QUIZ 1 REVIEWER PDF

Chapter 1: Review of the Accounting Cycle of a service and Merchandising Business 1.​ Journalizing Business Transactions 2.​ Analyzing Business transactions using T-accounts 3.​ Preparing Trial Balance 4.​ Worksheet Preparation (OPTIONAL) 5.​ Adjusting the books of account 6.​ Fina...

Chapter 1: Review of the Accounting Cycle of a service and Merchandising Business 1.​ Journalizing Business Transactions 2.​ Analyzing Business transactions using T-accounts 3.​ Preparing Trial Balance 4.​ Worksheet Preparation (OPTIONAL) 5.​ Adjusting the books of account 6.​ Financial Statement Preparation ​ Statement of Profit and Loss (Income Statement) ○​ Results of the business operations are summarized and reported whether it earned profit or incurred loose on a specific time period ○​ Statement of Comprehensive Income ​ Reported any other comprehensive income items in accordance with accounting standards will be reported ​ Statement of Changes in Equity ○​ Summary of the changes that occurred in the owner’s capital during a specific period ​ Statement of Financial Position (Balance Sheet) ○​ Shows what the business is worth in terms of the properties it owns (the assets), the debt is owed (the liabilities), and investment of the owner (proprietorship) ​ Statement of Cash Flows ○​ Reports the firm’s receipt and disbursement of cash which are classified according to the company’s major activities ​ Operating ( ​ Investing ​ Financing 7.​ Journalizing and posting Closing Entries a.​ Closing the book simply refers to setting the balance of the income and expense accounts to zero 8.​ Preparing Post-Closing Trial Balance 9.​ Journalizing and Posting Reversing Entries General Accounting Equation: Assets = Liabilities + Owner’s Equity ​ Owner’s Equity = Investment + Additional Investment + Income - Expenses - Drawings ​ Assets, Expenses, and Drawings = DEBIT ​ Liabilities, Owner’s Equity, Investment, Additional Investment, and Income = CREDIT  Adjusting Entries Extra Notes Distribution Expenses ​ Expense accounts with sales, selling, or store in their names ​ CARF = other distribution expenses ○​ Commissions Expense ○​ Advertising Expense ○​ Rent Expense ○​ Freight Out Administrative Expenses ​ Literally everything else *Under the ASSET METHOD you always debit the asset upon purchasing prepaid expenses ​ Office Supplies and Store Supplies are prepaid expenses  Free on Board (FOB) Other Formulas Prorate = record the discounted amount between the original value of each asset if the transaction is not related to merchandise ​ (discount * original amount of each asset) ÷ original cost of payable Net Sales revenue and Service Income ​ Service Income - (Sales - Sales Returns & Allowances - Sales Discounts) Cost of Sales (CoS) ​ COGAS - MI, End ○​ COGAS = MI, Beg + Net Purchases + Freight In ​ Net Purchases = Purchases - Purchase Returns & Allowances - Purchase Discounts Net Income / Loss ​ Gross Profit and Other Income - OpEx ○​ Gross Profit and Other Income = Gross Profit + Interest Income ​ Gross Profit = Net Sales revenue and Service Income - CoS ​ Gross profit percent = (gross profit ÷ net sales revenue) x 100 Chapter 2: Nature and Formation of Partnership Partnership -​ 2 or more partners to agree to operate a business together. -​ Can be either oral or written agreement that includes how business profits and losses should be divided -​ Though oral agreements can bind the partners to form a partnership venture -​ Written agreement is preffered to help partners avoid or resolve disputes during the operation of the business Articles of Co-Partnership -​ Agreement in writing among the partners governing the nature and terms of the partnership contract. -​ Principle: 1.​ Name of the partnership 2.​ Names, addresses of the partners classes of partners 3.​ Effective date of the contract 4.​ Purpose and principle place of business 5.​ Investment each partner will make in the business 6.​ Right and duties of each of the partners 7.​ Allocation and distribution of profit (and losses) 8.​ Conditions under which the partners may withdraw money or other assets 9.​ Manner of keeping the books of accounts 10.​ Method of decision making Discussions Questions 1.​ Different forms of business organisations based on: a.​ Ownership i.​ Sole or Single Proprietorship ~ owned and managed by only one person ii.​ Partnership ~ association of two or more persons who bind themselves together to do business for profit iii.​ Corporation ~ formed and authorized by law to act as a single person although constituted by one or more persons and legally endowed with various rights and duties. This is the more popular form of business organization today. Persons who put in capital in a corporation are called stockholders. iv.​ Cooperative ~ people-centered enterprise which are jointly owned and democratically controlled by and for their members to realised their common socio-economic needs and aspirations (as defined by the international cooperative alliance) b.​ Activity taken Service Concern ~ service Merchandising or trading concern ~ Buying and selling Manufacturing concern ~ Making or production 2.​ What is a partnership a.​ Partnership is a contract whereby two or more persons bind themselves to contribute money, property, or industry into common funds with the intention of dividing the profit among themselves. Joint effort may be supported by a partnership agreement known as the Article of Co-Partnership. 3.​ What are the different characteristics of a partnership? a.​ Based on a contract ~ formed through the mutual agreement of all the partners. Contract may be written or oral b.​ Voluntary association ~ no one should be forced or coerced in joining a partnership c.​ Mutual Agency ~ any partner may act as an agent of the partnership in conducting its affairs d.​ Limited Life ~ partnership may be dissolved at any time by action of the partners or by operation of law the withdrawal, dealth, retirement, bankruptcy, incapability of a partner and the admission of a new partner dissolves the partnership. Incorporation of a partnership will also result in the dissolution of the partnership. e.​ Unlimited Liability ~ personal assets of a general partner may be used to satisfy the claims of the creditors of the partnership if the partnership assets are not enough to settle the liabilities to outsiders upon liquidation f.​ Co-ownership of properties ~ properties contributed to the partnership are owned by the partnership. Properties invested by a partner crease to be his own property g.​ Co-ownership of profit ~ partner has the right to share in partnership profits. The partners are entitled to share in the firm’s profits as a return on their investment h.​ Legal Entity ~ partnership has a legal personality separate and distinct from that of each of the partners i.​ Income tax ~ partnerships are subject to an income tax rate of 20% or 25% beginning the fiscal year 2021 except for general professionals partnerships. 20% will apply if total assets do not exceed 100 million pesos and taxable doesn't exceed 5 million pesos. The 2 requirements must be booth met otherwise the 25% tax rate will apply. 4.​ What may be contributed in a partnership business when formed? a.​ Money or Cash b.​ Property (PPE) c.​ Industry 5.​ What may be the purpose/s that a partnership is formed? a.​ Earn reasonable amount of return (Profit) b.​ Practice of profession in service for the community (People) c.​ To save Mother Earth (Planet) 6.​ Enumerate the different classification of partners? (Kinds of Partnerships) a.​ According to Liability  i.​ General ~ wherein all partners are general partners who are liable for the partnership debts to the extent of their personal property after all the partnership assets have been exhausted ii.​ Limited ~ one consisting of one or more general partners and one or more limited partners b.​ According to activities i.​ Service ~ rendering services ii.​ Merchandising or Trading ~ purchase or sale of goods iii.​ Manufacturing ~ production of goods c.​ According to Object i.​ Universal Partnership of all present property ii.​ Universal partnership of Profits iii.​ Particular Partnership d.​ According to duration of partnership existence i.​ Partnership at will ii.​ Partnership with a fixed term 7.​ Different classification of partners? a.​ According to Contribution i.​ Capitalist ~ contributes capital in money or property ii.​ Industrial ~ contributes industry, labor, skill or service iii.​ Capitalist-Industrial ~ contributes money, property and industry b.​ According to Liability i.​ General ~ liability to third persons extends to his private property (all are GENERAL PARTNERS) ii.​ Limited ~ liability to third persons is limited only to the extent of his capital contribution to the partnership (NEEDS AT LEAST 1 GENERAL PARTNER to protect the interest of the stakeholders) c.​ According to Management i.​ Managing Partner ~ manages actively the business of the partnership ii.​ Silent ~ does not participate in the management of partnership affairs d.​ Others i.​ Nominal ~ a partner in name only ii.​ Secret ~ one who takes active part in the business but whose connection with the partnership is concealed on unknown to the public -​ Is actively involved -​ And not known in public iii.​ Dormant partner ~ one who does not take active part in the business and is not known to the public as a partner -​ Is not actively involved -​ And not known in public iv.​ Ostensible partner ~ one who takes part in management of the firm and is known to the public as a partner in the business​ -​ Is actively involved  -​ And known in public 8.​ Different advantages and disadvantages of the partnership form of business a.​ Advantages i.​ It is easy and inexpensive to form and to dissolve (partnership ends whenever there are changes in the ownership structure such as withdrawal of partner or admission of a new partner) ii.​ Greater amount of capital may be raised compared to sole proprietorship. (combined capital of 2 or more partners offers a greater source of capital) iii.​ There is relative freedom and flexibility in decision-making compared to a corporation. iv.​ It is better managed because more than one person supervises business affairs (better management results from the combined experience and ability of several individuals) v.​ The unlimited liability of general partners makes it reliable from the point of view of creditors b.​ Disadvantages i.​ There is lack of business continuity because it can be easily dissolved ii.​ Limited amount of capital may be raised compared to a corporation iii.​ The unlimited liability of a partnership deters many from joining in a partnership form of business iv.​ A general partner may be subjected to a personal liability for erroneous management decisions made by his associates v.​ There is likelihood oof dissension and disagreement when each oof the partners has the same authority in the management of the firm vi.​ There is difficulty in transferring ownership interest because ownership interest in the partnership cannot be transferred without hte consent of all the partners. 9.​ What is an Article of Co-partnership? What are the different information included in the Articles of Co-partnership? a.​ Article of Co-Partnership i.​ is an agreement in writing among the partners governing the nature and terms of the partnership contract ii.​ Written agreement is required when partnership capital is Php 3,000 or more in mooney or in property iii.​ Oral agreement as long its binding iv.​ Helps avoid misunderstandings among partners v.​ Written agreement among he partners governs the formation, operation and dissolution of the partnership and is required to be registered with Securities and Exchange Commission b.​ Contents i.​ Names of the partners ii.​ Names, addresses of the partners, classes of partners stating whether the partner is a general or a limited partner iii.​ Effective date of the contract  iv.​ Purpose and principal place of business oof the business v.​ Capital of the partnership stating the contributions of each of the partners vi.​ Rights and duties of each of the partners vii.​ Manner of dividing profits and losses among the partners viii.​ Conditions under which the partners may withdraw money or other assets ix.​ Manner of keeping the books of accounts x.​ Causes for dissolution and the provision for arbitration in settling disputes 10.​ What is the meaning of partner’s equity? a.​ More than one capital and drawing accounts ~ there will be as many capital accounts and as many drawing accounts as there are partners b.​ Partner’s loans ~ partners may advance money to the partnership inn the form of loans i.​ Account title will be credited is Loans Payabkle to Partner or Partner, Loan c.​ Partner’s borrowings ~ partnership may advance money to partners other than withdrawals in the form of loans i.​ Account title to be debited is Receivable from Partner d.​ Partner’s salaries ~ partners are paid isalaries for services rendered in the conduct of partnership business Basic Features of Partnership Accounting ❖​ Interest on Investment ​ interest is allowed to earn on the asset investment of the partners ❖​ Division of profit and losses ​ Net profit or net loss is to be divided among the partners based on their agreement Chapter 3: Partnership Operation Framework Building The difference between sole proprietorship and partnership in the FINANCIAL STATEMENT The two equity accounts are: ❖​ Capital account ​ This represents the net investment of a partner in the business this account is credited for original investment, additional investment and debited for permanent decrease or withdrawal in capital ❖​ Drawing Account ​ This shows the share of a partner in the partnership’s net income or net loss as affected by his temporary drawings or withdrawals of share in income Partner’s capital account may be increase due to: ❖​ Initial Investment ❖​ Additional investment ❖​ Payment of partnership liability using personal fund of the partner ❖​ Share in the Net income Ways of dividing profits and losses Provided in the Civil Code, the division of profits and losses is primarily determined by agreement between or among the partners. The partners may agree on any of the different methods of dividing profits and losses as follows: ​ Equally ​ Fractional basis ​ Based oon capital ratio ​ Allowing interest on capital and dividing the remainder in an agreed ratio ​ Allowing bonus to partners and the remainder in an agreed ratio ​ Allowing bonus and salaries to partners, interest on capital, and the remainder in an agreed ratio No agreement regarding profit and loss distribution In the absence of a stipulation, the share of each partner in the profits and losses shall be in proportion to what he may have contributed. The industrial partner on the other hand shall receive such share as may be just and equitable under the circumstances. If besides his services he has contributed capital, he shall also receive a share in the profits in proportion to his capital No agreement regarding distribution of losses The profit and losses shall be distributed in conformity with the agreement of the partners. If only the share of each partner in the profits has been agreed upon, the share of each in the losses shall be in the proportion. Factors that can be considered in deciding the scheme of profit and loss sharing ​ Amount of capital invested (interest on capital) ​ Personal services rendered by the partners to the partnership operations (salaries) ​ Entrepreneurial ability of partner (bonus) Three bases that can be used in computing ratios are ​ Beginning Capital ​ Ending Capital ​ Average Capital The average capital is the most equitable basis since it recognizes the effects of additional investments and permanent withdrawals of capital within the accounting period Methods of Compute Average Capital 𝐵𝑒𝑔𝑖𝑛𝑛𝑖𝑛𝑔 𝐶𝑎𝑝𝑖𝑡𝑎𝑙 + 𝐸𝑛𝑑𝑖𝑛𝑔 𝐶𝑎𝑝𝑖𝑡𝑎𝑙 2 Peso Month Average Treatment of salaries given to partners ❖​ Salary allowances to partners is a way of equitably distributing income to partners for rendering services to the business operations ❖​ The partner’s salaries and allowances are usually treated as distributions of net income and their payments to partners are debited to partners’ drawing accounts Bonus Partners When a partner manages the business, a special compensation may be allowed to him. This may be in form of a bonus based on the earnings/net income of the firm -​ Incentive -​ If there is no net income = no bonus given The financial statements of a partnership compared to sole proprietorship ​ Distribution of net income or net loss portion is included in the income statement ​ The statement of changes in partners’ equity has multiple columns due ot the number of partners plus a total column. ​ The equity portion of the statement of financial position includes two or more capital accounts  Journalizing distribution of Net Income or Net Loss Net Income Net Loss Income Summary xxx Partner 1, Drawing xxx Partner 1, Drawing xxx Partner 2, Drawing xxx Partner 2, Drawing xxx Income Summary xxx