MFS - Accounting Flashcards
(91 cards)
1
Q
Every business transaction has a two fold aspect. This two fold aspect pertains to either debit or credit. Both aspect must be recorded.
A
Double Entry Principle
2
Q
It has an account for every asset, liability and equity.
A
Double-entry system
3
Q
It represents an asset or an expense.
A
Debit
4
Q
It represents liability, an equity or a revenue.
A
Credit
5
Q
It represents the relationship between the assets, liabilities and equity of a person or business. It is the foundation of the double-entry bookkeeping system.
A
Accounting equation
6
Q
It shows on a company’s balance sheet whereby the total of all the company’s assets equals the sum of the company’s liabilities and equity.
A
Accounting equation
7
Q
It ensures that the balance sheet remains “balanced”, and each entry made on the debit side should have a corresponding entry on the credit side.
A
Accounting equation
8
Q
__________ are present economic resources controlled by the entity as a result of past events.
A
Assets
9
Q
An economic resource is a right that has a potential to produce economic benefits.
To qualify as assets, the resources must:
A
- Have the potential to produce economic benefits.
- Be under management’s control (can be freely deployed or disposed of)
- Result from past transactions (be in place now, as opposed to being under contract for manufacture, creation or delivery.)
10
Q
are present obligation of the entity to transfer an economic resources as a result of past events. An obligation is a duty or responsibility that the entity has no practical ability to avoid.
A
Liabilities
11
Q
To qualify as liabilities, obligations must:
A
- Require transfer of economic benefits.
- Specify to whom the assets must be transferred (the terms, parties, and conditions under which asset transfers will take place must be specified).
- Result from past transactions (be binding obligations now as opposed to obligations that will exist once pending transactions are completed).
- Represent duty or responsibility that the entity has no practical ability to avoid.
12
Q
is the owner/s residual interest in the assets of an entity that remains after liabilities are deducted. It is the amount of resources (assets) provided by sources other than creditors which comes from the owner/s.
A
Equity
13
Q
(sometimes called Personal) is the withdrawal made by the owner/s which is not considered as a reduction of capital but rather an advanced distribution of profits.
A
Drawing
14
Q
(also called Income) are inflows of assets resulting from the sale of goods and services. _____________ increase the owner/s equity.
A
Revenues
15
Q
are the cost of assets or services used to earn revenues.
A
Expenses
16
Q
These are the accounting reports prepared at the end of the accounting period.
A
Financial Statements
17
Q
Basic contents of the financial statements:
A
- Statement of Financial Position or the Balance Sheet
- Statement of Income, Statement of Profit or Loss or Statement of Comprehensive Income.
- Statement of Changes in Owner’s Equity
- Statement of Cash Flows
- Notes to Financial Statements and other explanatory notes
18
Q
Reports all assets, liabilities and owner’s equity of the business at the end of the period.
A
Statement of Financial Position or the Balance Sheet
19
Q
Reports that total assets equal the sum of total liabilities and owner’s equity. This balancing feature gives the _______________ its name. It is based on the accounting equation.
A
Statement of Financial Position or the Balance Sheet
20
Q
Reports all revenues and expenses during the period. Reports net income for the period if total revenues exceed total expenses. On the other hand, if the expenses exceed total revenues, a net loss is reported.
A
Statement of Income, Statement of Profit or Loss or Statement of Comprehensive Incom
21
Q
- Opens with the Owner’s Equity balance at the beginning of the period.
- Adds net income or subtracts net loss as the case may be. Net income (or net loss) comes directly from the Statement of Income.
- Add additional investment
- Subtract withdrawals
- Ends with the Owner’s Equity balance at the end of the period
A
Statement of Changes in Owner’s Equity
22
Q
these are transactions that will affect net income
A
Operating activities
23
Q
these transactions or activities that will affect non-operating current assets and non-current assets.
A
Investing activities
24
Q
These are transaction activities that will affect non-operating current liabilities and non-current liabilities and owner’s equity.
A
Financial activities
25
This section provides additional information that is not presented on the face of the four financial statements but relevant to its understanding.
Notes to Financial Statements and other explanatory notes
26
It is defined as the systematic allocation of the depreciable amount of an asset over the useful life. Itis not so much a matter of valuation. It is a matter of cost allocation in recognition of the exhaustion of the useful life of an item of property, plant and equipment
Depreciation
27
The objective of __________ is to have each period benefiting from the use of the asset bear an equitable share of the asset cost.
Depreciation
28
Depreciation is an _________. It may be a part of the cost of goods manufactured or an operating expense.
expense
29
The depreciation charge for each period shall be recognized as expense unless it is included in the carrying amount of another ______.
asset
30
Depreciation of an asset _____ when it is _________, meaning, when the asset is in the location and condition necessary for it to be capable of operating in the manner intended by management. Depreciation ________ when the asset is __________. Therefore, depreciation does not cease when the asset becomes idle temporarily.
begins, available for use, ceases, derecognized.
31
It is related to the depreciable asset's wear and tear and deterioration over a period. Accordingly, ___________ results to the ultimate retirement of the property or termination of the service life of the asset.
Physical depreciation
32
arises from inadequacy, supersession and obsolescence.
Functional or economic depreciation
33
arises when the asset is no longer useful to the entity because of an increase in the volume of operations.
Inadequacy
34
arises when a new asset becomes available and the new asset can perform the same function more efficiently and economically or for substantially less cost.
Supersession
35
It is the catchall for economic or functional depreciation. For example, __________ arises when there is no future demand for the product which the asset produces.
Obsolescence
36
It is the cost of an asset or other amount substituted for cost, less the residual value.
Depreciable amount or depreciable cost
37
It is the estimated net amount currently obtainable if the asset is at the end of the useful life.
Residual value
38
It is either the period over which an asset is expected to be available for use by the entity, or the number of production or similar units expected to be obtained from the asset by the entity.
Useful life
39
Accordingly, the useful life of an asset is expressed as:
1. Time periods as in years
2. Units of output or production
3. Service hours or working hours
40
It is factor in determining useful life where usage is assessed by reference to the asset's expected capacity or physical output.
Expected usage of the asset
41
It is the factor in determining useful life where it depends on the operational factors such as the number of shifts the asset is used, the repair and maintenance program, and the care and maintenance of the asset while idle.
Expected physical wear and tear
42
It is factor in determining useful life where it arises from changes or improvements in production, or change in the market demand for the product output of the asset.
Technical or commercial obsolescence
43
It is the factor in determining useful life where such as the expiry date of the related lease
Legal limits for the use of the asset
44
It is the period of time an asset shall be used by an entity. The ________ is the equivalent of useful life
Service life
45
It refers to how long the asset shall last.
Physical life
46
the annual depreciation charge is calculated by allocating the depreciable amount equal; over the number of years of estimated useful life. In other words, ________ depreciation is a constant charge over the useful life of the asset.
straight line method
47
Under the ________, assets that are dissimilar in nature or assets that have different physical characteristic and vary widely in useful life, are grouped and treated as a single unit
composite method
48
Under the _________, all assets that are similar in nature and in estimated useful life are grouped and treated as a single unit
group method
49
Under the __________, a depreciation rate per hour is computed by dividing the depreciable amount by the estimated useful life in terms of service hours. The depreciation rate per hour is then multiplied by the actual hours worked in one period to get the depreciation for that period.
working hours method
50
Under the ________, a depreciation rate per unit is computed by dividing the depreciable amount by the estimated useful life in terms of units of output. The depreciation rate per unit is then multiplied by the yearly output to get the annual depreciation.
output or production method
51
The ______________ provides for depreciation that is computed by multiplying the depreciable amount by a series of fractions whose numerator is the digit in the useful life of the asset and whose denominator is the sum of the digits in the useful life of the asset.
sum of years' digits method
52
Under the __________, a fixed or uniform rate is multiplied by the declining carrying amount of the asset in order to arrive at the annual depreciation.
declining balance method
53
The procedure for the _____________ is the same as the declining balance method in that a fixed rate is multiplied by the declining carrying amount of the asset to arrive at the annual depreciation
double declining balance method
54
The term ______________ is defined as the search for mineral resources after the entity has obtained legal right to explore in a specific area as well as the determination of the technical feasibility and commercial viability of extracting the mineral resources.
exploration and evaluation of mineral resources
55
___________ are material objects of economic value and utility to man produced by nature. Actually, ___________ are natural resources.
Wasting assets
56
________ usually include coal, oil, ore, precious metals like gold and silver, and timber.
Natural resources
57
__________ is the price paid to obtain the property containing the natural resource. Unquestionably, this is the initial cost of the wasting asset. Generally, the __________ is charged to any descriptive natural resource account.
Acquisition cost
58
____________ is the expenditure incurred before the technical feasibility and commercial viability of extracting a mineral resource are demonstrated.
Exploration cost
59
The exploration cost directly related to the discovery of commercially producible natural resource is capitalized as cost of the resource property. The exploration cost related to "dry holes" or unsuccessful discovery is expensed in the period incurred.
Successful effort method
60
All exploration costs, whether successful or unsuccessful, are capitalized as cost of the successful resource discovery. This is on the theory that any exploration cost is a "wild goose chase" and therefore necessary before any commercially producible and profitable resource can be found. The cost of drilling dry holes is part of the cost of locating productive holes.
Full cost method
61
_____________ is the cost incurred to exploit or extract the natural resource that has been located through successful exploration. _____________ may be in the form of tangible equipment and intangible development cost.
Development cost
62
______________ includes transportation equipment, heavy machinery, tunnels, bunker and mine shaft. The cost of____________ is not capitalized as cost of natural resource but set up in a separate account and depreciated in accordance with normal depreciation policies.
Tangible equipment
63
_______________ is capitalized as cost of the natural resource. Such cost includes drilling, sinking mine shaft and construction of wells.
Intangible development cost
64
______________ is the cost to be incurred in order to bring the property to its original condition. Such _____________ may be added to the cost of resource property or "netted" against the expected residual value of the resource property.
Estimated restoration cost
65
The removal, extraction or exhaustion of a natural resource is called ___________. It is the systematic allocation of the depletable amount of a wasting asset over the period the natural resource is extracted or produced.
depletion
66
A ______ is a formal unconditional promise, made under seal, to pay a specified sum of money at a determinable future date, and to make periodic interest payment at a stated rate until the principal sum is paid. In simple language, a ______ is a contract of debt whereby one party called the issuer borrows funds from another party called the investor.
bond
67
________ are bonds with a series of maturity dates instead of a single one.
Serial bonds
68
__________ are bonds secured by a mortgage on real properties.
Mortgage bonds
69
_________ are bonds secured by shares and bonds of other corporation
Collateral trust bonds
70
__________ are unsecured or bonds without collateral security.
Debenture bonds
71
_________ require the registration of the name of the bondholders on the books of the corporation.
Registered bonds
72
___________ are unregistered bonds in the sense that the name of the bondholder is not recorded on the entity books.
Coupon or bearer bonds
73
_________ are bonds that can be exchanged for shares of the issuing entity.
Convertible bonds
74
_________ are bonds which may be called in for redemption prior to the maturity date.
Callable bonds
75
__________ are bonds issued whereby another party promises to make payment if the borrower fails to do so.
Guaranteed bonds
76
___________ are high-risk, high-yield bonds issued by entities condition that are heavily indebted or otherwise in weak financial
Junk bonds
77
_______ are bonds that pay no interest but the bonds offer a return in the form of a "deep discount" or huge discount from the face amount.
Zero-coupon bonds
78
The ______________ is the rate that exactly discounts estimated cash future payments through the expected life of the bonds payable or when appropriate, a shorter period to the net carrying amount of the bonds payable.
effective rate
79
The __________ is equal to the present value of the principal bond liability plus the present value of future interest payments using the effective or market rate of interest.
market price or issue price of bond payable
80
The _________ recognizes that a dollar today is worth more than a dollar tomorrow, because the dollar today can be invested to start earning interest immediately.
NPV rule
81
A project’s __________ is found by counting the number of years it takes before the cumulative cash flow equals the initial investment.
payback period
82
The _________ states that a project should be accepted if its payback period is less than some specified cutoff period.
payback rule
83
The internal rate of return is defined as the rate of discount that makes NPV equals ______.
zero
84
The _________ is a profitability measure that depends solely on the amount and timing of the project cash flows.
internal rate of return
85
The _______ of capital is a standard of profitability that we use to calculate how much the project is worth.
opportunity cost
86
The __________ states that companies should accept any investment offering an IRR in excess of the opportunity cost of capital.
IRR rule
87
A contract that gives its holder the right to buy (or sell) an asset at a predetermined price within a specified period of time.
Option
88
The price that must be paid for a share of common stock when an option is exercised.
Strike (Exercise, Price)
89
An option to buy, or “call,” a share of stock at a certain price within a specified period.
Call Option
90
An option to sell a share of stock at a certain price within a specified period.
Put Option
91
A long-term option that is listed on the exchanges and tied to individual stocks and stock indexes.
Long-term Equity Anticipation Security (LEAPS)
