Accounts Payable, Premiums, Warranty, Accrued Liability, and Deferred Revenue

Question 1

Also known as trade payable, is the amount owed by an entity for the purchase of goods, raw material, or services in the ordinary course of business.

Answer 1

Account Payable

Question 2

T OR F

Most accounting systems are designed to record liabilities for purchase of goods when the goods are received.

Answer 2

TRUE

Question 3

Are terms or favor given by the seller to a buyer to encourage an early payment of the account owed.

Answer 3

Cash Discounts/Purchase Discounts

Question 4

2% discount if paid within 10 days, net due in 30 days

Answer 4

2/10, n/30

Question 5

1% discount if paid within 10 days, net due in 30 days

Answer 5

1/10, n/30

Question 6

2% discount if paid within 10 days, net due in the 10th day after the end of the month.

Answer 6

2/10, n/10 EOM

Question 7

2 methods in accounting for cash discounts

Answer 7

A. Gross Method

B. Net Method

Question 8

In this method, the entity would initially record purchases account and accounts payable at full invoice price. Purchase Discount is only recorded if the entity paid the amount owed within discount period.

Answer 8

Gross Method

Question 9

In this method, the entity would initially record the purchases account and accounts payable at net invoice price.

Answer 9

Net Method

Question 10

Are articles of value such as toys, dishes, silverware, and other goods given to customers as result of past or sales promotion activities.

Answer 10

Premiums

Question 11

Many entities use this program to establish brand faithfulness, increase sales volume, and retain valuable customers.

Answer 11

Customer Loyalty Program

Question 12

This program is usually done by providing customers with awards or corresponding points for every purchase made.

Answer 12

Customer Loyalty Program

Question 13

T OR F

Under IFRS 15 Revenue from Contracts with Customers, the revenue from contracts with customers shall be recognized when the entity satisfies the performance obligation.

Answer 13

TRUE

Question 14

Is a promise made by a seller to a buyer to correct experienced with a product’s quality, quantity, or performance. It is commonly used by manufacturers to promote sales.

Answer 14

Warranty (Product Guarantee)

Question 15

2 approaches followed in accounting warranty cost

Answer 15

A. Accrual Approach

B. Expense as Incurred Approach

Question 16

This approach has the soundest theoretical support because it properly matches cost with revenue.

Answer 16

Accrual Approach

Question 17

This approach of expensing warranty cost only when actually incurred. This approach is popular in practice because it is the one recognized for income tax purposes and frequently justified based on expediency when warranty cost is not very substantial or warranty period is relatively short.

Answer 17

Expense as Incurred Approach

Question 18

Consist of cash or property received from customers but which are refundable after compliance with certain conditions.

Answer 18

Refundable deposits

Question 19

This scheme has the main purpose of motivating officers and employees by directly relating their well-being to the success of the entity.

Answer 19

Bonus Computation

Question 20

4 variations in computing for bonus. It can be percent of income:

Answer 20

1. Before Bonus and Before Tax (BB&BT)
2. Before Bonus and After Tax (BB&AT)
3. After Bonus but Before Tax (AB but BT)
4. After Bonus and After Tax (AB&AT)