Chapter 3 : Terms

Question 1

Are the means by which the information accumulated and processed in financial
accounting is periodically communicated to the users

Answer 1

FINANCIAL STATEMENTS

Question 2

These statements show the financial effects of transactions and other events that are
grouped into broad classes according to their economic characteristics

Answer 2

FINANCIAL STATEMENTS

Question 3

Are the end products or main output of the financial accounting process

Answer 3

FINANCIAL STATEMENTS

Question 4

is a report which
describes how the business operated over a given period of time. (Usually one year). This accounting report shows the operating performance of the business
entity for a given period of time

Answer 4

Income Statement (Statement of Comprehensive Income)

Question 5

SERVICE BUSINESS

2 Elements:

Answer 5

Income
Expenses

Question 6

(Income Earned) increase in economic benefits during the accounting
period in the form of inflow or increase in asset or decrease in liability that
results in increase in equity other than contribution from equity participants/.

Answer 6

Income

Question 7

(Incurred by the business) Decrease in economic benefits during the
accounting period in the form of outflow or decrease in asset or increase in
liability that results in decrease in equity other than contribution from equity
participants.

Answer 7

Expenses

Question 8

VARIOUS EXPENSES

Answer 8

a. Salaries Expense
b. Rent Expense
c. Utilities Expense
d. Supplies Expense
e. Bad Debt Expense
f. Depreciation Expense
g. Advertising Expense
h. Insurance Expense
i. Taxes and Licenses Expense
j. Transportation and Travel Expense
k. Interest Expense
l. Miscellaneous Expense

Question 9

represents the salaries earned by employees for the services
they have rendered during the accounting period.

Answer 9

a. Salaries Expense

Question 10

represents the rentals that have been used up during the
accounting period.

Answer 10

b. Rent Expense

Question 11

represents the cost of utilities that have been used during the
accounting period ( water, electricity and telephone)

Answer 11

c. Utilities Expense

Question 12

represents the cost of supplies that have been used during the
period.

Answer 12

d. Supplies Expense

Question 13

the amount of estimated losses from uncollectible accounts
receivable during the period (Other term is Doubtful Accounts Expense,
Uncollectible Accounts Expense)

Answer 13

e. Bad Debt Expense

Question 14

the portion of the cost of a depreciable asset that has
been allocated to the current accounting period

Answer 14

f. Depreciation Expense

Question 15

represents the cost of promotional or marketing activities
during the period.

Answer 15

g. Advertising Expense

Question 16

represents the cost of insurance pertaining to the current
accounting period

Answer 16

h. Insurance Expense

Question 17

represents the cost of business and local taxes
required by the government for the conduct of business ( Mayor’s Permit,
Other Percentage Tax, Community Taxes)

Answer 17

i. Taxes and Licenses Expense

Question 18

represent the necessary and ordinary cost
of employees getting from one workplace to another which are reimbursable by
the business. Travel Expenses represent the costs incurred when travelling on
business trips.

Answer 18

j. Transportation and Travel Expense

Question 19

represents the cost of borrowing money. It is the price that a
lender charges a borrower for the use of lender’s money. Other terms for
interest expense are Finance and Borrowing Costs

Answer 19

k. Interest Expense

Question 20

represents various small expenditures which do not
warrant separate presentation
Equation: (Revenue – Expenses = Net Income (Loss)

Answer 20

l. Miscellaneous Expense

Question 21

MERCHANDISING BUSINESS

Answer 21

1. Sales
2. Sales Returns and allowances
3. Sales Discount
4. Revenue from Sales or Net Sales
5. Gross Profit from sales
6. Purchases
7. Purchase Returns and Allowances
8. Purchase Discount
9. Freight In
10. Freight Out
11. Merchandise Inventory
12. Cost of Goods Sold

Question 22

is an income account which is credited when the goods or merchandise are sold
either by cash or on account basis.

Answer 22

1. Sales

Question 23

result from the return of any
unsatisfactory merchandise; this account is a deduction from sales and is debited when
defective goods are returned by the buyer.

Answer 23

2. Sales Returns and allowances

Question 24

is an account off the regular price of goods that is granted
for early payment. This is debited when an amount of discount is granted to the buyer. This
account can be deducted from sales or may be considered as other expense.

Answer 24

3. Sales Discount

Question 25

consists of gross sales less returns and allowances and discounts.

Answer 25

4. Revenue from Sales or Net Sales

Question 26

gross profit from sales is divided by subtracting cost of sales from net sales.

Answer 26

5. Gross Profit from sales

Question 27

is the accumulated cost of all merchandise bought for resale during an accounting period. It is debited when goods or merchandise are bought either on account or on cash basis.

Answer 27

6. Purchases

Question 28

this is a deduction from purchases. This is credited when defective merchandise is returned to the supplier.

Answer 28

7. Purchase Returns and Allowances

Question 29

this account is credited when the supplier granted the buyer an amount of discount. This can be treated as deduction from purchase or other income.

Answer 29

8. Purchase Discount

Question 30

this is debited if the business shoulders the payment for the delivery of goods bought. This is added to purchases and a part of cost of sales.

Answer 30

9. Freight In

Question 31

this is one of the operating expenses of the business. This is debited upon payment of the delivery of the goods sold.

Answer 31

10. Freight Out

Question 32

Goods for sales

Answer 32

11. Merchandise Inventory

Question 33

consists of the cost of merchandise on hand at the beginning of the accounting period, net cost of merchandise purchased including cost of transporting of goods bought during the period.

Answer 33

12. Cost of Goods Sold

Question 34

gives information about the financial position of the business by showing the list of its assets (Cash and properties) and Liabilities (debts or obligations to pay) and from which the net worth of the business representing equity or share of the owner could be determined.

Answer 34

Statement of Financial Position (Balance Sheet)

Question 35

are economic resources controlled by the enterprise resulting from past events from which future economic benefits are expected to flow to the enterprise.

Answer 35

ASSETS

Question 36

includes cash and cash equivalents which are not restricted in use, as well as other assets readily convertible into cash, or to be sold or consumed within the normal operating cycle of the business or one year.

Answer 36

CURRENT ASSETS

Question 37

Any item on hand with monetary value that a bank will accept for deposit and all amounts currently on deposit with the bank in the name of the business. This includes coins and currencies, personal checks, money orders, travelers check made payable to the business.

Answer 37

CASH

Question 38

the amounts collectible on open accounts of the customers. These represent debtor’s oral promise to pay a certain amount to the business.

Answer 38

ACCOUNTS RECEIVABLE

Question 39

A promissory note received by the business from its debtors/customers

Answer 39

NOTES RECEIVABLE

Question 40

The interest earned on notes receivable but not yet received in Cash

Answer 40

ACCRUED INTEREST RECEIVABLE

Question 41

Assets held for sale in the normal operation of the business in the process of production for sale, or in the form of materials or supplies to be consumed in the production process or rendering of services. Examples: Merchandise Inventory, Work in Process Inventory, and Raw Materials Inventory

Answer 41

INVENTORIES

Question 42

this represent advance payments made for benefits or services to be received by the business in the future. Examples: Prepaid Supplies, Prepaid Insurance and Prepaid Rent.

Answer 42

PREPAID EXPENSES

Question 43

Contra Asset Account, which represents customer, accounts doubtful of collection. ( Other terms: Allowance for Doubtful Accounts, Allowance for Uncollectible accounts)

Answer 43

ALLOWANCE FOR BAD DEBTS

Question 44

are those assets not included as current assets such as the property, plant and equipment.

Answer 44

NON- CURRENT ASSETS

Question 45

the site owned by the business on which the business building is constructed. This plant asset is not subject to depreciation.

Answer 45

LAND

Question 46

structure owned by the business to be use to house the office, store or factory.

Answer 46

BUILDING

Question 47

typewriter, air-conditioner, calculator computer, electric fan, trucks, cars used in the business. Specific titles may be used such as: Office Equipment, Store Equipment and Delivery Equipment

Answer 47

EQUIPMENT

Question 48

tables, chairs, curtains, filing cabinet, lighting fixtures and wall decors: Specific titles may be used such as: Office Furniture and Fixtures and Store Furniture and Fixtures.

Answer 48

FURNITURE AND FIXTURE

Question 49

contra asset account representing expired cost of the property, plant and equipment as a result of usage and passage of time.

Answer 49

ACCUMULATED DEPRECIATION

Question 50

are present obligations resulting from past events and whose settlement will cause an outflow from the resources of the enterprise.

Answer 50

LIABILITIES

Question 51

are those debts or obligations reasonably expected to be liquidated in the normal course of the enterprise’s operating cycle or paid within 1 year.

Answer 51

CURRENT LIABILITIES

Question 52

Purchase of goods and services on credit supported by the oral or implied promise of the business.

Answer 52

ACCOUNTS PAYABLE

Question 53

is a liability to pay a bank or a financing institution for amount of money borrowed by the business can be classified as part o fNon- Current Liabilities if itis payable beyond 1 year. Example: Housing Loan, Car Loan

Answer 53

LOAN PAYABLE

Question 54

a promissory note issued by the business to its creditors for money borrowed or merchandise and other assets bought on credit can be classified as part of Non- Current Liabilities if it is payable beyond 1 year.

Answer 54

NOTES PAYABLE

Question 55

The Interest incurred in the current period but not yet paid

Answer 55

ACRUED INTEREST PAYABLE

Question 56

is a liability to pay utility companies like PLDT. Meralco, Telephone, electricity and water services received from them.

Answer 56

UTILITIES PAYABLE

Question 57

Salaries Payable, SSS Premium Payable, Withholding Tax Payable

Answer 57

OTHER PAYABLES

Question 58

are long term liabilities or obligations which are payable longer than one year.

Answer 58

NON- CURRENT LIABILITIES

Question 59

which is an obligation secured by real property of the debtor business

Answer 59

MORTGAGE PAYABLE

Question 60

which is a long term promise usually five to ten years supported by a formal contract containing the face value of the bond.

Answer 60

BOND PAYABLE

Question 61

represents the claim of the owner over the assets of the business after the liabilities have been deducted.

Answer 61

OWNER’S EQUITY