Accounting Chapter 9

Single-step form of income statement

A _____ presentation arranges all income accounts in one group, all expense accounts in another group, and then deducts the total expenses from the total income in a single-step operation of subtraction to arrive at the final result of NET INCOME OR NET LOSS. Is used for INCOME STATEMENT of SERVICE BUSINESSES.

12-month default operating cycle

A business enterprise that has a normal operating cycle that is shorter than 12 months uses a _____ for the purpose of determining when an asset is current or not.

Obligation

A future commitment that does not give rise to a present _____ does not represent a liability.

Outflow, settlement

A liability is recognized in the balance sheet when it is probable that a future _____ of resources or economic benefits will result from the _____ of a present obligation.

Law, custom, relations

A liability may arise as a result of: 1. A contract or a _____ 2. A normal business practice and _____ 3. The desire to maintain good business _____.

Balance Sheet

A list of assets, liabilities, and owner's equity as of a specific date, usually at the close or the last day or a month or a year.

Statement of cash flows

A summary of the cash receipts and cash payments for a specific period of time, such as a month or a year.

Statement of Changes in Owner's Equity

A summary of the changes in the owner's equity that have occurred during a specific period of time, such as a month or a year.

Income statement

A summary of the revenue and expenses for a specific period of time, such as a month or year.

Contribute

An item is treated as an asset if it has the capacity to _____, directly or indirectly, to the inflow of cash or other non-cash resources during the future operations of the enterprise.

Financial Statements

Are a structured presentation by management of the financial position and the results of the performance of the business enterprise.

Financial statements

Are fair revelations and declarations of information about the outcome of the financial events and activities that happened during the reporting period.

Physical, permanent, operations, sale

Assets are classified in the section of fixed assets or property, plant and equipment if they meet the following criteria: 1. They must have a _____ existence 2. They are more or less _____ in nature 3. They are intended for use in _____ of the business 4. They are not intended for _____

Liquidity

Current assets are normally listed in a balance sheet according to their expected order of _____.

Net book value

Fixed assets except land are presented in the balance sheet at _____.

12 months

If an asset does not form part of the normal operating cycle of the business, such asset may still be reported as a current asset if it is reasonably expected to be converted within _____ from the date of the balance sheet.

Current Asset

If an asset forms part of the normal operating cycle of the business, that asset is reported in the classified balance sheet as a _____.

Balance sheet

In a _____, an enterprise may present current and non-current assets, and current and non-current liabilities as separate classifications of the face of the balance sheet.

Net sales, cost of sales, operating expenses, other income, other expenses

In order to make sound decision, management and other interested parties have to be provided with more detailed information about the following items: 1. 2. 3. 4. 5.

Accounting, ending, balance sheet

In summary, the preparation of statement of changes in owner's equity will achieve the following objectives: * To report all changes in owner's equity during the _____ period * To reconcile the beginning and _____ balances of owner's equity * To provide a connecting link between the income statement and the _____.

Net book value

Is the difference between the cost of the fixed asset or property, plant and equipment and the amount of the accumulated depreciation.

Measurement

Is the process of determining the monetary peso value that will be assigned to an item that is recognized in the financial statements.

Recognition

Is the process of incorporating an accounting element or an item in the financial statements.

Statement of cash flows

It is a formal statement that classifies cash receipts (inflows) and cash payments (outflows) into operating, investing, and financing activities.

acceptable

Measurement involves the selection of a particular basis or an _____ technique of measurement that is applicable to an element or item.

Words

Recognition involves the depiction of an item in _____ and/or by monetary value, and the inclusion of that item in the financial statements.

Liabilities

Represent the claims of the creditors over the assets of the business enterprise.

credit, sued, customers, scholarship

Some examples of transactions that result to a liability are: * The business bought goods or services on _____ terms * The business defaulted and was _____ for damages * The business agreed to repair the defective goods that were sold to _____ * The business is presently committed to give _____ to outstanding student of the community.

Account form, report form

The 2 forms of balance sheet presentation are:

Multi-step form of income statement

The _____ is a manner of presenting the income and expenses in a series of operations of additions or subtractions before arriving at the final result of NET INCOME OR NET LOSS. Is used for INCOME STATEMENT of MERCHANDISING/TRADING BUSINESSES.

Normal operating cycle

The _____ of an enterprise is an important consideration in determining whether an asset item is to be classified current or not.

Statement of cash flows

The _____ provides information about cash receipts and cash payments of an entity during the period. It helps project the future net cash flows of the entity.

Other income

The _____ section represents income earned by the business not coming from its normal operations but from sources other than principal purpose of the business.

Other expenses

The _____ section represents the expenses incurred from non-operations.

Account Form

The assets are listed on the left side of the statement and the liabilities and owner's equity on the right side.

Report Form

The assets are shown in the upper part of the statement and the liabilities and owner's equity in the lower part.

Maturity

The current liabilities are presented in the balance sheet in order of _____ or according to its due dates.

Gross income, operating income

The difference between the selling price of the goods sold and their cost is called _____; and gross income less operating expenses equals _____.

Income Statement

The financial statement which gives information about the result of operations for a given period is called the _____.

Single-step, multi-step

The income statement may be prepared in _____ or _____ form.

Historical costs

The most popular measurements are based on _____.

Income Statement

The other income and other expense accounts are placed in one section of the _____.

Recognition, measurement

The preparation of any financial report involves two processes: _____ and _____

Cost of sales, operating expenses, profit

The price at which goods are sold by a merchandising business normally covers the ____, _____, and a certain amount of _____.

Financial condition, goals

The primary purposes of preparing the basic financial statements are: *To be able to assess the _____ of the enterprise, as reported in the balance sheet * To know whether the profit _____ of the business are being attained, as reported in the income statement.

Cash, assets, goods, obligation, equity

The settlement of an obligation may involve any one or a combination of the following: * Payment of _____ * Transfer of other form of _____ * Delivery of _____ or services * Conversion of a present obligation into another form of _____ * Conversion of a present obligation to _____

Financial condition

The three statements reported in the balance sheet are directly related to the measurement of an enterprise's _____.

Non-current liabilities

These are financial obligations that mature beyond one year from the balance sheet date.

Current liabilities

These are payable in the near future, usually within one year from the balance sheet date.

Statement of cash flows

This statement shows the net increase or decrease in cash during the period and the cash balance at the end of the period.

Marka approach

To facilitate the preparation of financial statements, _____ is recommended. This is done by indicating an acronym or code on each account title for proper classification.

Twelve months

When the enterprise's normal operating cycle is not clearly identifiable, its duration is assumed to be _____.

Assets

_____ are resources that are controlled by the enterprise as a result of past events.

Current Assets

_____ are the most liquid assets of the business enterprise.

Investments, revenues

_____ represents the claim of the owner over the assets of the business. The transactions affecting owner's equity are the _____, withdrawals, _____ and expenses.