Accounting Quiz on Accruals and Deferrals

Questions and Answers

What do gains represent in financial terminology?

Items linked only to tax regulations

Items that do not qualify as income

Items that arise from ordinary business activities

Items that meet the definition of income, not arising from regular activities (correct)

Which statement is true regarding adjusting entries related to depreciation?

Reversing entries are not made for them (correct)

They are made only for tax purposes

They're always reversed after the accounting period

They must be recorded monthly

What does the conceptual framework state about Philippine Financial Reporting Standards (PFRS)?

It excludes financial statements for special purposes

It is a PFRS and defines measurement issues

It overrides all PFRS guidelines

It does not define standards for specific measurement or disclosure (correct)

How do losses relate to expenses within the context of financial reporting?

Losses represent expenses that are not part of regular business activities Signup and view all the answers

Which of the following is incorrect about the definition of expenses?

Expenses can only arise from ordinary business activities Signup and view all the answers

Which of the following statements about receivables is true?

If notes receivable is not paid, the accounts receivable will increase by its face value and accrued interest. Signup and view all the answers

What is the relationship between revenue, income, and gains?

Revenue encompasses both income and gains Signup and view all the answers

What is the effect on net income if the ending inventory is understated for the current period?

The net income for the current period is understated and overstated in subsequent periods. Signup and view all the answers

Which statement regarding cash flows is accurate?

Dividend and interest received can be reported as investing activity. Signup and view all the answers

In a proof of cash process, what happens when an error is found regarding receipts and disbursements?

An adjustment in the current month will increase receipts and disbursements. Signup and view all the answers

Regarding discontinued operations, which statement is true?

Discontinued operation should be reported net of tax on the face of the income statement. Signup and view all the answers

How are non-trade receivables classified for accounting purposes?

As current assets if collectible within one year or an operating cycle. Signup and view all the answers

What happens if receipts and disbursements are understated due to an error that is also corrected in the current month?

Both receipts and disbursements will increase due to corrections. Signup and view all the answers

Which of the following statements about the classification of dividend payments is correct?

All dividend payments should be classified under financing activities. Signup and view all the answers

Which of the following represents a future taxable amount?

Unrealized gain on FVPL Signup and view all the answers

What is the total amount of future taxable amounts identified?

P1,220,000 Signup and view all the answers

Which expense is NOT considered a future taxable amount?

Bad debts expense using a method under accrual basis Signup and view all the answers

How much is reported for unearned rent income?

P500,000 Signup and view all the answers

What type of income is represented by prepaid advertising expense?

Future taxable income Signup and view all the answers

Which of the following represents a non-deductible expense?

Fines, Penalties and Surcharges Signup and view all the answers

Study Notes

Unearned Income and Expenses

Unearned rent income: P500,000 (Future taxable amount)
Prepaid advertising expense: P300,000 (Future taxable amount)
Installment sale taxable upon collection: P800,000 (Future taxable amount)
Total future taxable amounts: P1,220,000 (Sum of unearned rent income, prepaid advertising, and installment sale)

Biological Assets

Biological assets consist of dairy cattle valued at P3,000,000, sheep at P2,000,000, and fruit trees at P1,500,000.
Total biological assets value: P6,500,000.

Income and Expense Definitions

Gains: Items that meet the definition of income, not arising from ordinary activities.
Losses: Items that fit the definition of expenses, not arising from ordinary activities.
Definition of expenses includes both losses and ordinary expenses.
Definition of revenue includes income and gains.

Adjusting Entries and Conceptual Framework

Adjusting entries for depreciation and bad debts are not reversed.
The conceptual framework is not a Philippine Financial Reporting Standard (PFRS) and does not define standards for specific measurement issues.
No aspect of the framework overrides existing PFRS.

Receivables Accounting

Non-trade receivables classified as current assets if collectible within a year or normal operating cycle.
If notes receivable is unpaid at maturity, accounts receivable increases by the face value, accrued interest, and other charges.

Proof of Cash and Inventory Errors

Understatement of receipts/disbursements leads to an increase adjustment in proof of cash if corrected in the current month.
Understated ending inventory impacts net income: understated for the current period, overstated in subsequent periods.

Reporting Financial Activities

Dividend and interest received reported under investing activities.
Discontinued operations, net of tax, should be reported on the face of other comprehensive income.

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Description

Test your knowledge on key accounting concepts related to unearned income, prepaid expenses, and accrued obligations. This quiz will help you understand the implications of accrual accounting and its impact on financial statements.