Basic Accounting and Financial Reports

A company's balance sheet shows total assets of Php1,000,000 and total liabilities of Php600,000. If the company declares and pays a cash dividend of Php50,000, what will be the impact on the accounting equation?

• Assets will decrease by Php50,000, and liabilities will increase by Php50,000.

• Assets will decrease by Php50,000, and equity will decrease by Php50,000.

• Liabilities will decrease by Php50,000, and equity will increase by Php50,000.

• There will be no change in the total amounts of assets, liabilities, or equity.

Which of the following scenarios would MOST likely result in a decrease in a company's retained earnings?

• An increase in revenue due to a successful marketing campaign.

• The issuance of new shares of common stock to investors.

• The declaration and payment of dividends to shareholders.

• The acquisition of a new piece of equipment financed entirely by a bank loan.

When preparing a statement of cash flows, which of the following activities would be classified under 'Investing Activities'?

• Cash received from the sale of a long-term asset.

• Cash paid to suppliers for inventory purchases.

• Cash received from customers for services rendered.

• Cash paid to employees for salaries.

A company uses the accrual basis of accounting. In December 2024, they provided services worth Php80,000 to a client on credit. Payment is expected in January 2025. How will this transaction MOST appropriately be reflected in the company's financial statements for the year ended December 31, 2024?

• Revenue of Php80,000 will be recognized on the income statement, and an accounts receivable of Php80,000 will be recorded on the balance sheet.

• No revenue or accounts receivable will be recorded until cash is received in January 2025.

• Cash of Php80,000 will be recorded on the balance sheet, and no revenue will be recognized on the income statement.

• An expense of Php80,000 will be recognized on the income statement, and an accounts payable of Php80,000 will be recorded on the balance sheet.

A company purchased inventory for Php100,000 on credit. Later, they sold half of this inventory for Php75,000 in cash. Assuming a perpetual inventory system, what is the immediate impact of this sale on the company's gross profit?

• Gross profit increases by Php75,000.

• There is no immediate impact on gross profit until the remaining inventory is sold.

• Gross profit decreases by Php25,000.

• Gross profit increases by Php25,000.

Which of the following is the PRIMARY purpose of the statement of owner's equity (or statement of changes in equity for a corporation)?

• To report the financial position of a company at a specific point in time.

• To summarize the revenues and expenses of a company over a period of time.

• To explain the changes in the equity accounts of a business over a period of time.

• To detail the cash inflows and outflows of a company over a period of time.

A company's current ratio is 2:1. If they use cash to pay off a portion of their short-term liabilities, what will be the MOST likely effect on their current ratio?

• The current ratio will decrease.

• The current ratio will increase.

• The current ratio will remain unchanged.

• The effect on the current ratio cannot be determined without more information.

When analyzing a company's financial statements, a consistently increasing debt-to-equity ratio over several periods might indicate:

• The company is becoming more profitable and efficient in its operations.

• The company is relying more heavily on debt financing relative to equity financing, potentially increasing financial risk.

• The company's asset base is expanding rapidly due to sound investment decisions.

• The company is effectively managing its working capital and liquidity.

Which of the following accounting principles or concepts BEST dictates when revenue should be recognized?

• The revenue recognition principle.

• The going concern assumption.

• The matching principle.

• The cost principle.

Why is it crucial for companies to prepare accurate and reliable financial reports?

• To ensure that employees receive their salaries on time.

• To minimize the amount of paperwork required by the accounting department.

• To guarantee that the company's stock price will increase.

• To comply with tax regulations and provide information for decision-making.