Chapter 6

Question 1

is the
source of financing for the
assets of the enterprise.

Answer 1

Financial structure

Question 2

It indicates what amount of
assets has been financed by
creditors, which is borrowed
capital, and what amount of
assets has been financed by
owners, which is invested capital.

Answer 2

Financial structure

Question 3

Significance:
Useful in predicting future
borrowing needs and how future
profits and cash flows will be
distributed among those with an
interest in the enterprise.

Answer 3

Financial structure

Question 4

Significance: Useful in predicting how
successful the enterprise is
likely to be raising further finance.

Answer 4

Financial structure

Question 5

refers to the
availability of cash in the near
future after taking account of
financial commitments over this
period.

Answer 5

Liquidity

Question 6

Significance:
Useful in predicting the ability of
the enterprise to meet its short-term
financial commitments as they fall
due.

Answer 6

Liquidity

Question 7

refers to the
availability of cash over the
longer term to meet financial
commitments as they fall due.

Answer 7

Solvency

Question 8

Significance:
Useful in predicting the ability of
the enterprise to meet its longterm financial commitments as
they fall due.

Answer 8

Solvency

Question 9

the
ability of the enterprise to use
its available cash for
unexpected requirements and
investment opportunities.

Answer 9

Capacity for Adaptation

Question 10

Compositions of statement of financial position

Answer 10

assets, liabilities, owner’s equity

Question 11

These are resources controlled
by the enterprise as a result of
past events and from which future
economic benefits are expected
to flow to the enterprise.

Answer 11

assets

Question 12

the time
between the acquisition of assets
for processing and their realization
in cash or cash equivalents.

Answer 12

operating cycle

Question 13

classification of current assets

Answer 13

a. It expects to realize the asset, or
intends to sell or consume it, in its
normal operating cycle;
b. It holds the asset primarily for the
purpose of trading;
c. It expects to realize the asset
within twelve months after the
reporting period;
d. The asset is cash or cash
equivalent unless the asset is
restricted from being exchanged or
used to settle a liability for at least
months after the reporting period.

Question 14

7 current assets

Answer 14

cash, cash equivalents, accounts receivable, note receivable, inventory or merchandise inventory, supplies, prepaid expense

Question 15

Any medium of exchange that a
bank will accept for deposit at face
value.

Answer 15

cash

Question 16

a document which
can be bought as a way of sending
money through the post.

Answer 16

money order

Question 17

These are short-term, highly
liquid investments that are
readily convertible to known
amounts of cash and which are
subject to an insignificant risk of
changes in value

Answer 17

cash equivalents

Question 18

These are claims against
customers arising from sale of
services or goods on credits.

Answer 18

account receivable

Question 19

a written
pledge that the customer will
pay the business a fixed
amount of money on a certain
date.

Answer 19

note receivable

Question 20

These are assets which are
(a) held for sale by the company,
(b) in the process of production for
such sale,
(c) in the form of materials (raw
materials) or supplies to be
consumed in the production.

Answer 20

inventory or merchandise inventory

Question 21

This may be office supplies like
bond papers, paper clips and the
like or can be also store supplies
like boxes, bags, packaging
tapes and other related
materials.

Answer 21

supplies

Question 22

These are expenses paid for by
the business in advance.

Answer 22

prepaid expenses

Question 23

It is an asset because the
business avoids, having to pay
cash in the future for a specific
expense.

Answer 23

Prepaid expense

Question 24

what are the 3 non current assets

Answer 24

ppe, accumulated depreciation, intangible

Question 25

these are tangible assets that are held by an enterprise for use in the production or supply of goods or in rendering services, or for rental to other, or for administrative purposes and which are expected to be used during more than one period.

Answer 25

ppe

Question 26

These are: a. Land b. Building c. Office Equipment d. Furniture and Fixtures e. Delivery Equipment f. Store Equipment g. Service Vehicle

Answer 26

ppe

Question 27

applies to property, plant and equipment except land as a contra account that contains the sum of periodic depreciation charges.

Answer 27

accumulated depreciation

Question 28

The reflected amount is deducted from the cost of the related asset to obtain book value.

Answer 28

accumulated depreciation

Question 29

These are identifiable, nonmonetary assets without physical substance held for use in the production or supply of goods or services, for rentals to others or for administrative purposes

Answer 29

intangible

Question 30

These are: a. Goodwill b. Patents c. Copyrights d. Licenses e. Franchises f. Trademarks g. Brand names

Answer 30

intangible

Question 31

A present obligation* of the enterprise arising from past events, the settlement of which is expected to result in an outflow from the enterprise of resources embodying can be measured benefits.

Answer 31

liabilities

Question 32

This could be a transfer of cash, or another property, the provision of a service or the refraining from activities which would otherwise be profitable.

Answer 32

transfer economic benefits

Question 33

classification of current liabilities

Answer 33

a.It expects to settle the liability in its normal operating cycle b. It holds the liability primarily for the purpose of trading c. The liability is due to be settled within twelve months after the reporting period; or d. The entity does not have an unconditional right to defer settlement of the liability for at least twelve months after the reporting period.

Question 34

This account represents the reverse relationship of the accounts receivable

Answer 34

accounts payable

Question 35

Due to suppliers of goods and other assets purchased on credit.

Answer 35

account payable

Question 36

like a note receivable but in a reverse sense.

Answer 36

notes payable

Question 37

The business entity is the maker of the note; that is, the entity is the party who promises to pay in a specified amount of money on specified future date.

Answer 37

notes payable

Question 38

Amounts owed to others for unpaid expenses

Answer 38

accrued liabilities

Question 39

This account includes: a. Salaries payable b. Utilities payable c. Interest payable d. Taxes payable

Answer 39

accrued liabilities

Question 40

When the business entity receives payment before providing its customers with goods or services.

Answer 40

unearned revenues

Question 41

These are portions of long-term liabilities which are to be paid within one year from the balance sheet date.

Answer 41

current portion of long term debt

Question 42

This account records long-term debt of the business entity for which the entity has pledged certain assets as security to the creditor.

Answer 42

mortgage payable

Question 43

This is an obligation in connection with the bond, a contract between the issuer and the lender specifying the terms of repayment and the interest to be charged.

Answer 43

bonds payable

Question 44

the residual interest in the asset of an entity that remains after deducting all its liabilities.

Answer 44

equity

Question 45

This account is used to record original and additional investment of the owner of the business entity.

Answer 45

capital

Question 46

When the owner of a business entity withdraws cash or other assets, such are recorded in the drawing or withdrawal account rather than directly reducing the owner’s equity account.

Answer 46

withdrawals

Question 47

It is a temporary account used at the end of the accounting period to close the income and expenses.

Answer 47

income summary

Question 48

This account shows the profit or loss for the period before closing to the capital account.

Answer 48

income summary

Question 49

comprise its revenue, expenses, net income or loss for a period of time

Answer 49

performance of an enterprise

Question 50

It is the level of income earned by the enterprise through efficient and effective use of its resources.

Answer 50

performance of an enterprise

Question 51

recognizes transactions and other events of a reporting entity in the periods in which those effects occur, even if the resulting cash receipts and payments occur in a different period

Answer 51

Accrual Accounting

Question 52

Composition of Statement of financial performance

Answer 52

Revenue or Income, Expense

Question 53

These are increases in economic benefits during the accounting period in the form of inflows or enhancements of assets or decrease of liabilities from delivery or production of goods, rendering of services, or other activities that constitute the enterprise’s major operations.

Answer 53

Revenue or Income

Question 54

Revenues earned by performing services for a customer or client, for e.g. accounting services by a CPA firm, laundry services by a laundry shop.

Answer 54

Service Income

Question 55

Earned as a result of sale of merchandise; for e.g. sale of merchandise by General Merchandise Store.

Answer 55

Sales revenue

Question 56

what are the two different revenue or income?

Answer 56

service income, sales revenue

Question 57

what are the 9 different expenses?

Answer 57

CSURSIDUI - cost of sales, salaries and wages, utilities, rent, supplies, insurance, depreciation, uncollectable account, interest expense

Question 58

These are decrease in economic benefits during the period in the form of outflows or using up of assets or incurrence of liabilities that result in decreases in equity, other than relating to distributions to equity participants.

Answer 58

Expense

Question 59

The cost incurred to purchase or to produce the products sold to customers during the period; also called as cost of goods sold.

Answer 59

Cost of Sales

Question 60

Includes all payments as a result of an employer-employee relationship such as salaries and wages, 13th month pay, cost if living allowances, other related benefits.

Answer 60

Salaries and Wages Expenses

Question 61

Expenses related to use of telecommunications facilities, consumptions of electricity, fuel and water.

Answer 61

Utilities expense

Question 62

Expense for space, equipment or other asset rentals.

Answer 62

Rent expense

Question 63

Expense of using supplies in the conduct of daily business.

Answer 63

Supplies expense

Question 64

Portion of premiums paid on insurance coverage which has expired.

Answer 64

Insurance expense

Question 65

Portion of the cost of a tangible asset allocated or charged as expense during an accounting period.

Answer 65

Depreciation expense

Question 66

The amount of receivables estimated to be doubtful of collection and charged as expense during an accounting period.

Answer 66

Uncollectible expense

Question 67

An expense related to use of borrowed funds.

Answer 67

Interest expense

Question 68

It is composed of assets, liabilities and owner’s equity.

Answer 68

Financial position

Question 69

The level of income earned by the enterprise through efficient and effective use of its resources.

Answer 69

Financial performance

Question 70

Composed of revenue or income and expenses.

Answer 70

Financial performance