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An entity's operating cycle is defined as the time between the acquisition of assets for processing and their conversion into cash or cash equivalents.
An entity's operating cycle is defined as the time between the acquisition of assets for processing and their conversion into cash or cash equivalents.
True
According to PAS 1, an asset can be classified as current if it is expected to be realized within four months after the reporting period.
According to PAS 1, an asset can be classified as current if it is expected to be realized within four months after the reporting period.
False
Cash and cash equivalents are considered noncurrent assets.
Cash and cash equivalents are considered noncurrent assets.
False
Current assets are typically listed in order of liquidity.
Current assets are typically listed in order of liquidity.
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All assets not classified as current are automatically categorized as noncurrent assets according to PAS 1.
All assets not classified as current are automatically categorized as noncurrent assets according to PAS 1.
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The functional presentation classifies expenses based on their nature.
The functional presentation classifies expenses based on their nature.
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Cost of sales is a method used in the functional presentation of expenses.
Cost of sales is a method used in the functional presentation of expenses.
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Under the nature of expense method, expenses are aggregated according to their function.
Under the nature of expense method, expenses are aggregated according to their function.
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Distribution cost is combined with administrative expenses in the nature of expense method.
Distribution cost is combined with administrative expenses in the nature of expense method.
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Comprehensive income consists only of components of profit and loss.
Comprehensive income consists only of components of profit and loss.
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Net income and net loss are terms that can be used interchangeably with profit and loss.
Net income and net loss are terms that can be used interchangeably with profit and loss.
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Other comprehensive income (OCI) is recognized in profit or loss.
Other comprehensive income (OCI) is recognized in profit or loss.
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Changes in revaluation surplus are a component of other comprehensive income.
Changes in revaluation surplus are a component of other comprehensive income.
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Unrealized gains or losses on investments in equity instruments are classified as OCI that will be reclassified subsequently to profit or loss.
Unrealized gains or losses on investments in equity instruments are classified as OCI that will be reclassified subsequently to profit or loss.
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The Amended PAS 1 requires that OCI line items be presented without any classification.
The Amended PAS 1 requires that OCI line items be presented without any classification.
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Gains or losses from translating financial statements of a foreign operation are classified as OCI that will NOT be reclassified subsequently to profit or loss.
Gains or losses from translating financial statements of a foreign operation are classified as OCI that will NOT be reclassified subsequently to profit or loss.
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Actuarial gains or losses on defined benefit plans are fully recognized through other comprehensive income.
Actuarial gains or losses on defined benefit plans are fully recognized through other comprehensive income.
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The debt ratio is calculated by dividing total assets by total liabilities.
The debt ratio is calculated by dividing total assets by total liabilities.
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The equity ratio measures the proportion of total liabilities financed by owners' equity.
The equity ratio measures the proportion of total liabilities financed by owners' equity.
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The receivable turnover ratio assesses a company's efficiency in managing its inventory.
The receivable turnover ratio assesses a company's efficiency in managing its inventory.
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The gross profit margin measures the percentage of profit generated before deducting expenses.
The gross profit margin measures the percentage of profit generated before deducting expenses.
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The debt to equity ratio indicates a company's reliance on equity funding compared to creditor funding.
The debt to equity ratio indicates a company's reliance on equity funding compared to creditor funding.
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Net profit margin calculates the percentage of profit after deducting all expenses from net sales.
Net profit margin calculates the percentage of profit after deducting all expenses from net sales.
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A higher inventory turnover ratio generally indicates poor management of inventory.
A higher inventory turnover ratio generally indicates poor management of inventory.
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Return on equity measures the profitability of a company relative to shareholders' equity.
Return on equity measures the profitability of a company relative to shareholders' equity.
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Total Current Assets are $2,350,000.
Total Current Assets are $2,350,000.
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The total Noncurrent Liabilities amount to $2,500,000.
The total Noncurrent Liabilities amount to $2,500,000.
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The Cash and Cash Equivalent amount includes a Petty Cash Fund of $20,000.
The Cash and Cash Equivalent amount includes a Petty Cash Fund of $20,000.
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Total Assets equal $15,550,000 in the financial statement.
Total Assets equal $15,550,000 in the financial statement.
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The amount for Share Capital is listed as P100 par at $5,000,000.
The amount for Share Capital is listed as P100 par at $5,000,000.
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Inventories total $1,000,000 in the statement.
Inventories total $1,000,000 in the statement.
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Deferred Tax Liability is categorized under Current Liabilities.
Deferred Tax Liability is categorized under Current Liabilities.
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Retained Earnings amount to $3,650,000.
Retained Earnings amount to $3,650,000.
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The total for Current Liabilities is $1,700,000.
The total for Current Liabilities is $1,700,000.
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Total Noncurrent Assets are reported as $12,200,000.
Total Noncurrent Assets are reported as $12,200,000.
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Shareholders' Equity totals $11,650,000.
Shareholders' Equity totals $11,650,000.
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Total Trade and Other Receivables equal $800,000.
Total Trade and Other Receivables equal $800,000.
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Cash in bank is reported as $300,000 within Cash and Cash Equivalents.
Cash in bank is reported as $300,000 within Cash and Cash Equivalents.
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Accounts Payable is part of Noncurrent Liabilities.
Accounts Payable is part of Noncurrent Liabilities.
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The company holds Intangible Assets valued at $1,000,000.
The company holds Intangible Assets valued at $1,000,000.
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The total assets of Equal Company amounted to $2,121,000.
The total assets of Equal Company amounted to $2,121,000.
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The current ratio for Equal Company is approximately 2.5:1.
The current ratio for Equal Company is approximately 2.5:1.
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Equal Company's net income for the year ended December 31, 2016 was $44,000.
Equal Company's net income for the year ended December 31, 2016 was $44,000.
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Long-term investments are classified under current assets in the statement of financial position.
Long-term investments are classified under current assets in the statement of financial position.
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The cost of goods sold for Equal Company during the year was $60,000.
The cost of goods sold for Equal Company during the year was $60,000.
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Accounts Payable represents a non-current liability in Equal Company's financial position.
Accounts Payable represents a non-current liability in Equal Company's financial position.
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Total non-current assets for Equal Company are $1,746,000.
Total non-current assets for Equal Company are $1,746,000.
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Total current liabilities for Equal Company are listed as $190,000.
Total current liabilities for Equal Company are listed as $190,000.
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Study Notes
Fundamentals of Accountancy, Business and Management 2
- This course covers the fundamentals of accountancy, business, and management.
- The course was created in 2016 for senior high school students in Malvar, Batangas.
- The course is part of the STEM (Science, Technology, Engineering, and Mathematics) program.
Content Standard
- Students demonstrate understanding of account titles under assets, liabilities, and capital accounts in the Statement of Financial Position (SFP).
- Key account titles include cash, receivables, inventories, prepaid expenses, property, plant, and equipment, payables, accrued expenses, unearned income, long-term liabilities, and capital.
- This knowledge prepares students to create SFPs using the Statement of Comprehensive Income (SCI).
Performance Standards
- Students can solve exercises to prepare an SFP for a single proprietorship.
- Proper classification of accounts (current and noncurrent) is required using the report form.
Essential Learning Competencies
- Students identify and describe the elements of the SFP.
- Students prepare an SFP using report and account forms, classifying items as current or noncurrent.
Accounting Cycle
- The accounting cycle includes steps like analyzing transactions, preparing journal entries, posting entries, preparing an unadjusted trial balance, adjusting entries, preparing an adjusted trial balance, preparing financial statements, and creating reversing entries (if necessary).
Financial Statements
- Financial statements communicate financial information periodically to users.
- They represent the financial position and performance of an entity.
- The objective of financial statements is to provide useful information on financial position, financial performance, and cash flows for economic decision-making.
Elements of Financial Statements
- The financial statements detail assets, liabilities, equity, income, expenses (including gains and losses), contributions to owners, and distributions to owners.
- Cash flows are also included.
Frequency of Reporting
- Financial statements are presented at least annually.
- Entities must disclose the period covered in statements differing from annual periods.
- For periods longer or shorter than a year, the reason for the variation and lack of comparability should be made clear.
Components of Financial Statements
- Key components include the Statement of Financial Position, Statement of Comprehensive Income, Statement of Changes in Equity, and Notes to the Financial Statements.
Statement of Financial Position (Balance Sheet)
- The balance sheet shows an entity’s assets, liabilities, and owner's equity.
- Assets are classified into current and noncurrent.
Assets
- Assets are resources controlled by an entity as a result of past transactions or events from which future economic benefits are expected to flow to the entity.
- Assets are categorized as current or noncurrent.
- Current assets are expected to be converted to cash, sold, or consumed within the entity's normal operating cycle. Examples include cash, accounts receivable, and inventory.
- Noncurrent assets are not expected to be converted to cash, sold, or consumed within the entity's normal operating cycle. Examples include property, plant, and equipment, and long-term investments.
Liabilities
- Liabilities are present obligations of an entity arising from past transactions or events, the settlement of which is expected to result in an outflow of resources embodying economic benefits.
- Liabilities can be categorized as current or noncurrent.
- Current liabilities are obligations expected to be settled within the entity's operating cycle.
- Noncurrent liabilities are obligations expected to be settled after the operating cycle.
Owner's Equity
- Owner's equity is the residual interest in the assets of an entity after deducting all its liabilities.
- It represents the owners' stake in the business.
Single Step Approach and Multi-step Approach for Statement of Comprehensive Income (SCI)
- Students prepare SCI for a service and merchandising business using the single-step and multi-step approaches.
- The single-step approach groups all revenues and expenses together to arrive at net income.
- In a multi-step approach, various income and expenses are categorized into sections and then added and subtracted.
Statement of Comprehensive Income (SCI)
- The SCI measures the changes in equity (or net assets) during a period arising from all transactions and other events other than those resulting from transactions with owners.
- It encompasses items of income and expenses, including profit or loss from operations as well as (discretionary) reclassification adjustments.
- The profit or loss section (typically the "bottom line") is calculated before considering the components of other comprehensive income.
- The SCI may present separate components of other comprehensive (non-profit-or-loss-affecting) transactions (e.g. foreign currency exchange, etc) and reclassification adjustments.
- Includes a final line representing the total comprehensive income for the period.
Financial Ratio Analysis
- Financial ratios use relationships between accounts to analyze and interpret a company's financial position and performance.
- Liquidity ratio: measures the capacity of a company to meet its short-term obligations. Examples include current ratio, quick ratio, and working capital.
- Solvency ratio: indicates the extent to which a company's assets can cover its liabilities. Examples include debt/assets ratio, debt-to-equity ratio, debt/capital, and equity ratio.
- Profitability ratios measure profitability of operations, and include gross profit margin, net profit margin, and return on equity.
- Efficiency (management) ratios reflect how effectively a company uses its resources (assets) examples include accounts receivable turnover and inventory turnover.
Methods of Financial Statement Analysis
- Horizontal analysis compares financial information over different periods.
- Vertical analysis expresses each item as a percentage of a specific total (e.g. representing net sales figure).
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Description
This quiz covers key concepts in accounting, including the operating cycle, asset classification according to PAS 1, and the functional presentation of expenses. Test your understanding of current and noncurrent assets, as well as income reporting for businesses.
