Questions and Answers
What is the effect of a credit entry to an account?
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?
Which of the following is an example of investing cash flow activity? (Select all that apply)
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Which account is considered temporary?
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What is the first step in the recording process?
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What will be the company’s net profit margin?
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What is the effect of performing services on account on the components of the basic accounting equation?
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Which of the following is an example of financing cash flow activity? (Select all that apply)
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What should be reported as total assets on December 31, 2X14?
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How should a tract of land be reported if a company plans to build a production plant on it in the future?
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In a situation where a company's assets and liabilities decrease by the same amount, what happens to owner's equity?
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How much is its total expenses?
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Which account increases equity?
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How much is its total assets?
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How much is its total owner’s equity?
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When a company buys a machine on credit, which financial statement is affected?
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What will be the company’s gross profit margin?
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What is the normal balance of a contra asset account?
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What are inflows from the sale of goods or services in the ordinary course of business?
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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.