice amount
126
Discount is computed based on
the merchandise cost without VAT, Freight or Transportation Cost and after returns and allowances are deducted from the invoice cost.
127
cash discounts are immediately deducted from Purchases and Accounts Payable.
the Net Method
128
represents the liability of the business to the government.
difference between the VAT Output Tax and the VAT Input Tax (normally a credit balance
129
is a document that the seller gives to the buyer listing the items ordered as per the P.O. (purchase order of the buyer), together with the quantity, price, description, value added tax, the terms, and the total price of the items ordered.
Sales Invoice
130
— is a form used by the seller to notify the buyer that his account is credited (the amount is reduced) for the return of defective merchandise or allowance for damaged merchandise.
Credit Memo
131
— is a discount granted by the seller for early collection on a credit sale.
Sales Discount
132
are reductions in sales, resulting from merchandise being returned by the customer or from seller's reduction in the original sales price.
Sales Returns and Allowances
133
— this represents the cost of transporting the merchandise sold from the seller's place to the buyer's place which is to be shouldered by the seller (business).
Freight Out
134
this revenue account represents the merchandise sold to customers valued at selling price whether for cash or on credit.
Sales
135
— this represents the merchandise returned by customers or the price adjustments allowed for damaged merchandise valued at selling price. This is to be subtracted from sales.
Sales Returns and Allowances
136
— this represents the cash discounts granted by the seller to the customers for early payments of their accounts.
Sales Discount
137
This represents the cost of transporting the merchandise sold to the buyer's place. This is considered an expense of the seller.
Freight Out
138
— this represents the cost of merchandise purchased from vendors or suppliers whether for cash or on credit.
Purchases
139
this represents merchandise returned to vendors/suppliers or price adjustments for damaged merchandise valued at purchase cost.
Purchase Returns & Allowances
140
this represents the cost of transporting the merchandise purchased up to the buyer's place. This is added to the cost of the merchandise purchased by the buyer.
Freight In
141
— this represents the unsold merchandise valued at cost as of a given date.
Merchandise Inventory
142
GROSS PROFIT COMPUTATION OF A MERCHANDISING BUSINESS:
```
Sales
Less: Sales Returns and Allowances Sales Discounts
Net Sales
Less: Cost of Goods Sold
Merchandise Inventory - beg
Add: Purchases
Freight-in
Total
Less: Purchases Ret & Allow
Purchase Discounts
Cost of Goods Available for Sale
Less: Merchandise Inventory — end
GROSS PROFIT
```
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is a list of accounts in the general ledger with balances. It provides a check on the accuracy of the posting (recording in the general ledger) by showing the equality of the total debits and total credits.
A trial balance
