FABM 2 CHAPTER 2 AND 3 REVIEWER Flashcards
is a statement explaining some of the changes between
two Statement of Financial Positions (SFP) taken one year apart.
Statement of Comprehensive Income
The SCI is a statement explaining some of the changes between two________________ taken _________ apart.
Statement of Financial Positions (SFP) , one year
Are the general terms used to describe the elements of the SCI;
Income and expense
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.
Income
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.
Expenses
- Recall Maria Reyes, a regular customer of Juana Dela Cruz. Maria purchased 3
small cans of sardines that Juana sells for P 25 per can. Maria asked Juana to
include it in her account, Juana purchased the sardines from her wholesale
supplier at P15 per can. - Recall Pedro Benitez who rented a small space on the store’s countertop for his
coffee vending machine. On October 1, 20X1, he paid six months advance rental
of P500 per month. - Juana Dela Cruz, the owner of the store, deposited P1,000 to the store’s savings
account from her personal account.
Which of the above transactions will be reported as income?
- Recall Maria Reyes, a regular customer of Juana Dela Cruz. Maria purchased 3 small cans of sardines that Juana sells for P 25 per can. Maria asked Juana to include it in her account, Juana purchased the sardines from her wholesale supplier at P15 per can.
are income generated
from the primary operations of the
business.
Revenues
are income derived from other
activities of the business.
Gains
are related to the primary
operations of the business.
Expenses
are from
other activities of the business.
Losses
from notes payable is not
part of the selling activities of the store.
Interest expense
Interest expense from notes payable is not
part of the selling activities of the store. It is
classified as_______________
losses and other expenses.
Accrual states that:
revenue must be reported on the accounting period
that it was _________________.
earned
Accrual states that:
expenses must be reported during the same
reporting period they were __________
incurred
______________ states that:
revenue must be reported on the accounting period
that it was earned.
expenses must be reported during the same
reporting period they were incurred
Accrual
Assuming that you want to celebrate your next birthday at a fast-food restaurant. Let
us agree that your birthday is on January 2, 20X2. Reservation was made on
November 28, 20X1, and a down payment for your birthday party was made. The
party, held on January 2, 20X2, was a complete success. At the end of the party, your
parents paid the remaining balance using their credit card. The credit card company
paid the fast food restaurant on January 3, 20x2.
We see three important dates in your birthday party package, namely:
1. November 28, 20X1,
2. January 2, 20X2; and
3. January 3, 20X2.
Questions:
1. On what date should the restaurant record the revenue from your birthday party?
2. During what period should the costs of the foods served and other items used in
your party be reported on the SCI?
3. What is the treatment on the credit card payment made on January 2, 20x2 when
the actual settlement by the credit card company was made on January 3, 20x2?
- The restaurant should record the revenue from your birthday party on January 2, 20X2, the date of the party. This is the point in time when the service was rendered to you and your guests, and when the restaurant earned the revenue.
- The costs of the foods served and other items used in your party should be reported on the SCI for the period January 1, 20X2 to January 2, 20X2. This is the period when the restaurant incurred the costs associated with your party.
- The credit card payment made on January 2, 20X2 should be recorded as a receivable on the restaurant’s books, since the actual settlement by the credit card company was made on January 3, 20X2. On January 3, 20X2, the restaurant should record the receipt of cash from the credit card company and should recognize any fees or charges associated with the credit card transaction.
Expenses are “matched” and
recorded in the same period that the
revenue it generated was recognized
Matching Principle
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
Rational Allocation
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.
Immediate Recognition
Is generally used to describe
revenue derived from the rendering of services.
Service Income
- Rental Revenue
- Professional Fee; and
- Tuition Revenue
What type of income?
Service Income
is generally used to describe revenue
derived from selling goods.
Sales or Sales Revenue
