BOOKKEEPING NC III

ACCOUNTING TERMINOLOGIES AND DEFINITIONS

Account is a formal record that represents, in words, money or other unit of measurement, certain
resources, claims to such resources, transactions or other events that result in changes to those resources
and claims

Accounting is the recording and reporting of financial transactions, including the origination of the
transaction, its recognition, processing, and summarization in the FINANCIAL STATEMENTS

Accounting equation is assets equals liabilities plus equity. (A = L + E)

Accounting period/year is a period of 12 consecutive months chosen by an entity as its ACCOUNTING

period which may or may not be a calendar year.

Accounts Payable is the amount owed to a CREDITOR for delivered goods or completed services.

Accounts receivable are amounts collectible from its customers. It is the claim against a DEBTOR for an
uncollected amount, generally from a completed transaction of sales or services rendered.
Adjusting journal entries are accounting entries to account for a periods changes, omissions or other
financial data required to be reported "in the books"

Adjusted Trial Balance reflects totals after the adjusting entries are posted to the general ledger.

Asset represents future benefit to the company with reliable measurement

Accounting Manual is a document prepared to provide bookkeepers with direction and guidance in
connection with those bookkeeping requirements of entities

Balance is the Sum of DEBIT entries minus the SUM of CREDIT entries in an ACCOUNT. If positive, the
difference is called a DEBIT BALANCE; if negative, a CREDIT BALANCE

Balance Sheet reports the financial position at a point in time (end of the quarter or year).
Bookkeeping is the recording of all financial transactions undertaken by a business (or an individual).
A bookkeeper (or book-keeper), sometimes called an accounting clerk is a person who keeps the
books of an organization. The organization might be a business, a charity or even a local sports club.

Business is the social science of managing people to organize and maintain collective productivity
toward accomplishing particular productive goals, which is usually to generate profit.

Capital is called equity.

Cash usually refers to money in the form of liquid currency, such as banknotes or coins.

Cash Payments Journal is a book used to record all payments made in cash such as for accounts
payable, merchandise purchases, and operating expenses; also termed cash disbursements journal.

Cash Receipts Journals is a book used to record all collections made in cash such as for accounts
receivable , merchandise sold, and interest income.

Chart of Accounts is a systematic listing of all accounts used by an entity.

Closing entries are prepared after the financial statements have been completed.

Corporation - is a form of doing business pursuant to a charter granted by government

Credit (cr) - means an entry to the right hand side of an account. Entry on the right side of a DOUBLE-ENTRY
BOOKKEEPING system that represents the reduction of an ASSET or expense or the addition to a LIABILITY or
REVENUE. (See DEBIT.)

Debit (dr) - means an entry to the left hand side of an account. Entry on the left side of a DOUBLE-ENTRY
BOOKKEEPING system that represents the addition of an ASSET or expense or the reduction to a LIABILITY or
REVENUE.(See CREDIT.)

Depreciation is the process of allocating the cost of property, plant and equipment assets to the periods that will
benefit from its use

Dividend income is income received from ownership shares in a corporation. A dividend is a distribution to a
corporations stockholders usually in cash;

Documents are bases of recording transactions in bookkeeping. This may include but not limited to sales
invoice and official receipts.

Drawing is when a business proprietor draws money for personal needs.

Equity represents the residual claims of owners

Expenses represent the outflow of assets (or increases in liabilities) due to a company’s operating activities.
Financial statements report the business activities during the year and the financial condition at the end of
the year. It is also the presentation of financial data including BALANCE SHEETS, INCOME STATEMENTS
and STATEMENTS OF CASH FLOW, or any supporting statement that is intended to communicate an entity's
financial position at a point in time and its results of operations for a period then ended.

Generally accepted accounting standards (GAAP) determine what to record, when to record, and amount
to record. It is also the rules, and procedures necessary to define accepted accounting practice at a particular
time.

General Journal is the most basic of journals. It is a chronological list of transactions.

General Ledger is the collection of all ASSET, LIABILITY, owners EQUITY, REVENUE, and expense
accounts. This is a book of accounts in which data from transactions recorded in journals are posted and
thereby classified and summarized. Also called ledger.

Income is the inflow of REVENUE during a period of time. This also money received by a person or
organization because of effort (work), or from return on investments.

Income Statement shows the components of net income in detail. It is the summary of the effect of
REVENUES and expenses over a period of time.

Income Taxes Payable is income taxes due including current portion of deferred taxes.
Interest Income includes amounts from interest on all interest-bearing deposits and accounts.

Internal Control is the process designed to provide reasonable assurance regarding achievement of various
management objectives such as the reliability of financial reports.

Inventories are products on hand for sale to customers

Journal is a book where all transactions are initially recorded.

Journal entry are the logging of business transactions and their monetary value into the t-accounts of the
accounting journal as either debits or credits. A journal entry is usually backed up with a piece of paper; a
receipt, a bill, an invoice, or some other direct record of the transaction; making them easy to record and to
maintain traceability for each transaction.

Journalize transactions is the process of recording a business transaction in a journal.

Ledger is a tool used for classifying and summarizing information about increases, decreases, and balances
of items in the chart of accounts.

Liability represents obligations, payables or debts owed. DEBTS or obligations owed by one entity (DEBTOR)
to another entity (CREDITOR) payable in money, goods, or services
Loans Payable is the account title used to record amounts to be paid for borrowed money. This is also called
Notes Payable.

Notes Payable is the account title used to record amounts to be paid for borrowed money and evidenced by a
promissory note. This is also called Loans Payable.

Official receipts is a document issued to acknowledge receipt of cash.

Partnership is a form of entity with two or more owners. Relationship between two or more persons based on a
written, oral, or implied agreement whereby they agree to carry on a trade or business for profit and share the
resulting profits.

Philippine Financial Reporting Standards often known as PFRS are a set of accounting standards. They are
issued by the Financial Reporting Standards Council. [FRSC].

Post Closing Trial Balance is balance sheet in trial balance form.

Preliminary Trial Balance is a listing of the accounts in the general ledger and their balances as of a specified
date. A trial balance is usually prepared at the end of an accounting period and is used to see if additional
adjustments are required to any of the balances.

Posting is the process of transferring figures from the journal to the ledger accounts
Property Plant and Equipment are assets used in the production of goods and services

Purchase invoice is a bill from a vendor for specific materials or supplies furnished or services rendered. It is
called sales invoice from the point of view of the seller.

Purchases Journal. This is a payable system involves a Purchases Journal -- in which all incoming
merchandise invoices are recorded.

Ratio Analysis is the comparison of actual or projected data for a particular company to other data for that
company or industry in order to analyze trends or relationships

Receivables are amounts of money due from customers or other DEBTORS

Rent expense is the expenditure made to cover the rental for the premises.

Rent income is money received by a person or organization from rental of premises and/or other assets.

Retained Earnings are profits of the business that have not been paid out to the owners as of the balance
sheet date.

Revenue represents the inflow of assets (or decrease in liabilities) due operating activities. This may include
sales of products, merchandise, and services; and earnings from INTEREST, DIVIDEND, rents.
Routine journal entries Recurring financial activities reflected in the accounting records in the normal course
of business.

Salaries/wages expense is an account title used to record salaries, wages, and benefits an employee
receives from an employer.

Sales Journal This is a receivables system involves a Sales Journal -- in which all invoices outgoing to
customers are recorded.

Sales invoice is a document issued by a vendor for specific materials or supplies furnished or services
rendered. It is called purchase invoice from the point of view of the seller.

Sole Proprietorship is a form of entity with one owner and the simplest possible form of business.

Statement of Cash Flow reports sources and uses of cash. This is one of the basic financial statements that
are required as part of a complete set of financial statements prepared in conformity with generally accepted
accounting principles. It categorizes net cash provided or used during a period as operating, investing and
financing activities, and reconciles beginning and ending cash and cash equivalents.

Statement of Changes in Equity explains the changes in contributed capital and retained earnings during the
period.
Subsidiary Ledger is a group of subsidiary accounts the sum of the balances of which is equal to the balance of
the related control account in the general ledger

Transactions and events are recorded as they occur, recorded even if cash is not received or paid and affects
the accounting equation.

Trial balance confirms that accounts are still in balance.

Utilities expense is an account title used to record amount incurred on heat, light, water, and power.

Vouchers is a written record of expenditure, disbursement, or completed transaction.

Worksheet is a document or schedule in which a bookkeeper uses to gather information to substantiate an

account balance.
MULTIPLE CHOICE: 5. The debit side of an account:
1. Accounts: a) Is the right-hand side of the account.
a) Are records of increases and decreases in individual b) Is the left-hand side of the account.
financial statement items.
c) Depends on whether the account is an asset, liability, or
b) Are only used by large entities with many transactions. stockholder’s equity. d) Can be either side of the account
c) Do not reflect money amounts. depending on how the accountant set up the system.
d) Are used only by entities that manufacture products.
6.A debit may signify a(n):
2. Which of the following accounts is an asset account? a) Increase in asset accounts
a) Dividends b) Increase in liability accounts
b) Accounts Payable c) Increase in the capital account
c) Equipment d) Decrease in expense accounts
d) Salaries Expense
7.A credit may signify a(n):
3. Which of the following accounts is a liability account? a) Increase in assets
a) Dividends b) Increase in liabilities
b) Cash c) Decrease in capital
c) Accounts Payable d) Decrease in revenue
d) Capital Stock
8. Which of the following applications of the rules of debit and credit is
true?
4. The gross increase in stockholder’s equity attributable to
a) Increase rent expense with debits and the normal balance is a debit.
business activities are called: b) Decrease accounts receivable with credits and the normal balance is
a) Dividends a credit.
b) Revenues c) Increase accounts payable with credits and the normal balance is a
c) Expenses debit.
d) Assets d) Decrease cash with debits and the normal balance is a credit.
9. In which of the following types of accounts are increases 13. The process of initially recording a business transaction is
recorded by credits? called:
a) Liability, Revenue a) Sliding
b) Dividends, Asset b) Posting
c) Expense, Liability c) Journalizing
d) Revenue, Dividends d) Transposing

10. A credit balance in which of the following accounts would 14. Which of the following entries records the payment of rent
indicate a likely error? for the current month?
a) Dividends a) Cash, debit; Rent Expense, credit
b) Accounts Payable b) Rent Expense, debit; Cash, credit
c) Fees Earned c) Rent Expense, debit; Accounts Payable, credit
d) Capital Stock d) Accounts Payable, debit; Rent Expense, credit

11. Which of the following entries records the payment of an 15. Which of the following entries records the collection of cash
account payable? from cash customers?
a) Debit Accounts Payable, credit Cash
a) Accounts Receivable, debit; Fees Earned, credit
b) Debit Cash, credit Accounts Payable
b) Fees Earned, debit; Accounts Receivable, credit
c) Debit Expense, credit Cash
c) Fees Earned, debit; Cash credit
d) Debit Cash, credit Expense
d) Cash, debit; Fees Earned, credit
12. Which of the following entries records the receipt of a utility
16. The verification that the sum of the debits and the sum of
bill from the power company?
the credits in the ledger are equal is called:
a) Debit Utilities Payable, credit Accounts Payable
a) A journal
b) Debit Accounts Payable, credit Utilities Payable
b) A ledger
c) Debit Utilities Expense, credit Accounts Payable
c) Posting
d) Debit Accounts Payable, credit Utilities Expense
d) A trial balance
17. An error was discovered in computing and paying the wages of 20. Accounts with normal debit balances include:
an employee of Allen Appliance Repair. Allen received cash from the a) Assets and liabilities
employee for the amount of the overpayment. Which of the b) Liabilities and expenses
following entries for Allen records this transaction?
a) Wages Payable, debit; Wages Expense, credit c) Stockholder’s equity and revenues
b) Wages Expense, debit; Wages Payable, credit d) Expenses and assets
c) Wages Expense, debit; Cash, credit 21. Accounts with normal credit balances include:
d) Cash, debit; Wages Expense, credit a) Assets and liabilities
b) Revenues and expenses
18. If an expense is incurred but not paid, then
a) Liabilities will increase c) Liabilities and revenues
b) Stockholder’s equity will increase d) Revenues and assets

c) Assets will decrease 22. The process of transferring entries from the journal to the
d) Expenses will decrease ledger is called:

19. Which of the following errors, each considered individually, a) Journalizing

would cause the trial balance totals to be unequal? b) Transferring
a) A payment of $248 to a creditor was posted as a debit of $248 to
Accounts Payable and a debit of $248 to Accounts Receivable. c) Posting
b) Cash received from customers on account was posted as a debit d) Balancing
of $450 to Cash and a credit of $450 to Accounts Payable.
c) A payment of $79 for supplies was posted as a debit of $97 to
Supplies and a credit of $97 to Cash.
d) A transaction was not posted.
23. The entire group of accounts maintained by a 25. When a trial balance balances, it is an indication
company is collectively referred to as the: that:
a) Ledger a) All journal entries have been posted.
b) Journal b) The account balances are correct.
c) Financial statements c) Debits equal credits.
d) Basic equation d) All transactions have been journalized

24. The chart of accounts lists a company’s accounts in 26. Accounts are listed on the trial balance in:
what order?
a) Assets, liabilities, revenues, expenses, stockholders’ a) Chronological order
equity b) The order that they appear in the ledger
b) Assets, revenues, expenses, liabilities, stockholders’ c) Alphabetical order
equity d) The order in which they are posted
c) Assets, liabilities, stockholders’ equity, expenses,
revenue
d) Assets, liabilities, stockholders’ equity, revenues,
expenses
 1. This document evidences the receipt of cash by the seller.
2. This transportation arrangement passes ownership to the
Matching Type goods to the buyer only when the buyer receives the
a. Invoice g. Purchase requisitions merchandise.
b. Official receipt h. Purchase order 3. Under this inventory system, revenues from sales are
c. Credit memorandum i. Periodic inventory recorded when sales are made, but no attempt is made on
system the sales date to record the cost of goods sold.
d. Perpetual inventory system j. Debit memorandum 4. Under this inventory system, both the sales amount and the
system cost of goods sold amount are recorded when each item of
e. Purchases discount k. FOB destination merchandise is sold.
f. Trade discounts l. FOB shipping point 5.The document prepared by the seller of goods and sent to a
buyer detailing the specifics of a sale.
6. This discount encourages the buyers to purchase goods
Required: From the list of terms above, select the one that because of markdowns from the list price.
relates to each of the following statements: 7. This is the shipping term if the buyer shoulders the
shipping cost.
8. This is an authorization made by the buyer to the seller to
deliver the merchandise as detailed in the form.
9. It is the discount taken by the buyer for the early payment
of an invoice.
10. The document issued by the seller authorizing the return
of merchandise or the grant of an allowance.
Multiple choice. From the information given, select the letter of the best answer. 6. Which of the following would not be included in merchandise inventory for a
1. In merchandising operations, the Sales account will be recorded if the seller sells purchasing company?
a. assets that the company owns. a. Goods in transit shipped FOB shipping point.
b. goods or merchandise only. b. Goods in transit shipped FOB destination.
c. goods or merchandise on cash basis. c. Goods on hand in the showroom.
d. goods or merchandise with discount. d. Goods ordered and received from the supplier.

2. Which of the following companies would be most likely to use a perpetual 7. A sale on May 21 with terms of 2/10;n/30 is due to be collected by
inventory system? a. May 23
a. drugstore b. May 31
b. hardware store c. June 20
c. bookstore d. June 1
d. car dealer 8. The expression 3/20; n/30 means
a. the invoice must be paid in 3 to 20 days, otherwise, interest for 30 days will be
3.Which of the following discounts has no account of its own and requires no charged.
special accounting entry? b. a 3% discount is available if the invoice is paid in 20 to 30 days; otherwise the
a. cash discount total invoice is due.
b. trade discount c. a 3% discount is available if the invoice is paid within 20 days, otherwise, the
c. sales discount total invoice price is due in 30 days.
d. purchase discount d. a 3% discount is available if the invoice is paid within 30 days.
4. A purchase discount results from
9. An amount deducted from the catalog price for an item of merchandise is called a
a. returning goods to the seller
a. trade discount
b. receiving a purchase allowance from the seller
b. sales discount
c. buying a large enough quantity of merchandise to get the discount
c. purchase discount
d. paying within the discount period
d. quantity discount
5. A seller would request payments from a purchase of merchandise through the 10. When a seller allowed a reduction from the original price for defective goods,
use of the seller will issue to the customer a
a. an invoice a. debit memorandum
b. a quantity discount b. sales invoice
c. a purchase order
c. credit memorandum
d. a purchase discount
d. official receipt
11. When the seller advances the transportation costs and the terms of sale are
16. In a merchandising operation, the Sales account should include
FOB shipping point, the seller records the payment of the transportation costs by
debiting a. only credit sales of merchandise
a. Accounts receivable b. only cash sales of merchandise
b. Transportation in c. both cash and credit sales of merchandise
c. Accounts payable d. sales of both merchandise and other assets of the business
d. Sales
17. Which of the following statement is false?
12. Under the perpetual inventory system, in addition to making the entry to a. Cash discounts are a convenient means of reducing prices to invoice prices.
record a sales return, a company would b. Cash discounts are used to encourage customers to make prompt discount
a. debit Cost of goods sold and credit Merchandise inventory payments.
b. debit Merchandise inventory and credit Cost of goods sold c. Cash discounts may be offered in conjunction with trade discounts.
c. debit Cost of goods sold and credit Purchases d. From the seller’s point of view, the terms “cash discount” and “sales discount”
d. make no additional entry until the end of the month
are the same.
13. Under the perpetual inventory system, the entry to record a sales return would 18. If a customer returns goods to a merchandiser, what effect will the return have
include a debit to on the books of the merchandiser?
a. Accounts receivable a. a decrease in sales account
b. Sales discount b. a decrease in the accounts payable and allowance accounts
c. Cost of goods sold c. an increase in the purchase return and allowance account
d. Merchandise inventory d. an increase in the sales returns and allowance account
14. Which of the following is not considered in computing net cost of purchases?
19. Sales return and allowances is classified in the financial statements as:
a. Transportation cost paid on purchased goods
a. an expense account
b. Transportation cost paid on goods shipped to customers
b. a revenue account
c. Purchase returns and allowances
d. Purchases c. a contra revenue account
d. a cost of goods sold account
15. FOB shipping point means
a. title passes at shipping point; seller pays transportation cost
b. title passes at shipping point; buyer pays transportation cost
c. title does not pass at shipping point; however, buyer is responsible for the
transportation cost
d. none of the above
20. Which of the following statement is false?
a. The difference between list price and invoice price is equal to the amount of
the trade discount.
b. Trade discounts are a convenient way of reducing list price to invoice price.
c. Trade discounts are not entered in the accounting records.
d. Trade discounts are identical to cash discounts.

21. In preparing its 2018 adjusting journal entry, the bookkeeper omitted to adjust
prepaid insurance for the
amount of insurance expired for the period. As a result
a. Net income is understated, capital is understated and asset is understated
b. Net income is overstated, capital is overstated and asset is correct
c. Net income is overstated, capital is overstated and asset is overstated
d. Net income is understated, capital is understated and asset overstated

22. The end-of-the month balance in Igado’s cash disbursement journal “Sundry
Account” column is P19,870. How will the column be posted and what is the posting
reference will be entered?
a. The total will be posted to cash as a credit, and the cash general ledger account
number is the
posting reference.
b. The individual item is posted rather than total amount and an account number is
entered as a
posting reference.
c. The total will not be posted and there will be no posting reference for all.
d. None of these.

23. The Cash Receipts Journal of the Meatballs Company shows the following accounts
and account balances:
❖ Sales P 125,000
❖ Accounts receivable 65,000
❖ Sundry accounts (credit) 1,802,650
❖ Sales discount ?
If sales discount is 4% of sales balance, how much is the cash balance per cash receipts
journal?
a. P1,737,650
b. P1,987,650
c. P1,992,650
d. P 1,857,650