UNIVERSITY OF CEBU LAPU LAPU AND MANDAUE

SENIOR HIGH SCHOOL DEPARTMENT

COMPILATION NOTES FOR ABM 1

The Nature of Accounting and Its Business Environment

Lesson Objectives
 Define accounting
 Describe its nature and functions in business

Accounting – is the systematic process of measuring and reporting relevant financial information about the
activities of an economic organization or unit. Its underlying purpose is to provide financial information. It is
capable of being expressed in monetary terms.

AICPA defines accounting as the art of recording, classifying, and summarizing in a significant manner and in
terms of money, transaction, and events, which are in part at least of a financial character, and interpreting
the result thereof.
Nature of Accounting
1. Systematic process – a series of actions that produce something or that lead to a particular result. The
four aspects of accounting are recording, classifying, summarizing, and interpreting that leads to the users the
relevant financial information needed by the interested parties.

2. An Art – a skill acquired by experience, study, or observation. It is also defined as occupation requiring
knowledge or skill or function of serving. Activity is something that is done as work or for a particular purpose.

3. Accounting is a service activity. Services is the occupation or function of serving. Activity is something
that is done as work or for a particular purpose. Combining the meaning of the two words, accounting is a
work or occupation for serving a particular purpose.
Four aspect of Accounting
1. Recording – writing down of business transactions chronologically in the books of account as they
transpire.
2. Classifying – sorting similar and related business transactions into the three categories of assets, liabilities
and owner’s equity.
3. Summarizing – preparing the financial statements from the transactions recorded in the books of account
that are designed to meet the information needs of its users.
4. Interpreting – representing the qualitative and quantitative financial information about the business
transactions in a language comprehensible to the users of financial statements. By interpreting the data in the
financial statements, users are able to determine the financial standing of the company as well as its stability
and growth potential.

Accounting has different branches with each branch rendering a different service. Users of financial
information include both internal and external users. Internal users include owners, investors, stockholders,
management, and employees. External users include financial institutions, creditors, government, and
potential investors and creditors.
Users of Financial Information
Internal Users – Internal users are the primary users of financial information who are inside the reporting
entity and are directly involved in managing the company’s daily operations.
1. Investors/Owners/Stockholders – these parties provide the financial resources to keep the business
going. They decide whether to invest or not depending on the estimated amount of income on the investment.
Upon investment, they would want to know the financial position or results of operation of their investment.
2. Management – managers use financial information to set goals for their companies. Managers evaluate
their progress towards these goals and use financial data as a guide for future management actions.
3. Employees – although employees are not directly involved in the decision making of the company, they
are nonetheless interested in the financial information of the company to determine if they have a future in
the company.

Externals Users – external users are secondary users of financial information who are parties outside the
company. They may not be directly involved in the company’s operations but their decisions may significantly
affect the business entity.
1. Financial Institutions/Creditors – before extending credit, financial institutions use financial information
to determine the capacity of the business organization to pay its obligations and their interests at the
appropriate time.
2. Government – financial information is important for tax purposes and in checking of compliance with
Securities and Exchange Commission (SEC) requirements.
3. Potential Investors/Creditors – Before making an investment or extending credit, potential investors or
creditors may not only be interested in the company’s current financial position and results of operations, but
also in the company’s financial history. This should give them the assurance that their investment will yield a
reasonable rate of return or the credit extended will be paid within a reasonable period of time.
 Types of Business Organizations
1. Sole/Single Proprietorship – owned and managed by only one person
2. Partnership – owned and managed by two or more people who agree to contribute money, property, or
industry to a common fund for the purpose of earning a profit.
3. Corporation – managed by an elected board of directors where the investors are called stockholders and
the unit of ownership is called share of stock.
4. Cooperative – an association of small producers and consumers who come together voluntarily to form a
business which they own, manage, and patronize.

Three Types of Business activities/Operations

1. Service – engaged in the rendering of services
2. Trading/Merchandising – engaged in buying and selling goods
3. Manufacturing – engaged in the production of items to be sold

Fundamental Concepts
1. Entity Concept regards the business enterprise as separate and distinct from its owners and from other
business enterprises.
2. Periodicity is the concept behind providing financial accounting information about the economic activities
of an enterprise for specified time periods. For reporting purposes, one year is usually considered as one
accounting period.
* An accounting period may be classified as either of the following:
a. Calendar year – a twelve month period that starts on January 1 and end on December 31
b. Fiscal year – a twelve month period that starts on any month of the year other than January and ends
twelve months after the start period, e.g., a business whose fiscal year starts May 1, 2016 ends its fiscal year
on April 30, 2017.
3. Going Concern is a concept which assumes that the business enterprise will continue to operate
indefinitely.

Basic Accounting Principles

1. Objectivity principle states that all business transactions that will be entered in the accounting records
must be duly supported by verifiable evidence. Example: Payments must be supported by official receipts and
bank deposits must be supported by deposit slips.
2. Historical cost means that all properties and services acquired by the business must be recorded at their
original acquisition cost. Example: Land bought in 2001 for two million pesos should be recorded at two million
pesos even though its market value in the year 2016 is already three million pesos.
3. Accrual Principle states that income should be recognized at the time it is earned such as when goods are
delivered or when services have been rendered. Likewise, expenses should be recognized at the time they are
incurred such as when goods and services are actually used and not at the time when the entity pays for those
goods and services.
Example: A resort cannot consider as income the advance payment of a customer who paid his two-week
resort has not yet rendered the service to the customer. As such, the advance payment by the customer
should be considered as a liability on the part of the resort in the form of services to be rendered.
4. Adequate disclosure states that all material facts that will significantly affect the financial statements
must be indicated.
Example: Land bought at two million pesos in 2001 should be recorded at historical cost in the 2016 financial
statements. However, the current market value of three million pesos in the year 2016 may be indicated in the
financial statements for the year 2016 in the form of a footnote ore parenthetical note.
5. Materiality means that financial reporting is only concerned with information significant enough to affect
decisions. This refers to the relative importance of an item or event. An item is considered significant if
knowledge of it would influence prudent users of the financial statements. Example: Items of significant
amount such as paper clips can be charged outright to expenses.
6. Consistency means that approaches used in reporting must be uniformly employed from period to period
to allow comparison of results between time periods. Any changes must be clearly explained.
Example: If the straight line method of depreciation is being used by the company, then the method should be
uniformly used by the company in computing its annual depreciation.

CHAPTER TEST

I. Identify the user of the financial statements in each of the following statements.
___________________ 1. Determines the capacity of the business organization to pay its obligations and their
interests at the appropriate time.
___________________ 2. Set goals for their companies and evaluate their progress towards these goals
___________________ 3. Decide whether to invest or not depending on the estimated amount of income on
the investment
___________________ 4. Collection of taxes
___________________ 5. Job stability in the company
II. State the accounting principle applicable in each case.
___________________ 6. Paper clips were automatically charged to expenses.
___________________ 7. Even though a project will take five years to finish, an annual report was furnished
to the investors.
___________________ 8. There are around five beauty salons in the vicinity and the business doesn’t earn
much due to stiff competition. However, the accountant prepares the annual financial statements with the
assumption that the business will not close any time.
___________________ 9. A business agreed to pay a down payment for the purchase of additional ten
machine early next year in line with its business expansion. This was an added note to the financial
statements.
___________________10. The telephone bill for the month, received end of the month, was recorded
although it will be paid on the third day of the following month.
___________________11. Separate financial statements were prepared for the restaurant and the barber
shop of Mr. Panot.
___________________ 12. The market value of the land was ignored for purposes of financial statement
reporting.
III. State the type of business activity performed by each establishment.

13. SM Hypermarket ___________________ 26. Siguion Reyna Law Firm

___________________
14. David’s Beauty Salon ___________________ 27. Marikina Shoe Center
___________________
15. Wilcon Depot ___________________ 28. Kids Dental Clinic ___________________
16. Ace Hardware ___________________ 29. JM Furniture Factory ___________________
17. Roche Pharmaceutical ___________________ 30. SGV Auditing Firm ___________________
18. Bronu Barber Shop ___________________ 31. AA Security Agency ___________________
19. JWT Advertising Agency ___________________ 32. Ahead Review Center ___________________
20. Pure Foods Corp. ___________________ 33. Sun Textile Mills ___________________
21. National Book Store ___________________ 34. Anson Vulcanizing ___________________
22. Land Mark Dept. Store ___________________ 35. Ukay Ukay Store ___________________
23. Calayan Medical Clinic ___________________ 36. Prima Plastic Extrusion ___________________
24. Wellness Spa ___________________ 37. Pure Gold Supermarket ___________________
25. Belo Medical Clinic ___________________ 38. Procter & Gable Co.
___________________
IV. Enumerate the three forms of business organizations.
39. ___________________
40. ___________________
41. ___________________
V. Enumerate the three types of business operations
42. ___________________
43. ___________________
44. ___________________

Accounting for the Service Business

Assets, Liabilities, Capital, Revenue, and Expenses of the Financial Statements

I. The Financial Statements

Lesson Objectives:
 Classify the type of financial statements
 Identify the typical accounts used in financial statements
Types of Financial Statements
1. Statement of Financial Position or Balance Sheet – shows the financial condition/position of a
business as of a given period. It consist of assets, liabilities, and capital.
2. Statement of Comprehensive Income or Income Statement
The Income Statement shows the result of operations for a given period. It consists of the revenue, cost, and
expenses.
The statement of comprehensive income consists of the revenue, cost, and expenses and also contains
components of other comprehensive income (including reclassification adjustments) as follows: changes in
revaluation surplus, gains and losses on benefit plans, gains and losses from investments in equity
instruments, finance costs, share of associates, etc.
3. Statement of Changes in Owner’s Equity or Statement of Owner’s Equity – shows the changes in
the capital or owner’s equity as a result of additional investment or withdrawals by the owner, plus the net
income or minus the net loss for the year.
4. Statement of Cash Flows – summarizes the cash receipts and cash disbursements for the accounting
period. It summarizes the cash activities of the business by classifying cash inflows (receipts) and cash
outflows (payment) into operating, investing, and financing activities. It shows the net increase or decrease of
cash in a given period and the cash balance at the end of the period. This allows management to assess the
business’ ability to generate cash and project future cash flows.

Typical Account Titles Used

Balance Sheet
Balance sheet accounts, namely assets, liabilities, and owner’s equity, are classified as real and
permanent accounts.
Assets – economic resources owned by the business expected for future gain. They are property and rights of
value owned by the business.
Liabilities – include debts, obligations to pay, and claims of the creditors on the assets of the business.
Owner’s Equity or Capital – includes the interest of the owners on the business; claims of the owners on
the assets of the business; and the investment of the owner plus or minus the results of operations. Owner’s
Equity or Capital comes for two main sources – investment of owners and earnings of the business.

The Fundamental Accounting Equation ASSETS = LIABILITIES + OWNER’S EQUITY

Illustration:
1. Given liabilities of P50,000 and the owner’s equity of P150,000, find the value of assets.
2. Given assets of P180,000 and the owner’s equity of P110,000, fin the liabilities.

ASSETS
Lesson Objective
 Classify and identify assets as a basic elements of accounting

Classification of Current Assets

It is classified as current asset when it is:
1. expected to be realized in, or is intended for sale or consumption in the entity’s normal operating cycle;
2. held primarily for the purpose of being traded
3. expected to be realized within twelve months of the balance sheet date
4. cash or a cash equivalent unless it is restricted from being exchanged or used to settle a liability for at least
twelve months after the balance sheet date

Examples of current assets are as follows:

1. Cash includes coins, currencies, checks, bank deposits, and other cash items readily available for use in the
operations of the business.

2. Cash equivalents are short – term investments that are readily convertible to known amounts of cash
which are subject to an insignificant risk to changes in value

3. Marketable securities are stocks and bonds purchased by the enterprises and are to be held for only a
short span of time or duration. They are usually purchased when a business has excess cash.

4. Trade and other Receivables include the amounts collectible from any of the following accounts:
a. Accounts Receivable – amount collectible from the customer to whom sales have been made or services
have been rendered on account or credit
b. Notes Receivable – promissory note issued by the client or the customer in exchange for services or
goods received as evidence of his/her obligation to pay
c. Interest Receivable – amount of interest collectible on promissory notes received from customers and
clients
d. Advances to Employees – certain amount of money loaned to employees payable in cash or through
salary deductions
e. Accrued Income – income already earned but not yet received

5. Inventories represent the unsold goods at the end of the accounting period. This is applicable only to a
merchandising business.

6. Prepaid Expenses include supplies bought for use in the business or services and benefits to be receive
by the business in the future paid in advance

7. Contra-Asset Accounts are accounts deducted from the related asset accounts.
a. Allowance for bad debts – losses due to uncollectible accounts. This is deducted from the accounts
receivable accounts to get the realizable value.
b. Accumulated depreciation – represents the expired cost of property, plant, and equipment as a result of
usage and passage of time. This is deducted from the cost of the related asset account to get the carrying
value or book value of the asset.
Classification of Non-Current Assets
1. Long-term investments are assets held by an enterprises for the accretion of wealth through capital
distribution such as interests, royalties, dividends and rentals, for capital appreciation or for other benefits to
the investing enterprise such as those obtained through trading relationships. Investments are classified as
long-term when they are intended to be held for an extended period of time.
2. Property, plant, and equipment are tangible assets that are held by an enterprises for use in the
production or supply of goods or services, or for administrative purposes. These assets are expected to be
used for more than one period.
Examples:
a. Land – a piece of lot or real estate owned by the enterprise on which a building can be constructed for
business purposes
b. Building – edifice or structure used to accommodate the office, store, or factory of a business enterprise in
the conduct of its operations
c. Equipment – includes typewriter, air-conditioner, calculator, filing cabinet, computer, electric fan, trucks,
and cars used by the business in its office, store, or factory. Specific account titles may be used such as office
equipment, store equipment, delivery equipment, transportation equipment, and machinery equipment.
d. Furniture and Fixtures – include tables, chairs, carpets, curtains, lamp and lighting fixtures, and store
furniture and fixtures.
e. Intangible Assets – identifiable, non-monetary assets without physical substance held for use in the
production or supply of goods or services, for rental to others, or for administrative purposes. These include
goodwill, patents, copyrights, licences, franchises, trademarks, brand names, secret processes, subscription
lists, an non-competition agreements.

DRILL 1 – Identify the following asset accounts

___________________ 1. Tables, chairs, curtains, lighting fixtures, and wall decors
___________________ 2. Typewriter, air-conditioning, filing cabinet, computer, trucks, cars used in
business
___________________ 3. An account representing the amounts owed by charge customers evidenced
by a note
___________________ 4. Edifice, structure used to house the office, store, or factory
___________________ 5. Lot used by the business on which a building can be constructed
___________________ 6. Non-monetary assets without physical substance held for use in the
production or supply of goods, for rental to others, or
administrative purposes, e.g., patents, copyrights…
___________________ 7. An account representing the amounts owed by charge customers

LIABILITIES
Lesson Objective
 Classify and identify liabilities as a basic element of accounting

Classification of Current Liabilities

It is classify as current when:
1. it is expected to be settled in the entity’s normal operating cycle
2. it is held primarily for the purpose of being traded
3. it is due to be settled within twelve months after the balance sheet date
4. the entity does not have an unconditional right to defer settlement of the liability for at least twelve months
after the balance sheet date

Trade and Other Payables – include payables from any of the following accounts:
1. Accounts payable includes debts arising from the purchase of an asset or the acquisition of services on
account
2. Notes payable includes debts arising from the purchase of an asset or the acquisition of services on
account evidenced by a promissory note
3. Loan Payable is a liability to pay the bank or other financing institution arising from funds borrowed by the
business from these institutions payable within twelve months and shorter.
4. Utilities payable is an obligation to pay utility companies for services received from them. Examples of
this are telephone services to PLDT, electricity to Meralco, and water services to Maynilad.
5. Unearned revenues represent obligations of the business arising from advance payments received before
goods and services are provided to the customer. This will be settled when certain goods and services are
delivered or rendered.
6. Accrued liabilities include amounts owed to others for expenses already incurred but not yet paid.
Examples of these are salaries payable, utilities payable, taxes payable, and interest payable.

Classification of Non-Current Liabilities

Non-current liabilities are long term liabilities or obligations which are payable for a period longer than
one year. Examples of non-current liabilities are as follows:

1. Mortgage payable is a long-term debt of the business with security or collateral in the form of real
properties. In case the business fails to pay the obligation, the creditor can foreclose or cause the mortgaged
to be sold and use the proceeds of the sale to settle the obligation.
2. Bonds payable is a certificate of indebtedness under the seal of a corporation, specifying the terms of
repayment and the rate of interest to be charged.

DRILL 2 – Identify the following liability accounts:

___________________ 1. Certificate of indebtedness under the seal of a corporation

___________________ 2. Debts arising from acquisition of services on account
___________________ 3. Liability arising from amount of money borrowed by the business either from a
bank or from any financial institution
___________________ 4. Long-term debt of the business with security or collateral in the form of real
properties
___________________ 5. Debts arising from purchase of an asset on account evidenced by a promissory
note
___________________ 6. An obligation to pay utility companies for services received from them
___________________ 7. Obligations of the business arising from advance payment received before
services are provided to the customer
___________________ 8. Amount owed to others for expenses already incurred but not yet paid

OWNER’S EQUITY
Lesson Objective:
 Define and identify owner’s equity as a basic element of accounting

Capital is an account bearing the name of the owner representing the original and additional investment of
the owner of the business increased by the amount of net income earned during the year. It is decreased by
the cash or other assets withdrawn by the owner as well as the net loss incurred during the year.
Drawing represents the withdrawals made by the owner of the business in cash or other assets.
Income Summary is a temporary account used at the end of the accounting period to close income and
expense accounts. The balance of this account shows the net income or net loss for the period before it is
closed to the capital account. This will be taken up during the discussion of closing entries.

DRILL 3 – Test your understanding

1. What are the factors that increase the capital accounts?

2. What are the factors that decrease the capital accounts?

INCOME AND EXPENSES

Lesson Objective
 Classify and identify income and expenses as basic elements of accounting
Income Statement accounts, namely revenue and expenses, are classified as nominal or temporary
accounts.

a. Service income includes revenues earned or generated by the business in performing services for a
customer or client. The following are different examples of income and the accounting term used to describe
the income:
* Laundry services by a laundry shop (Laundry Income)
* Medical services by a doctor (Medical Fees)
* Dental services by a dentist (Dental Fees)
* Legal services by a lawyer (Legal Fees)
* Advisory services by a consultant (Consultancy Fees)
b. Salaries and Wages expense include all payments made to employees or workers for rendering services
to a company. Examples are salaries or wages, 13 th monthly pay, cost of living allowances, and other related
benefits given to the employees.
c. Utilities Expense is an expense related to the use of electricity, fuel, water, and telecom facilities.
d. Supplies expense covers office supplies used by a business in the conduct of its daily operations.
e. Insurance Expense is the expired portion of premiums paid on insurance coverage such as premiums
paid for health or life insurance, motor vehicles, or other properties.
f. Depreciation expense is the annual portion of the cost of tangible assets such as building, machineries,
and equipment charged as expense for the year.
g. Uncollectible accounts expense / bad debts expense means the amount of receivables charged as
expense for the period because they are estimated to be doubtful of collection.
h. Interest expense is the amount of money charged to the borrower for the use of borrowed funds.

SINGLE – STEP INCOME STATEMENT

Lesson Objective
 To be able to prepare the single – step income statement of a service business.
Illustration
Below are accounts taken from the books of Luffy’s Ship Repair Services for the month of August,
2016. Prepare an income statement from the given data.

Repairs Revenue P200,000

Rent Income 10,000
Salaries and Wages 35,000
Utilities Expense 14,000
Supplies Expense 11,000
Depreciation Expense 2,000
Miscellaneous Expense 3,000

Luffy’s Ship Repair Services

Income Statement
For Month Ended August 31, 2016

Repairs Revenue P 200,000

Other Income 10,000
Total Income P 210,000
Expenses
Salaries and Wages P 35,000
Utilities 14,000
Supplies 11,000
Depreciation 2,000
Miscellaneous 3,000 65,000
Net Income P 145,000
======

DRILL 4 – Identify the following income statement accounts

___________________ 1. Expenses related to the use of electricity, fuel, water, and telecommunication
facilities
___________________ 2. Revenues earned by performing services for a customer
___________________ 3. Amount paid for the use of space, equipment, or other rentals
___________________ 4. Payments made to employees for rendering services to the company
___________________ 5. Amount of supplies used in the conduct of daily business
___________________ 6. Expired portion of premiums paid on insurance coverage
___________________ 7. The amount of money charged to the borrower for the use of borrowed funds
___________________ 8. The amount of receivables charged as expense for the period because they
are estimated to be doubtful of collection
EXERCISE 1
Below are balance sheet accounts. Classify these accounts by writing them under their proper columns.

Land Prepaid Insurance Accounts Payable Unearned Rent

Accounts Receivable Notes Receivable Loan Payable Accrued Liabilities
Notes Payable Truck Furniture Prepaid Rent
Bonds Payable Mortgage Payable Cash Supplies
Building Equipment Taxes Payable Utilities Payable

Assets Liabilities
___________________ ___________________
___________________ ___________________
___________________ ___________________
___________________ ___________________
___________________ ___________________
___________________ ___________________
___________________ ___________________
___________________ ___________________
 ___________________ ___________________
___________________ ___________________
___________________

EXERCISE 2
For each of the following, write I if it is an Income Statement item and B if it is a balance sheet item.
__ 1. Accounts Payable __ 11. Interest Receivable
__ 2. Building __ 12. Supplies Expense
__ 3. Miscellaneous Expense __ 13. Interest Income
__ 4. Cash __ 14. Mortgage Payable
__ 5. Insurance Expense __ 15. Supplies
__ 6. Salaries Expense __ 16. Interest Expense
__ 7. Prepaid Rent __ 17. Equipment
__ 8. Drawing Account __ 18. Furniture
__ 9. Accrued Expense __ 19. Accrued Income
__ 10. Loan Payable __ 20. Unearned Rent

EXERCISE 3
Complete the table.

ASSETS (₱) LIABILITIES (₱) OWNER’S EQUITY (₱)

960,000 518,000
6,008,000 4,255,000
807,000 777,000
3,000,000 2,005,000
1,123,000 933,000

EXERCISE 4
Answer the following questions. Show your computation in good form.

1. The economic resources of a business amount to P600,000 and its economic obligations amounted to
P285,000. What would be its residual interest?

2. The economic resources of a business amount to P300,000 and its economic obligations amount to
P125,000. What would be its residual interest?

3. If owner’s equity is P150,000 which is 40% of the total assets, how much is the total liabilities of the
business?

4. If the economic obligations of a business amount to P60,000 and its residual interest amounts to P150,000,
what would be of the amount of the economic resources of the business?

5. If the owner’s equity is thrice the total liabilities which is ¼ of total assets, what would be the owner’s
equity of the business? The amount of total assets is P800,000.

EXERCISE 5
Below are accounts taken from the books of Yurki Cross School Security Services for the amount of
April. Prepare an income statement using the given data.

School Security Income P280,000

Salaries Expense 55,000
Rent Expense 18,000
Utilities Expense 12,000
Supplies Expense 10,000

CHAPTER TEST
I. Identify the term that best suits each statement.
_____________________ 1. The costs related to earning revenue
_____________________ 2. Shows the changes in the capital or owner’s equity as a result of additional
investment, withdrawals, net income, or net loss for the year
_____________________ 3. Debts, obligations to pay, claims of the creditors on the assets of the business
_____________________ 4. Economic resources owned by the business expected for future gain
_____________________ 5. The costs of doing business
_____________________ 6. Shows the results of operations for a given period
_____________________ 7. Interest of the owners on the business
_____________________ 8. Shows the financial condition/position of a business as of a given period
_____________________ 9. Represents the withdrawals made by the owner of the business either in cash
or other assets
_____________________ 10. Earnings of the business

II. Answer the following questions. Show your computation in good form.

11. If owner’s equity is P125,000 which is 40% of the total assets, how much is the total liabilities of the
business?
12. The economic resources of a business amount to P1,600,000 and its economic obligations amount to
P788,000, what would be its residual interest?
13. The economic resources of a business amount to P555,000 and its economic obligations amount to
P225,000. What would be its residual interest?
14. If the total liabilities amount to P580,000 which is ¼ of the total assets, what is the amount of the residual
interest of the business?
15. How much would be the economic resources of a business if its residual interest is 150% of its economic
obligations of P480,000?

Multiple Choice
Instruction: Encircle the letter of the correct answer in each of the given question.

1. The residual interest in the assets of the enterprise after deducting all the liabilities
a. assets c. gains
b. liabilities d. owner’s equity
2. This represents the claim of the creditor’s over the assets of the enterprise
a. revenue c. expenses
b. owner’s equity d. liabilities
3. Are resources controlled by the enterprise as a result of past transactions and events and from which future
economic benefits are expected to flow the enterprise
a. liabilities c. expenses
b. assets d. owner’s equity
4. The excess of revenues over costs and expenses
a. profit c. expenditure
b. loss d. breakeven
5. The basic accounting equation
a. A = L – OE c. L x OE = A
b. A = L + OE d. OE = A – L
6. The excess of costs and expenses over revenues
a. loss c. expenditure
b. profit d. breakeven
7. Which of the following is not considered as account title?
a. cash in bank c. withdrawal
b. accounts receivable d. accounts payable
8. Which of the following is an intangible asset?
a. land c. copyright
b. furniture and fixtures d. building
9. The “asset-offset” or “contra-asset” account that is shown as deduction from property and equipment is
termed as
a. accumulated amortization c. depreciable value
b. accumulated depreciation d. depreciation expense
10. The anticipated loss that the business may incur arising from an uncollected receivable account is termed
as
a. Uncollectible Accounts c. Estimated Uncollectible Accounts
b. Provision for Doubtful Accounts d. Allowance for Doubtful Accounts