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TitleBSA Qualifying Exam Reviewer
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in the course of the ordinary activities of the business – and

gains – include gains on disposal of non-current asses and

unrealized gains on revaluing assets – (expenses) over the

expenses – the cost of assets consumes or services used in

the process of earning income (revenue and gains)

c. owner’s drawings – withdraw cash or other assets for

personal use

Statement of Financial Position – reports the assets, liabilities and owner’s

equity at a specific date or point in time

- assets are listed at the top, followed by liabilities and owner’s equity

- total assets must equal total liabilities and owner’s equity (capital)

- snapshot of business’ financial condition at a specific moment in time

usually month-end or year-end

Statement of Cash Flows – summarizes information about the cash inflows

(receipts) and outflows (payments) for a specific period of time

- reports the cash effect of the following activities of an entity during a

period:

a. operating activities – include transactions that create

income and expenses

b. investing activities – include (a) acquiring and disposing of

investments and plant, property and equipment and (b)

lending money and collecting loans

c. financing transactions – include (a) obtaining cash from

issuing debt and repaying the amounts borrowed and (b)

obtaining cash from shareholders and providing them with a

return on their investment

- reports the net increase or decrease in cash and the cash amount at the end

of the period

- this report is useful of investors and creditors because they would want to

know what is happening to the company’s most liquid resource

- answers the following questions:

a. Where did cash come from?

b. What was the cash used for?

c. What was the change in the cash balance?

Notes to Financial Statements – include summary of significant accounting

policies used to prepare financial statements, and other explanatory notes and

supporting schedules

1.2 Definition, Nature and Scope of Accounting

Accounting – is an information system that identifies, records and communicates the

economic events of an entity to interested users

Identifying – selecting the economic activities/transactions relevant to a

particular entity

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6.7.4 Preparing Corrected Trial Balance

6.8 Journalizing and Posting Year-End Adjustments (Accrual Basis)

Adjusting Entries – are needed to ensure that the revenue and expense recognition

principles are followed

6.8.1 Accrued Expenses (Expenses Payable) – expenses incurred but not yet paid

6.8.2 Accrued Income (Receivables) – revenue earned but the yet received in

cash

6.8.3 Prepaid Expenses – expenses paid in cash and recorded as assets before

they are used or consumed

6.8.4 Amortization of Discounts of Notes Payable (Straight-Line Method)

6.8.5 Unearned Income – cash received and recorded as liabilities before revenue

is earned

6.8.6 Depreciation (Straight-Line Method) – allocation of the cost of an asset to

expense over its useful life in a rational and systematic manner and

represents the future economic benefit that has been used in the period

6.8.7 Doubtful Accounts (Allowance Method) – estimating receivables not

expected to be collectible at the end of each period

6.8.8 Direct Write-Off Method – when a particular account is determined to be

uncollectible and the loss is charged to Bad Debts Expense and the carrying

amount of Accounts Receivable is reduced in the Statement of Financial

Position

6.8.8.1 Balance Sheet Approach

6.8.8.1.1 Percentage of Accounts Receivable – management

estimates what percentage of receivables will result to

losses from uncollectible accounts

6.8.8.1.2 Percentage of Sales Method – management estimate

what percentage of credit sales will be uncollectible

6.8.8.1.3 Aging of Accounts Receivable – customer balances are

classified by length of time they have been unpaid

6.9 Preparing Financial Statements

6.9.1 Statement of Comprehensive Income

6.9.1.1 Income Statement

6.9.2 Statement of Financial Position

6.9.3 Statement of Changes in Equity

6.9.4 Statement of Cash Flows

6.9.5 Notes to Financial Statements

6.10 Closing the Books

Closing the Books – accounts are made ready for the next period

Temporary or Nominal Accounts – are the accounts that are closed which relate to only

given accounting period and they include all income statement and drawing accounts

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Permanent or Real Accounts – relate to one or more future accounting periods and

they consist of all statement of financial position accounts which are not closed but

rather forwarded to the next accounting period

6.10.1 Journalizing Closing Entries

6.10.2 Posting Closing Entries

6.10.3 Ruling Nominal Accounts and Balancing Real Accounts

6.10.4 Preparing and Post-Closing Trial Balance

Post-Closing Trial Balance – lists of permanent accounts and their balances

after closing entries have been journalized and posted

6.11 Journalizing and Posting Reversing Entries

Reversing Entries – made at the beginning of the next accounting period which is the

exact opposite of the adjusting entry made in the previous accounting period



ACTBAS2



I. Introduction to Merchandising Business

1.1 Nature and Operating Cycle

Operating cycle of a merchandising business is ordinarily longer than that of a service

business

1.2 Business Documents Used

Purchase Invoice – documents that indicates the total purchase price and other relevant

information

Sales Invoice – provides support for a credit sale

II. Accounting Cycle of a Merchandising Business

2.1 Recording Purchase and Sale of Merchandise in General Journal

2.1.1 Perpetual Inventory System (Gross Method Only) – detailed records of the

cost of each inventory purchase and sale are maintained and continually

shows the inventory that should be on hand

- cost of sales is determined each time a sale occurs

2.1.2 Periodic Inventory System (Gross Method Only) – detailed inventory

records of the goods on hand are not kept throughout the period and the

cost of sales is only determined at the end of the accounting period

- cost of goods on hand are determined through physical count

- in determining cost of sales (1)determine inventory beginning, (2) add

the cost of goods purchased and (3) subtract inventory end

2.1.3 Freight Terms

Freight Cost – cost of delivering goods

Freight-In – considered part of the cost or purchasing inventory

Freight-Out – delivery expense

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6.1.6 Definition of Terms

VII. Accounting for Share Capital Transactions

7.1 Accounting for Par Value Shares

7.1.1 Journal Entry Method

7.1.2 Memorandum Method

7.2 Accounting for Preference Shares and Ordinary Shares

7.3 Accounting for No-Par Value Shares

7.4 Incorporating a Partnership

7.5 Accounting for Delinquent Shares

7.6 Accounting for Treasury Share

7.6.1 Reacquired through Purchase

7.6.2 Reacquired through Donation (Memo Entry)

7.6.3 Subsequent Sale At Cost, Below Cost, or Above Cost

7.7 Shareholders’ Equity Presentation – Contributed Capital

VIII. Accounting for Accumulated Profits/Loss (Retained Earnings)

8.1 Definition of Retained Earnings

8.2 Appropriation from Retained Earnings for Legal, Contractual or Voluntary Reasons

Retained Earnings Restrictions – are portion of the retained earnings balance currently

unavailable for dividends due to the following causes:

a. Contractual – the restriction that limits the use of company assets for

payment of dividends

b. Voluntary – made voluntarily for specific purposes

8.3 Kinds of Dividends

Dividend – distribution by a company to its shareholders on a pro rata (proportional)

basis which can take four forms:

a. Cash – pro rata distribution of cash to shareholders

For a company to pay cash dividend, it must have:

1. Retained Earnings

2. Adequate Cash

3. A Declaration of Dividends

b. Property

c. Scrip – a promissory note to pay cash

d. Shares/Bonus Shares – pro rata distribution to shareholders of the

company’s own shares

- may be expressed in two ways as (1) as a percentage of the stated value of the

share or (2) as dollar (peso) amount per share

8.4 Accounting for Cash and Bonus Issue – upon Declaration and Distribution of Dividends

Declaration Date – when the company formally declares the cash dividend and

announces it to the shareholders

Record Date – when ownership of the issued shares is determined for dividend

purposes

Payment Date – dividends are paid and payment is recorded

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