Prelim

Question 1

This involves selecting economic events that are relevant to a particular business transactions

Answer 1

Identifying

Question 2

In terms of monetary value

Answer 2

Measuring

Question 3

Occurs through the preparation and distribution of financial and other accounting

Answer 3

Communicating

Question 4

Is a service activity. It’s function is to provide quantitative information, primarily financial in nature, about economic entities, that is intended to be useful in making economic decision.

Answer 4

Accounting

Question 5

Is the art of recording, classifying and summarizing in a significant manner and in terms of money, transactions and events which are in part at least of a financial character and interpreting the result thereof.

Answer 5

Accounting

Question 6

Is the “LANGUAGE OF BUSINESS”.

Answer 6

Accounting

Question 7

Flow of Economic Information in an Accounting System

Answer 7

• From the source documents of daily transactions, data are identified and analyzed
• The identified data are measured, recorded, classified and summarized into reports and financial statements
• Reports/Financial Statements are communicated to users of financial information
  -Users if the financial information make judgement and decision/s

Question 8

Return on Sales Formula

Answer 8

Return on Sales = Net Income
Sales

Question 9

Users of Financial Statements

Answer 9

• Primary Users
• Other Users

Question 10

Reports are directed to them primarily

Answer 10

Primary Users
- Owners
- Potential Investors
- Lenders

Question 11

If a user of the information is an external party, and is not related to the business then he/she is considered as one of the external or users of accounting information

Answer 11

Other Users
- Vendors/Supplies
- Customers
- Government
- Employees
- Public

Question 12

5 Components of Financial Statements

Answer 12

1. Statement of Financial Position/Balance Sheet
2. Statement of Comprehensive Income
3. Statement of Changes in Equity
4. Statement of Cash Flows
5. Notes to Financial Statements

Question 13

It is a financial statements that shows the financial condition of an entity as at the end of the period. It presents the assets, liabilities and owner’s equity

Answer 13

Statement of Financial Position/Balance Sheet

Question 14

Is a financial statements that shows the financial performance of an entity for a particular accounting period. It presents the incomes, cost and expenses and the result of operations of entity for a period of time

Answer 14

Statement of Comprehensive Income

Question 15

Is a financial statement that shows the items that change or affect the owner’s equity

Answer 15

Statement of Changes in Equity

Question 16

Is a financial statements that provides information about cash inflows(cash receipts or cash collections and cash outflows(cash disbursements or cash payments) during an accounting period

Answer 16

Statement of Cash Flows

Question 17

Comprising a summary of significant accounting policies and other explanatory information(disclosures)

Answer 17

Notes of Financial Statements

Question 18

• 14th to 17th Century
• Lead to industrial evolution
• fervent period of European cultural, artistic, political and “economic rebirth” following the Middle Ages

Answer 18

The Renaissance Period

Question 19

• Italian Mathematician
• Friar
• Father of Double Entry System (Bookkeeping)
• DEBERE (IN)
• CREDERE (OUT)
• IN = OUT
• DEBIT = CREDIT

Answer 19

Fra Luca Pacioli

Question 20

When is income earned?

Answer 20

Income is earned when services are rendered or when the goods are delivered, not necessarily the period in which cash(collection) is recieved

Question 21

Qualitative Characteristics

Answer 21

1. Fundamental Qualities
   - Relevance - Relevant information is capable of making difference in decisions made by users
   - Predictive value - Financial information has predictive value if it can be used as an input to processes employed by users to predict future outcomes
   - Confirmatory Value - Financial information has confirmatory value if it provides feedback about previous evaluations
   - Materiality - Information is material if omitting it or misstating it could influence decisions that users make on the basis of financial information about a specific reporting entity

• Faithful Represenation - descriptions and figures must match what really existed or happened
• Completeness
• Neutrality
• Free form error

Question 22

entity must be accounted for as an individual organization, separate and distinct(apart) from its owners, managers and employees who constitute the entity

Answer 22

Accounting Entity

Question 23

In the absence of evidence to the contrary, the accounting entity is viewed as continuing in operation indefintely

Answer 23

Going Concern (Continuity Assumption)

Question 24

Requires that the indefinite life if an entity is subdivide into accounting periods which are usually of equal length for the purpose of preparing financial statements

Answer 24

Time Period/Periodicity

Question 25

Assets, liabilities, equity, income and expenses should be stated I terms of a unit of measure

Answer 25

Monetary Unit

Question 26

Types of Business Activities

Answer 26

- Service - Merchandising or Trading - Manufacturing

Question 27

An occupation or business that provides service for a fee. Examples are travel companies, airlines, hotels, schools, barber shops, and beauty salons

Answer 27

Service

Question 28

A business that buys products from another business to resell the products for products. Examples are department stores, supermarket, or grocery stores, hardware and drugstores

Answer 28

Merchandising or Trading

Question 29

A business that makes or manufactures products to sell. Examples are the furniture factories, drug laboratories, food processing companies, and garment factories

Answer 29

Manufacturing

Question 30

Types of Business Ownership Structures

Answer 30

1. Sole Proprietorship 2. Partnership 3. Corporation

Question 31

- Owned by one person - Small in size - Common in the service, retailing and farming industries - Usually manages the business and makes all the business decisions

Answer 31

Sole Proprietorship

Question 32

Is an organization where two or more persons bind themselves to **contribute money, property** or **industry** into a common fund with the intention of **dividing the profits** among themselves

Answer 32

Partnership

Question 33

An **artificial being** created by **operation of law** having the right of succession and the powers, attributes, and properties expressly authorized by law or incident to it's existence

Answer 33

Corporation

Question 34

Accounting Equation

Answer 34

ASSETS = LIABILITIES + OWNER'S EQUITY

Question 35

Elements of Financial Statements

Answer 35

- Assets - Liabilities - Equity - Income - Expenses

Question 36

Present economic **resources** controlled by the entity as a result of past events and transactions and from which the future economic benefits are expected to flow to the entity

Answer 36

Assets

Question 37

Classification of Assets

Answer 37

- Current Assets Accounts - Non-Current Assets Accounts

Question 38

Are presents obligation of the entity arising for the past events, the settlement of which is expected to result in an outflow for the entity of resources embodying economic benefits

Answer 38

Liabilities

Question 39

Classification of Liabilities

Answer 39

- Current Liabilities Accounts - Non-Current Liabilities Accounts

Question 40

Is the residual interest in the assets of the entity after deducting all its liabilities

Answer 40

Equity

Question 41

Is increases in economic benefits during the accounting period in the form of inflows or enhancements of assets or decreases of liabilities that result in increase in equity, other than those relating to contributions from equity partcipants

Answer 41

Income

Question 42

Are decreases in economic benefits during the accounting period in the form of outflow or depletion of assets or incurrence of liabilities that result in decrease in equity, other than those relating to distributions to equity participants

Answer 42

Expenses

Question 43

Is an economic event that has direct impact on the business

Answer 43

Business Transaction

Question 44

Exchanges of assets and liabilities between the business and other parties

Answer 44

External Events

Question 45

Certain events that are not exchanges between the business and other parties but have direct and measurable effect on the elements

Answer 45

Internal Events

Question 46

Principles Underlying the Transaction Analysis Process

Answer 46

1. Duality Of Effect 2. The accounting equation must remain in balance after each transaction

Question 47

Every transaction has at least two effects on the basic accounting equation

Answer 47

Duality of Effects

Question 48

The accounting equation must remain in balance after each transaction. Total assets must equal to the total liabilities plus owner's equity

Answer 48

Maintain the Accounting Equation Balance

Question 49

Steps in Performing Transaction Analysis

Answer 49

1. What happen? 2. What accounts are affected? 3. How is accounting equation affected? 4. Is the accounting equation in balance?