Accounting Concepts

A. Write the letter of your answer before each number or item.

B. 1. Employees are residual claimants of the profits of the business, i.e., they have to
take what is left after paying all outside claimants such as suppliers, lenders, and
government.
(a) True
(b) False

B. 2. Who among the following would be interested in a company's financial information

for the sake of resource allocation, formulation of taxation policies and investigation of
corporate crimes?
(a) Current employees
(b) Past employees
(c) Senior managers
(d) Government

A. 3. _______ provide the risk capital to a business?

(a) Shareholders
(b) Lenders
(c) Employees
(d) Credit Rating Agencies

B. 4. What does the accounting assumption 'reporting entity' mean?

(a) The entity is a continuing enterprise
(b) Separation of owners' business transactions from their personal transactions
(c) Valuation of entity's assets
(d) Breaking up the life of the entity into time periods

C. 5. What does the accounting assumption 'historical cost' mean?

(a) The entity is a continuing enterprise
(b) Separation of owners' business transactions from their personal transactions
(c) Valuation of entity's assets at cost of acquisition
(d) Breaking up the life of the entity into time periods

B. 6. The __________ assumption is an extension of the going concern assumption.

(a) Historical cost
(b) Periodicity
(c) Money measurement
(d) Reporting entity

B. Determine if the given is a/n Asset, Liability, Capital, Income or Expense.

1. Prepaid Insurance Asset

2. Light and Water Asset

3. Employees' Salaries Liability

4. Accounts Payable Liability

1
 5. Mr. Bruno, Capital Capital

6. Accounts Receivable Asset

7. Service Revenue Income

8. Service Equipment Asset

9. Bonds Payable Liability

10. Office Supplies Asset

C. For each item, indicate whether it is a Current Asset (CA), Non-Current Asset
(NCA), Current Liability (CL), or Non-Current Liability (NCL).

1. Inventories CA

2. Prepaid Advertising CA

3. Accounts Payable CL

4. Bonds Payable, 3 yrs. NCL

5. Accrued Rent Receivable CA

6. Cash in Bank CA

7. Land NCA

8. Building CA

9. Delivery Equipment NCA

10. Accounts Receivable NCA

D. Case Problem. The following accounts pertain to the records of Sharkbait Company at the
end of the accounting period:

Assets Php 1,200,000 Revenues Php 500,000

Liabilities Php ? Expenses Php 300,000

The company started the year with Php800,000 Capital. The owner made P100,000 cash
withdrawals during the year. No additional contributions were made. How much is the total
liabilities at the end of the period?

Liabilities = Assets – Equity

Liabilities = Php 1,200,000 – Php 800,000

2
Liabilities = Php 400,000 + Php 100,000

Total Liabilities = Php 500,000.00