C2

Enterprise

performs various activities in order to earn profit

Economic activities or transactions

Business activities that are accountable are called

Business transaction

for every value received there is a corresponding value parted with

Value

is an expression of monetary worth applied to a particular asset, group of assets, business entity, or services rendered

Business transactions

should be authenticated by genuine business forms like sales, invoices, purchase invoice and official receipts

External transactions or exchanges

are economic events involving the enterprise and other entities

External transactions or exchanges

These events or transactions may involve transfer of resources or obligation to or from the entities

Internal transactions

are economic events in which only the enterprise participates

Production

is the process by which resources are combined or transformed into products

Casualties

are sudden substantial, unanticipated reduction in enterprise resources not caused by other entities

Casualties

Losses from fires, floods, and earthquakes are examples of

True

In every accountable business transaction there is a value received and a value parted with.

Data in the books of the enterprise

are not recorded in terms of phrases or sentences but rather with the use of accounts titles and their corresponding amounts

Accounting elements or values

The accounts titles are grouped using the concept of

Accounting elements

are the quantitative information reported in the statement of financial position and income statement

Accounting elements

considered as the building blocks of the financial statements

Assets, liabilities, and equity

The elements directly related to the measurement of financial position are

Statement of Financial Position

Assets, liabilities and equity accounts are presented in the

Real accounts

These accounts are _____ because their usefulness continues throughout the life of the business and that their year-end balances are forwarded to the next accounting period

Income and expenses

The elements directly related to the measurement of financial performance are

Income Statement or Comprehensive Income

The elements directly related to the measurement of financial performance are income and expenses and are presented in the

Nominal accounts

Income statement accounts are also called

Not forwarded

The year-end balances are closed and _____ to the next accounting period

Assets

in a layman's point of view are properties or rights on properties owned by the business

Assets

These items of value are used by the enterprise in their day to day activities

Assets in their accounting books

properties under the control of the enterprise may be recorded as

Assets

is a present economic resource

Economic resource

is a right that has the potential to produce economic benefits

Economic resource

is controlled by the entity as a result of past events

Current assets and non-current assets

Assets are classified into two:

Operating cycle

is the time between acquisition of assets for processing and their realization in cash or cash equivalents

Concept of the normal operating cycle

needed in the classification of items as current or non-current

Operating cycles of a trading enterprise

is the average period of time that it takes for an enterprise to acquire the merchandise inventory, sell the inventory to customers and ultimately collect cash from the sale

Operating cycle of a manufacturing company

is the period of time that it takes to acquire materials, convert them into finished goods, sell the finished goods, convert them into receivables and collect the receivables

PAS 1

provides that an entity shall present current and noncurrent assets, and current and noncurrent liabilities as separate classifications in the statement of financial position

Cash

includes currency or cash items on hand (such as items awaiting deposit and cash in working funds as well as peso or foreign currency deposits in banks which are unrestricted and immediately available for use in the current operations

Cash items

include cash on hand, cash in bank, cash fund for current purposes like petty cash fund, payroll fund, dividend fund and travel fund

Cash equivalents

are short term highly liquid investments that are readily convertible to known amounts of cash and so near their maturity that they present insignificant risk of changes in value because of changes in interest rates

Cash equivalents

Three- month BSP Treasury bill, three-month deposit and three -month money market instruments are _____

Trading securities

investments which are readily marketable and represent temporary investment of funds available for current operations and are intended to meet working capital requirements

Trading securities

These could include short-term investment in stocks and bonds

Accounts receivable

are open accounts or those that are not supported by promissory notes. Other names used are charge accounts, customer's accounts or trade debtors

Allowance for doubtful accounts

a contra-asset account which is provided for possible losses from uncollected accounts. This valuation allowance is actually not an asset. It is a deduction from the accounts receivable

Notes receivable

amount collectible that are evidenced by a promissory note or a written promise to pay

Merchandise Inventory or merchandise

goods held for sale by trading concern

Finished goods, goods in process, raw materials and factory or manufacturing supplies

Inventories held by manufacturing firms

Prepaid rent

Rent paid in advance

Prepaid insurance

Insurance paid in advance

Unused supplies

stationary and other supplies purchased for use and are still unused

Unused supplies

Specific account titles such as Office supplies unused or Store supplies unused may be used

Non-current assets

All other assets except current assets are _____

Non-current assets

These include tangible, intangible, operating and financial assets of a long-term nature

Property, Plant and Equipment or Fixed Assets

These are tangible assets which are held by the enterprise in production or supply of goods or services, for rental to others, or for administrative purposes, and are expected to be used during more than one period (PAS No. 16)

Land

a piece of lot or real estate used by the business

Building

a structure or a building owned or controlled and used as office, store or factory of the enterprise

Office equipment

include typewriters, adding machines, calculators, computers

Store equipment

include cash register, calculators

Delivery equipment

include delivery truck or jeep used for transporting merchandise

Machineries

machines, motors

Furniture and fixtures

tables, chairs, showcases, counters

Accumulated depreciation

contra-account used to accumulate expired cost of fixed assets

Accumulated depreciation

It is a deduction from property, plant and equipment

Investments

are assets held by an enterprise for the accretion of wealth through capital distribution, such as interest, royalties, dividends and rentals, for capital appreciation or for other benefits to the investing enterprise such as those obtained through trading relationship

Current investment

is readily realizable and is intended to be held for not more than one year

Long-term investment

is intended to be held for more than one year

Long-term investment

are Investment in bonds, Investment in subsidiaries, or Cash surrender value of life insurance.

PAS 38

defines intangible assets as identifiable non-monetary assets without physical substance

Intangible assets

identifiable non-monetary assets without physical substance

Copyright

right granted to authors, composers, playwrights, artists, publishers or distributors to publish and dispose of their works for a limited time

Franchise

right granted to operate a utility or to manufacture or to market a product of another company within a specified area

Patent

right granted to an inventor to manufacture or produce his inventions or products

Trademark or brand name

a symbol, sign, slogan or name used to mark a product or to distinguish it from other products

Computer softwares, fishing rights, leasehold rights

However, there is one unidentifiable intangible asset called goodwill

Other Non-Current Assets

include assets that do not fit in into the definition of the above- mentioned non-current assets

Other Non-Current Assets

These include long-term advances to officers or employees, abandoned property, and long-term refundable deposits

Liabilities

are debts or obligations of the business.

Liabilities

may include loans from the bank, salaries due to workers who have already rendered services and taxes due but not paid to the government

Liabilities

is defined as the present obligation of an entity to transfer an economic resource as a result of past events (under the

Amounts payable

amounts due to suppliers for the purchase of goods or services on credit

Notes payable

amounts due to other parties when it is evidenced by a promissory note

Accrued Expenses

expenses incurred but not yet paid such as salaries, rent, interest and taxes

Accrued Expenses

Accounts like salaries payable, rent payable, interest payable and taxes payable may be used

Interest payable

unpaid interest on borrowings

Salaries Payable

services rendered by employees but still unpaid

Bank loans payable

obligations due to banks for loans obtained (current portion)

Deferred revenue

income received but not yet earned

SSS premium payable

amount due and payable by the enterprise to Social Security System

Philhealth premium payable

amount due and payable by the enterprise to Philippine Health Insurance Corporation

Withholding tax payable

amount due and payable by the enterprise to BIR for the tax withheld from employees

Non-current liabilities

All liabilities that do not fit into the definition of current liabilities are classified as

Mortgage payable

economic obligations secured by collateral

Notes payable

those debts supported by notes and payable beyond one year

Deferred revenue

income received in advance but not yet earned and which will be realized as income over a period of more than one year or the normal operating cycle if it exceeds one year

Equity

is the difference between assets and liabilities.

Equity

represents residual interest in the assets of the enterprise after deducting all liabilities

Equity

otherwise known as net assets or net worth

Sole proprietorship

owner's equity or capital

Partnership

partners' equity or partners' capital

Corporation

stockholders' equity or shareholders' equity

Owner's capital

This includes the capital contribution of the owner made at the formation of the business or subsequent thereto