ACCOUNTING ENHANCEMENT CLASS

Module 1
INTRODUCTION TO ACCOUNTING AND BUSINESS

Learning Objectives:
LO1: Describe the nature of a business and the role of ethics and accounting in business.
LO2: Summarize the development of accounting principles and relate them to practice.
LO3: State the accounting equation and define each element of the equation.
LO4: Describe and illustrate how business transactions can be recorded in terms of the resulting change in the
basic elements of the accounting equation.
LO5: Describe the financial statements of a proprietorship and explain how they interrelate.

TRUE OR FALSE:

1. The main objective of a not-for-profit business is not to make a profit.

2. An example of a business stakeholder is the government.
3. A corporation is a business that is legally separate and distinct from its owners.
4. Primary users of accounting information are accountants.
5. Accounting is thought to be the "language of business" because business information is communicated to
stakeholders.
6. The role of accounting is to provide many different users with financial information to make economic
decisions.
7. Proprietorships are owned by one owner and provide only services to their customers.
8. Large corporations such as Wal-Mart, Coca-Cola, and Nike operate as manufacturing businesses.
9. A business stakeholder is a person or entity that has an economic interest in the company.
10. Senior executives cannot be criminally prosecuted for the wrong doings they commit on behalf of the
companies where they work.
11. The primary role of accounting is to determine the amount of taxes a business will be required to pay to taxing
entities.
12. Stakeholders use only accounting reports as the source of information to base all of their business decisions.
13. Accounting reports are designed with the information needs of the stakeholders in mind.
14. Managerial accounting information is used by external and internal users equally.
15. Financial accounting provides information to all of the business stakeholders, while the main focus for
managerial accounting is to provide information to the management.
16. Proper ethical conduct implies that you only consider what's in your best interest.
17. Some of the major fraudulent acts by senior executives started as what they considered to be small ethical
lapses which grew out of control.
18. Individuals who wish to practice public accounting as a CPA must meet the requirements of the state in which
they reside.
19. A business is an organization that provides goods or services to their customers in exchange for money or other
items of value.
20. Profits are the difference between the amounts received from customers and the amounts paid to provide the
goods or services.
21. The main objective for all businesses is to maximize profits.
22 Manufacturing and merchandising companies are similar because they purchase products from other companies
to sell to their customers.
23. Managerial accounting is primarily concerned with the recording and reporting of economic data and activities

1|Page
 of an entity for use by owners, creditors, governmental agencies, and the public.
24. The International Accounting Standards Board (IASB) is the authoritative body that has primary responsibility
for developing accounting principles.
25. The cost concept is the basis for entering the exchange price into the accounting records.
26. Without the cost concept, accounting reports would become unstable and unreliable.
27. The unit of measurement concept requires that economic data be recorded in a common unit of measurement.
28. If a building is appraised for P90,000, offered for sale at P95,000, and the buyer pays P85,000 cash for it, the
buyer would record the building at P90,000.
29. Generally accepted accounting principles regulate how and what financial information is reported by
businesses.
30. The accounting equation can be expressed as Assets - Liabilities = Stockholders' Equity.
31. The rights or claims to the assets of a business may be subdivided into rights of creditors and rights of
stockholders.
32. The stockholders’ rights to the assets rank ahead of the creditors' rights to the assets.
33. If the liabilities owed by a business total P500,000 and stockholders’ equity is equal to P500,000, then the
assets also total P500,000.
34. If total assets decreased by P40,000 during a specific period and stockholders' equity decreased by P45,000
during the same period, the period's change in total liabilities was an P85,000 increase.
35. If the assets owned by a business total P500,000, and stockholders' equity totals P400,000, liabilities total
P100,000.
36. If the assets owned by a business total P100,000 and liabilities total P50,000, the total for stockholders' equity
is P150,000.
37. If total assets increased by P175,000 during a specific period and liabilities decreased by P10,000 during the
same period, the period's change in total stockholders' equity was a P185,000 increase.
38. If net income for a corporation was P25,000, the dividends paid in cash of P10,000, and the stockholders’
invested P5,000 in cash, the stockholders’ equity increased by P20,000.
39. If net income for a corporation was P175,000, dividends were P40,000 in cash, and the stockholders made no
additional investment, the stockholders’ equity increased P215,000.
40. An account receivable is a claim against a customer arising from a sale on account.
41. Paying an account payable increases liabilities and decreases assets.
42. Receiving payments on an account receivable increases both stockholders’ equity and assets.

2|Page
43. Cash investments by stockholders increase both stockholders’ equity and assets.
44. Cash dividends decrease assets and increase stockholders’ equity.
45. Purchasing supplies on account increases liabilities and decreases stockholders’ equity.
46. The dividends paid to stockholders are from the profits made by the corporation.
47. Receiving a bill or otherwise being notified that an amount is owed is not recorded until the amount is paid.
48. Revenue is earned only when money is received.
49. Expenses are expired costs of doing business.

3|Page
50. The excess of revenue over the expenses incurred in earning the revenue is called capital.
51. Expenses increase stockholders’ equity.
52. The excess of expenses over revenues is called net income.
53. A balance sheet is a list of the assets, liabilities, and stockholders’ equity of a business for a period of time.
54. An income statement is a summary of the revenues and expenses of a business as of a specific date.
55. The statement of cash flows consists of an operating section, an income section, and a stockholders’ equity
section.
56. The financial statements of a corporation should include the stockholders’ personal assets and liabilities.
57. The Balance Sheet represents the accounting equation.

MATCHING TYPE
Match the following transactions with their affects to the accounting equation.
a. Increase assets, increase liabilities
b. Increase liabilities, decrease stockholders’ equity
c. Increase assets, increase stockholders’ equity
d. No affect
e. Decrease assets, decrease liabilities
f. Decrease assets, decrease stockholders’ equity

1. Received cash for services provided

2. Received utility invoice to be paid next month

4|Page
3. Investment of land by stockholder
4. Paid part of an amount owed to a creditor
5. Paid cash for the purchase of a one year insurance policy
6. Received payment from a customer for an invoice that was billed last month
7. Withdrawals
8. Provided a service to a customer on account
9. Purchased supplies on credit
10. Paid wages

Match the following accounts to the financial statement where they can be found.
a. Balance Sheet
b. Income Statement
c. Statement of Cash Flows
d. Statement of Retained Earnings

1. Dividends
2. Revenues
3. Supplies
4. Land
5. Accounts Payable
6. Accounts Receivable
7. Operating Activities
8. Wages Expense
9. Net Income
10. Cash

5|Page