Accounting Process and Principles

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Questions and Answers

What is the effect of a credit entry to an account?

Decrease liability

Decrease equity

Increase asset

Increase liability (correct)

What amount should the company report as total goods available for sale?

P2,500

Upon receipt of payment from an account customer (seller's perspective), what is the effect on the components of the basic accounting equation?

Owner's equity decreases

No effect (correct)

Assets decrease

Liabilities decrease

Which of the following is an example of investing cash flow activity? (Select all that apply)

Purchasing and selling of investment in equity securities Signup and view all the answers

Which account is considered temporary?

Withdrawal Signup and view all the answers

What is the first step in the recording process?

Basic Analysis Signup and view all the answers

What will be the company’s net profit margin?

10% Signup and view all the answers

What is the effect of performing services on account on the components of the basic accounting equation?

Increase assets and increase owner's equity Signup and view all the answers

Which of the following is an example of financing cash flow activity? (Select all that apply)

Selling of common stocks Signup and view all the answers

What should be reported as total assets on December 31, 2X14?

P11,000,000 Signup and view all the answers

How should a tract of land be reported if a company plans to build a production plant on it in the future?

Long-term Investment Signup and view all the answers

In a situation where a company's assets and liabilities decrease by the same amount, what happens to owner's equity?

Remains unchanged Signup and view all the answers

How much is its total expenses?

P79,200 Signup and view all the answers

Which account increases equity?

Revenues Signup and view all the answers

How much is its total assets?

P18,700 Signup and view all the answers

How much is its total owner’s equity?

P16,850 Signup and view all the answers

When a company buys a machine on credit, which financial statement is affected?

Balance Sheet only Signup and view all the answers

What will be the company’s gross profit margin?

40% Signup and view all the answers

What is the normal balance of a contra asset account?

Credit Signup and view all the answers

What are inflows from the sale of goods or services in the ordinary course of business?

Revenues Signup and view all the answers

Study Notes

Accounting Process

The effect of a credit entry to an account is to increase liability.
When a seller receives payment from an account customer, an asset account (Cash) is increased and another asset account (Receivable) is decreased, resulting in no effect on the accounting equation.
A withdrawal account is a temporary account that is closed or reduced to zero at the end of the accounting period.
The first step in the recording process is basic analysis.
When services are performed on account, assets are increased, and owner's equity is increased.
Long-term investments include long-term assets such as land that a company is not currently using in its operating activities.

Accounting for Merchandising Business

The formula to calculate beginning inventory is: Beg. Inv. = COGM + End. Inv. - TMC
The formula to calculate direct materials is: DM = TMC - DL - MO
The formula to calculate conversion cost is: DL + MOH = Conversion Cost
The formula to calculate prime cost is: DM + DL = Prime Cost
The formula to calculate product cost is: DM + DL + MOH = Product Cost
The formula to calculate cost of goods manufactured is: Beg. WIP + (DM + DL + MO) - End. WIP = COGM
Salary of the Security Guard is a period cost, not a product cost.
The formula to calculate total manufacturing cost is: DM + DL + MOH = TMC
The formula to calculate cost of goods sold is: Beg. Finished Inv. + COGM - End. Finished Inv. = COGS

Basic Financial Statements I

Adjusting entries are made to ensure that financial statements comply with the accrual method of accounting.
The debt to asset ratio indicates that creditors finance a certain percentage of a company's assets, and owners of the company finance the remaining.
The formula to calculate total non-current assets is: Equipment (only non-current asset)
The formula to calculate total current assets is: Cash + AR + Inventory + Prepaid Expenses
Intangible assets are classified as non-current assets.
The formula to calculate total non-current liabilities is: Bonds Payable + Long-term Debt
The formula to calculate total current liabilities is: AP + Notes
The current ratio indicates a company's higher capability to pay off its short-term liabilities.
The quick ratio indicates a company's capacity to pay its current liabilities without needing to sell its inventory or get additional financing.

Basic Financial Statements II

An income statement reports the success or profitability of the company's operations over a specific period.
The formula to calculate gross profit is: (Gross sales - SRA - SD) - COS
The formula to calculate revenue is: Gross sales - SRA - SD
The formula to calculate cost of sale is: Inv. Jan. 1 + Purchases - Inv. Dec. 31
Inventory Jan. 1, Purchases, and Inventory Dec. 31 are used to calculate cost of sale.
The formula to calculate gross profit is: Revenue - COS
A statement of owner's equity reconciles the beginning and ending balances in a company's equity during the reporting period.

Basic Financial Statements III

A statement of financial position presents the financial condition of a company at a point in time.
A statement of cash flows shows the inflow and outflow of cash arising from the business' operating, financing, and investing activities.
Purchasing and selling of investment in debt or equity securities are examples of investing cash flow activities.
Selling of common stocks is an example of financing cash flow activity.
Net profit margin is calculated by: Net Income / Revenue
Total assets are calculated by: Liabilities + Share capital + Retained earnings
Total expenses are calculated by: adding all expense accounts
Total owner's equity is calculated by: Total assets - Total liabilities
Gross profit margin is calculated by: Gross Profit / Revenue
Revenues are inflows from the sale of goods or services in the ordinary course of business.

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Description

This quiz covers the fundamental concepts and principles of accounting processes, including credit entries, asset accounts, and the recording process.