Accounting Basics Quiz
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Questions and Answers

Which of the following assets is NOT depreciated?

  • Equipment
  • Building
  • Land (correct)
  • Furniture and Fixtures

    • What is the purpose of an 'asset offset' or 'contra-asset' account, such as accumulated depreciation?

  • To increase the value of the related asset.
  • To track potential future expenses related to the asset.
  • To reduce the book value of the related asset. (correct)
  • To report the original cost of an asset.

    • Which of the following is an example of a long-term investment?

  • Investment in bonds (correct)
  • Cash on hand
  • Prepaid rent
  • Accounts receivable

    • Which of the following best describes intangible assets?

    <p>Non-monetary assets without physical substance. (B)</p> Signup and view all the answers

    Which of the following is NOT a requirement for something to be considered a liability?

    <p>It must be payable within the next year. (C)</p> Signup and view all the answers

    Which of the following is an example of equipment?

    <p>Computers (A)</p> Signup and view all the answers

    Why are future transactions not included when calculating liabilities?

    <p>They have not yet happened. (B)</p> Signup and view all the answers

    What is the meaning of settlement, in regards to liabilities?

    <p>An obligation that has to be paid in the form of cash or other resources (B)</p> Signup and view all the answers

    Which of the following best describes prepaid expenses?

    <p>Expenses paid in advance but not yet incurred or fully utilized at the end of the period. (D)</p> Signup and view all the answers

    Which account is considered a contra-asset account?

    <p>Allowance for Bad Debts (C)</p> Signup and view all the answers

    Which of the following is NOT a typical example of cash?

    <p>IOUs from employees (B)</p> Signup and view all the answers

    What distinguishes accounts receivable from notes receivable?

    <p>Notes receivable are supported by promissory notes, while accounts receivable are not. (A)</p> Signup and view all the answers

    Under the imprest fund system, what is the primary purpose of the petty cash fund?

    <p>To pay for 'petty' or small expenses. (B)</p> Signup and view all the answers

    Which of the following accounts would most likely appear in the current assets section of a balance sheet?

    <p>Cash in Bank (B)</p> Signup and view all the answers

    A company's advances to officers and employees are classified as what type of asset?

    <p>Current Assets (B)</p> Signup and view all the answers

    Which of the following characteristics best describes Property, Plant, and Equipment (PPE)?

    <p>Tangible assets held for use in production, rental purposes, or administrative purposes, expected to be used for more than one period. (D)</p> Signup and view all the answers

    Which of the following is not a requisite for an item to be classified as an asset?

    <p>The item must be the result of future transactions or events. (B)</p> Signup and view all the answers

    A company holds an investment with the intention of selling it within the next 9 months. According to the criteria for current assets, how would this investment likely be classified?

    <p>As a current asset, because it is held primarily for trading purposes. (C)</p> Signup and view all the answers

    Which accounting element represents the resources controlled by a business as a result of past events?

    <p>Assets (D)</p> Signup and view all the answers

    A company purchases raw materials with the intent to use them in production within its normal operating cycle. How would these raw materials be classified?

    <p>Current assets (A)</p> Signup and view all the answers

    What is the primary requirement for an item to be considered a 'resource of the business' when classifying it as an asset?

    <p>The business must have legal right to the property (D)</p> Signup and view all the answers

    Which of the following best describes the concept of 'control' regarding asset classification?

    <p>The disposition on the use of the property belongs to the business (B)</p> Signup and view all the answers

    Which of the following is the best definition of accounting elements?

    <p>Broad classifications of accounting values used to group similar transactions (B)</p> Signup and view all the answers

    A business anticipates receiving a large sum of money from a customer in two years for a service that will be performed next year. How does this expectation affect the classification of assets?

    <p>The anticipated receipt cannot be classified as an asset since it is the result of future transactions. (B)</p> Signup and view all the answers

    Which of the following represents income received in advance for services yet to be provided?

    <p>Unearned Income (B)</p> Signup and view all the answers

    What distinguishes a finance lease from an operating lease?

    <p>Finance lease payments cover both monthly rental and partial payment of the property. (B)</p> Signup and view all the answers

    Which of the following payroll deductions represents amounts withheld from employees' salaries for income tax?

    <p>Withholding Tax Payable (A)</p> Signup and view all the answers

    What is the fundamental characteristic of non-current liabilities?

    <p>They arise from past events and are expected to result in an outflow of resources beyond one year. (C)</p> Signup and view all the answers

    What distinguishes a mortgage payable from other types of long-term debt?

    <p>Mortgages payable are supported by some form of collateral. (C)</p> Signup and view all the answers

    What does the equity section of a company's balance sheet primarily represent?

    <p>The residual interest of the owner in the assets of the business after deducting all its liabilities. (C)</p> Signup and view all the answers

    If a business borrows money from a bank with a repayment term of five years, how should this loan be classified?

    <p>As a long-term bank loan. (B)</p> Signup and view all the answers

    Which of the following payroll-related liabilities includes both the employee's contribution and the employer's share?

    <p>SSS Premium Payable (D)</p> Signup and view all the answers

    What effect do withdrawals have on capital?

    <p>Decrease (A)</p> Signup and view all the answers

    How is net income represented in the Statement of Financial Position (SFP)?

    <p>As a line item in the equity section (A)</p> Signup and view all the answers

    Which condition defines a net loss?

    <p>Income is less than expenses (B)</p> Signup and view all the answers

    Which of the following best describes the impact of income on equity?

    <p>Increase in equity (A)</p> Signup and view all the answers

    Which is not typically considered a revenue account?

    <p>Utilities Expense (D)</p> Signup and view all the answers

    Which account reflects earnings from building rentals?

    <p>Rental Income (A)</p> Signup and view all the answers

    Which of the following is an example of gains?

    <p>Gains from Sale of Assets (D)</p> Signup and view all the answers

    Expenses generally result in:

    <p>A decrease in equity (A)</p> Signup and view all the answers

    Which of the following is an expense account related to employee benefits?

    <p>SSS Contribution (D)</p> Signup and view all the answers

    What is the purpose of the 'Bad Debts Expense' or 'Doubtful Accounts Expense' account?

    <p>To estimate the amount of receivables that may not be collected. (B)</p> Signup and view all the answers

    Which account is used to record the expired portion of premiums paid for insurance coverage?

    <p>Insurance Expense (D)</p> Signup and view all the answers

    What is the primary difference between 'Store Supplies Expense' and 'Office Supplies Expense'?

    <p>Store Supplies are used in the day-to-day operations of the store, while Office Supplies are used in the office. (D)</p> Signup and view all the answers

    Which of the following accounts would a merchandising business use that a service entity typically would not?

    <p>Merchandise Inventory (D)</p> Signup and view all the answers

    Which of the following merchandising accounts is presented as a deduction from sales in the financial statements?

    <p>Sales Discounts (B)</p> Signup and view all the answers

    How are 'Sales Returns and Allowances' treated in the financial statements?

    <p>As a deduction from sales. (B)</p> Signup and view all the answers

    Which of the following best describes 'Miscellaneous Expense'?

    <p>Small, unusual, and infrequent expenses where a separate specific account is unnecessary. (C)</p> Signup and view all the answers

    Flashcards

    Current Assets

    Assets that are expected to be converted to cash or used up within one year.

    Prepaid Expenses

    Expenses paid in advance but not yet incurred or used.

    Accounts Receivable

    Amounts collectible from customers from credit sales not supported by promissory notes.

    Notes Receivable

    Collections from customers supported by promissory notes for sales of goods or services.

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    Allowance for Bad Debts

    Contra-asset account that anticipates losses from uncollected accounts receivable.

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    Cash on Hand

    Physical cash available within the business premises.

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    Petty Cash Fund

    Money set aside for small, miscellaneous expenses.

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    Property, Plant and Equipment (PPE)

    Tangible assets used for production or rental expected to last more than one year.

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    Salaries Payable

    Unpaid salaries of employees for services rendered.

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    Interest Payable

    Unpaid interest to banks for borrowed amounts.

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    SSS Premium Payable

    Withheld amounts for Social Security contributions.

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    Unearned Income

    Income received in advance, not yet earned.

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    Mortgage Payable

    Long-term liability backed by collateral.

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    Long-term Bank Loan

    Bank loan with a maturity of over one year.

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    Equity

    Owner's residual interest in assets after liabilities.

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    Finance Lease Liability

    Liability from assets acquired through a finance lease.

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    Land

    Site where administrative buildings or plants are located.

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    Building

    Structures like administrative buildings, warehouses, and stores used by a business.

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    Machinery

    Machines utilized in the production process of goods.

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    Equipment

    Tools and devices used to perform specific tasks in a business.

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    Accumulated Depreciation

    Contra-asset account that deducts from related property and equipment, showing wear and tear.

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    Intangible Assets

    Non-monetary assets without physical substance controlled by an entity.

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    Liabilities

    Present obligations of an enterprise arising from past transactions.

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    Requirements for Liabilities

    Criteria including present obligation, arising from past transactions, and outflow of resources.

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    Capital

    Initial investment by the owner at business start.

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    Owner's Equity

    Owner's claim on assets after liabilities are deducted.

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    Withdrawal

    Temporary capital withdrawal by the owner for personal use.

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    Net Income

    Income exceeds expenses during an accounting period.

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    Net Loss

    Expenses exceed income during an accounting period.

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    Revenue

    Income earned from normal business activities.

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    Gains

    Income from non-ordinary business transactions.

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    Service Income

    Income from services rendered by a business.

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    Salaries and Wages

    Payments made for services rendered by workers and employees.

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    Rent Expense

    Amount paid for the use of office, store, or factory space.

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    Office Supplies Expense

    Materials used by the business in its office operations.

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    Utilities Expense

    Costs incurred for light, water, and gas usage in the business.

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    Depreciation Expense

    Expired portion of the cost of equipment and buildings over time.

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    Sales

    Revenue account for products sold to customers, cash or credit.

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    Sales Returns and Allowances

    Goods returned by customers, deducted from total sales.

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    Merchandise Inventory

    Total goods available for sale in a business.

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    Accounting Elements

    Broad classification of values linked to business transactions.

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    Assets

    Resources owned by a business expected to provide future benefits.

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    Non-Current Assets

    Assets not expected to be liquidated within one year.

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    Requisites of an Asset

    Conditions for an item to be classified as an asset; includes ownership and benefits.

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    Contra-Account

    An account that offsets the balance of a related account.

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    Owner’s Equity

    The residual interest in the assets of the entity after deducting liabilities.

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    Study Notes

    Chapter 3: Accounting Elements and Account Titles

    • This chapter covers accounting elements and account titles, essential components in financial reporting.
    • Accounting elements include assets, liabilities, capital/equity, revenue, and expenses.
    • These elements are grouped together to summarize business transactions and activities.

    Learning Objectives

    • Understand the nature of accounting elements.
    • Comprehend the broad classification of accounting elements.
    • Identify the classification of assets.
    • Recognize the criteria for classifying an item as a current asset.
    • Define the operating cycle concept.
    • List various account titles classified as assets.
    • Explain the concept of "contra-accounts."
    • Detail the characteristics and requirements of liabilities.
    • Analyze elements impacting owner's equity.
    • Discuss merchandising account titles.

    Accounting Elements

    • Assets are resources controlled by the business, resulting from past transactions, and expected to generate future economic benefits.
    • Liabilities represent present obligations arising from past transactions, where settlement leads to an outflow of resources.
    • Equity (or capital) represents the residual interest in the assets after deducting liabilities.
    • Revenue encompasses increases in economic benefits from ordinary activities, not including contributions from equity participants.
    • Expenses indicate decreases in economic benefits, such as the use of assets or the incurrence of liabilities.

    Assets

    • Assets are resources controlled by the business, with rights to future economic benefits.
    • An asset must: be a resource of the business, be controlled by the enterprise, be the result of past events, and provide future economic benefits.

    Current Assets

    • Assets expected to be realized or consumed within the normal operating cycle or within 12 months of the balance sheet date.
    • Includes cash, cash equivalents, collectibles (trade receivables), goods intended for sale, or inventory.
    • Cash assets that are restricted for specific uses (not for ordinary operation) are not considered current.

    Current Assets Accounts

    • Cash: Money in hand or in the bank, checks, and other negotiable instruments.
    • Petty Cash Fund: Money specifically earmarked for small expenses.
    • Notes Receivable: Money owed to the business, supported by promissory notes.
    • Accounts Receivable: Money owed to the business, not backed by a promissory note.
    • Allowance for Bad Debts: An account for potential losses from uncollected receivables (a "contra-asset).
    • Interest Receivable: Interest earned on notes receivable.
    • Advances to Officers/Employees: Money owed by officers/employees to the business.
    • Supplies: Office supplies purchased but not yet consumed.
    • Prepaid Expenses: Expenses paid in advance.

    Non-Current Assets

    • Assets not expected to be converted to cash or used up within the normal operating cycle (over one year).
    • Classification: Property, plant, and equipment; long-term Investments; intangible assets; other non-current assets.
    • Property, Plant, and Equipment (PPE): Tangible assets used in production or other operations. Includes land, buildings, machinery, equipment, furniture, fixtures.
    • Accumulated Depreciation: The sum of depreciation over the years, deducted from the related PPE.
    • Long-term Investments: Investments that will be held for more than one year (e.g., stocks, bonds, subsidiaries).
    • Intangible Assets: Non-physical resources (e.g., patents, copyrights, trademarks).
    • Other Non-current Assets: Assets not categorized in other classifications.

    Liabilities

    • Liabilities represent present obligations of the business resulting in the outflow of economic benefits arising from past transactions.
    • A liability must be a present obligation existing at the balance sheet date that arises from a past transaction and lead to future outflows of resources.
    • Classifications include current and non-current liabilities.

    Current Liabilities

    • Current liabilities are obligations expected to be settled within the entity's normal operating cycle or within one year of the balance sheet date (or, if not expected, they do not have the unconditional right to defer the settlement).
    • Account Titles: Accounts payable, notes payable, bank payable/loan payable, utilities payable, salaries payable, interest payable, SSS/Philhealth premium payable, withholding tax/income tax payable, unearned income/precollected income.

    Non-Current Liabilities

    • Non-current liabilities are obligations expected to be settled beyond the operating cycle (i.e., more than one year).
    • Classifications include mortgages payable, long-term bank payables, non-current portions of long-term debt, finance lease liabilities.

    Equity (or Owner's Equity)

    • Represents the residual interest in the assets after deducting liabilities.
    • Usually includes capital, withdrawals/drawings, net income/loss.

    Income Accounts

    • Show the increases in economic benefits from ordinary business operations (excluding contributions from equity participants).
    • Includes revenue and gains.
    • Revenue is a primary element arising during ordinary business activities. Gains may or may not be from ordinary activities.

    Income Account Titles

    • Service income: Income earned from services rendered.
    • Professional income: Income earned by professionals.
    • Rental Income: Income from renting properties.
    • Interest Income: Income from loans or investments.
    • Miscellaneous Income: Income not categorized in other accounts.
    • Gains from Sale of Assets: Income from selling assets not typically sold in ordinary operations.

    Expense Accounts

    • Expenses decrease economic benefits by depleting assets or incurring liabilities.
    • Types: salaries/wages, rent, office supplies, store supplies, insurance, interest, taxes, utilities, bad debts, depreciation, SSS contribution, Philhealth contribution, Pag-IBIG contribution, miscellaneous expenses.

    Merchandising Accounts

    • Specific account titles used for businesses dealing in goods.
    • Account Titles: Sales, sales returns and allowances, sales discounts, purchases, freight-in, purchase returns and allowances, purchase discounts, merchandise inventory, cost of goods sold, freight-out.

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    Chapter 3: Accounting Elements and Account Titles PDF

    Description

    Test your knowledge of fundamental accounting concepts with this quiz. It covers topics such as assets, liabilities, and financial statements to assess your understanding of key principles. Perfect for students in accounting courses or those looking to refresh their skills.

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