Chap 2

Question 1

are income generated
from the primary operations of the
business.

Answer 1

Revenue

Question 2

are income derived from other
activities of the business.

Answer 2

Gains

Question 3

Two kinds of expenses

Answer 3

Expenses, losses

Question 4

are expenses related to the primary
operations of the business.

Answer 4

Expenses

Question 5

from notes payable is not
part of the selling activities of the store. It is
classified as losses and other expenses.

Answer 5

Interest expense

Question 6

Accrual states that:

Answer 6

 revenue must be reported on the accounting period
that it was earned.
 expenses must be reported during the same
reporting period they were incurred.

Question 7

Expense Recognition

Answer 7

Matching Principles
Rational Allocation
Immediate Recognition

Question 8

Expenses are “matched” and
recorded in the same period that the
revenue it generated was recognized

Answer 8

Matching Principle

Question 9

The principle of rational allocation requires the cost
of long-term expenditure to be rationally allocated
throughout usage based on the expected pattern of
usage.
* An example of expenses estimated using rational
allocation is the depreciation of equipment

Answer 9

Rational Allocatiton

Question 10

In cases when accountants cannot determine how
long the expenditure will benefit the business
or if there is any benefit at all, then conservatism
dictates that the cost of the expenditure should be
charged to the expense immediately.

Answer 10

Immediate Recognition

Question 11

is generally used to describe
revenue derived from the rendering of services. Example:
* Rental Revenue
* Professional Fee; and
* Tuition Revenue

Answer 11

Service Income

Question 12

is generally used to describe revenue
derived from selling goods. Example:
* Office Supplies Sales
* Book Sales
* Food Sales

Answer 12

Sales revenue account/ Sales

Question 13

Revenue from sales of goods is recognized when goods have been delivered.

Question 14

This is an account used by
companies that sell goods instead of services. For trading operations,
the COGS or the COS collects the cost of the merchandise sold. The cost
of unsold merchandise is reported as Inventory in the SFP. There are two
ways of keeping records of the inventory:
* Perpetual
* Periodic

Answer 14

Cost of goods sold (Cost of sales)

Question 15

refer to all other expenses related to the
operation of the business, other than the cost of sales. These include
salaries of employees, supplies, utilities (electricity, telephone, and water
bills), gasoline expense, representation, bad debts expense,
depreciation, and amortization.

Answer 15

Operating Expense

Question 16

Losses and other expenses as well as gains and other
income are reported after the operating section of
the SCI. Line items included under this section are:

Answer 16

1. interest income from investments of excess cash,
2. interest expense from borrowings, and
3. gain or loss from the sale of equipment (proceeds
   from sale less net book value of PPE on date of
   sale).

Question 17

 This groups all revenue items together and
all expense items together.
 It is called a single-step SCI because net
income is computed using only one step,
deducting total expenses from total
revenues.

Answer 17

Single-step Statement of
Comprehensive Income

Question 18

 The multi-step SCI is characterized by
the presentation of several subtotals
until net income is determined.
 The multi-step approach is also
associated with the function of expense
format. The function of expense
classifies operating expenses into three
categories based on usage. The
categories are the cost of sales,
general and administrative expenses,
and selling expenses

Answer 18

Multi-step Statement of
Comprehensive Income

Question 19

is a statement explaining some of the changes between
two Statement of Financial Positions (SFP) taken one year apart.
 Income and expense are the general terms used to describe the
elements of the SCI;

Answer 19

SCI / Statment of comprehensive income.

Question 20

refers to a transaction that increases assets and/or
decreases liabilities leading to an increase in equity resulting from
the operations of the business and not from the owner’s
contribution;

Answer 20

Income

Question 21

are transactions that decrease assets and/or
increase liabilities leading to a decrease in equity resulting from the
operations of the business and because of distributions to owners.

Answer 21

Expense

Question 22

are from other activities of the business.

Answer 22

Losses