Flashcards: Accounting and Business Fundamentals — 82 cards

What does MSMEs stand for?

Micro, Small and Medium Enterprises.

What percentage of total business enterprises are MSMEs?

99% of total business enterprises.

What percentage of the labor force is employed by MSMEs?

61% of the country's labor force.

When was R.A. 9501 signed into law?

On May 23, 2008.

What does R.A. 9501 require banks to allocate to MSMEs?

At least 10% of their total loan portfolio.

What is the maximum asset value for a micro enterprise?

P3 million or less.

How many workers can a small enterprise employ?

Between 10 and 99 workers.

What is the asset range for medium enterprises?

Above P15 million to P100 million.

What are the main steps in the accounting process?

Gathering, identifying, processing, analyzing data, and reporting for decisions.

What defines the breakeven point in business?

Total costs equal total sales, resulting in no profit or loss.

When does a business earn a profit?

When total income exceeds total expenses.

When does a business incur a loss?

When total expenses exceed total income.

What is recorded in books of accounts?

Business transactions.

What is the purpose of books of accounts?

To process financial data into financial statements.

What are key tasks performed by an accountant?

Determining profit and taxes, preparing reports, safeguarding property, analyzing statements.

What are Generally Accepted Accounting Principles (GAAP)?

A uniform set of accounting rules, procedures, practices, and standards for financial statements.

When is an accounting principle considered relevant?

When its information is meaningful and useful.

When is an accounting principle considered objective?

When it is unbiased, reliable, and verifiable.

What must happen before a principle becomes generally accepted?

It must be established by a standard-setting body or have substantial authoritative support.

Which council formalizes GAAP development in the Philippines?

The Philippine Financial Reporting Standards Council.

How does the cost principle record assets compared to fair value measurement?

It records assets at original acquisition cost, not current value.

What does the matching principle require regarding revenue and expenses?

Recognize revenue when earned and expenses in the same period as that revenue.

What does the consistency principle require about accounting methods?

They must be applied uniformly from period to period, with allowed justified changes.

What does the accounting entity assumption treat the business as?

Separate and distinct from its owner or management.

What happens to resources contributed by an owner to a business?

They become assets of the business.

Which are the five basic accounting assumptions?

Accounting entity, going concern, time period, unit of measure, and accrual basis.

What are financial statements?

Structured representations of an entity's financial position and performance.

How many basic financial statements are under revised PAS No. 1?

Six basic financial statements.

What does a balance sheet show?

An enterprise's financial position as of a particular date.

What does an income statement show?

Enterprise performance for a given period through revenues and expenses.

What is the expanded accounting equation?

$Assets = Liabilities + Owner's\ Equity + Revenue - Expenses - Withdrawals$

Which financial statement shows cash flows?

The statement of cash flows.

Which financial statement shows changes in equity?

The statement of changes in equity.

What is the purpose of notes in financial statements?

To provide additional information about financial statements.

What defines assets in an enterprise?

Resources controlled from past events with expected future economic benefits.

How are current assets distinguished from non-current assets?

Current assets are realized or consumed within the operating cycle; non-current are not.

What is assumed if the operating cycle is unclear?

It is assumed to be twelve months.

What are liabilities in an enterprise?

Present obligations from past events causing expected outflow of resources.

How are current liabilities defined compared to non-current liabilities?

Current liabilities settle within the operating cycle or one year; non-current take longer.

What is accumulated depreciation?

A contra-asset account deducted from property and equipment.

What are intangible assets?

Identifiable non-monetary assets without physical existence.

Name examples of intangible assets.

Patents, copyrights, franchises, and trademarks.

What is owner's equity in an enterprise?

The residual interest in assets after deducting liabilities.

How does owner’s equity increase?

Through profit or additional owner contributions.

How does owner’s equity decrease?

Through loss or owner withdrawals.

What is revenue in accounting terms?

Gross inflow from ordinary activities increasing equity, excluding owner contributions.

When does profit occur?

When revenues exceed expenses.

When does a loss occur?

When expenses exceed revenues.

Name some common temporary income statement accounts.

Service income, rental income, interest expense, salaries expense, depreciation, taxes, insurance, utilities, and gas and oil.

What are expenses in business accounting?

Expenses are gross outflows from ordinary activities that decrease equity, excluding owner distributions.

How do losses differ from expenses in business?

Losses come from activities outside ordinary business, unlike expenses.

What defines profit in relation to revenues and expenses?

Profit is when revenues exceed expenses.

What is interest expense in accounting?

Interest expense is the cost from borrowed money.

Where is interest expense deducted in the income statement?

It is deducted separately from operating income before net income.

What is depreciation expense?

The expired portion of cost of fixed assets allocated systematically.

What does amortization expense represent?

The expired portion of an intangible asset.

What do taxes and licenses include in expense accounts?

Amounts paid for business permits, licenses, and government dues.

Is income tax paid deductible as a business expense?

No, income tax paid is not deductible by law.

What does insurance expense record?

The expired portion of an insurance premium paid.

What expenses are recorded under utilities expense?

Telephone, light, and water bills.

What does miscellaneous expense record?

An expense not significant enough for a specific classification.

What is the basic accounting equation?

Assets equal liabilities plus owner's equity.

What does the expanded accounting equation include besides assets, liabilities, and owner's equity?

Revenue, drawings, and expenses.

How does revenue affect owner's equity in the expanded accounting equation?

Revenue increases owner's equity.

How do drawings and expenses affect owner's equity?

They decrease owner's equity.

What causes owner's equity to increase?

Additional investments and profits.

What causes owner's equity to decrease?

Withdrawals and losses from operations.

How do you find an unknown accounting value using the basic accounting equation?

Rearrange the equation to solve for the missing amount.

What does the going-concern assumption state about a business's operation?

A business will continue operating indefinitely after it begins.

What is an accounting period in business?

An equal interval dividing a business's continuous life for periodic financial statements.

What are common lengths for accounting periods?

They can be monthly, quarterly, semi-annual, or annual.

Why are financial statements prepared at each accounting period's end?

Because waiting until business cessation is impractical for results and condition.

What does the periodicity assumption require for financial reporting?

Dividing business life into equal periods with financial statements at each end.

What defines a fiscal period and its financial statements?

An accounting period under one year with interim financial statements.

How does a calendar year differ from a fiscal year?

A calendar year runs Jan 1–Dec 31; a fiscal year starts any month except January and lasts 12 months.

When does a natural business year end?

During the business's slack season.

What does Understandability mean in financial statements?

Users with reasonable knowledge and diligence can understand them.

What does Reliability mean in financial information?

It is free from material error and bias, fairly presented, and inspires confidence.

Which characteristics support reliability in financial information?

Faithful representation, neutrality, conservatism, completeness, and substance over form.

What does Relevance mean in financial statements?

They help users make informed economic decisions through materiality, predictive value, feedback, and timeliness.

What does Comparability allow in financial statements?

Comparison with those of similar companies.

What does Consistency require in accounting methods?

Following the same method or practice from period to period.