FUNDACC1 - Reviewer (Theories) II.

State the accounting concept/principle violated by each of the

following case.
---------------------------------------------------------------------------------- 1. Due to stiff competition in the market, Abot Tiis Shipping
Lines signed a contract to sell half of its first class ships to
I. Indicate the accounting concept or principle that suits the its competitor, Simplicio Lines. Abot Tiis refuses to report
statement: this undertaking.
1. If the amount involved is insignificant with regards to the ADEQUATE DISCLOSURE
overall size of the business, consider the item as an 2. A logging company was permitted to cut trees in Negros
outright expense. Oriental. The logging company did not keep any
MATERIALITY accounting records of its transactions which is the reason
2. This concept supports the separation of the business why yearly income/loss cannot be determined. The
assets and liabilities from thee personal assets and logging company stated it will determine its net
liabilities of the owner. income/loss after cutting all the trees in the area which
ENTITY will take more than ten years from now.
3. Expenses should be recognized in the accounting period ACCOUNTING PERIOD
in which the goods were actually used to produce 3. Jean Company bought assets three years ago. This year,
revenue. the company decided to write up the cost of these assets
MATCHING since their fair market value has increased.
4. Transactions should be based on verifiable documents. COST/HISTORICAL COST
OBJECTIVITY 4. Electric bill for the month in the amount of P15,000 was
5. The accountant should apply consistently the same received by Rock Lee Company on December 30. The
accounting method to like items from one period to accountant did not record this since it will be paid in
another. January 10 next year when the company resumes
CONSISTENCY operations after the holidays.
6. Revenue is recognized when goods have been delivered ACCRUAL/EXPENSE RECOGNITION
or services performed. 5. An old private school in the community assumes that their
ACCRUAL OR REVENUE RECOGNITION school will close anytime due to stiff competition despite
7. Relevant information about the business significant its good name. The accounting records are maintained
enough to affect the user’s assessment of the business based on this assumption.
should be clearly reported in the financial statements. GOING CONCERN
ADEQUATE DISCLOSURE
8. This is the value ordinarily assigned to an asset ----------------------------------------------------------------------------------
regardless of the asset’s market value.
COST/HISTORICAL COST III. True or False
9. This is the period of time, usually a span of one year, 1. Preparation of the balance sheet maybe made in any of
over which changes in the owner’s equity are the following forms namely: account form, report form
summarized. and financial position form.
ACCOUNTING PERIOD FALSE
10. The amount of paper clips purchased for the business is 2. Because the income statement shows the results of
outright charged to expense. operations, it is considered more important than the
MATERIALITY balance sheet.
11. This does not consider liquidation in accounting for the FALSE
affairs of the business. 3. In listing assets in the balance sheet, the most important
GOING CONCERN assets is listed first followed by the asset of lesser
12. This assures that investors, creditors and other users of importance.
financial information can expect that the financial FALSE; ACCORDING TO LIQUIDITY
statements contain all the significant economic financial 4. The basic financial position of a company is shown in the
information in relation to their understanding of the income statement.
financial condition of the business. FALSE
ADEQUATE DISCLOSURE 5. Obligations that are not yet due need not be shown in the
13. This is necessary for the timely and useful measurement balance sheet.
of income for a period of time less than the life of a FALSE
company. 6. The owner’s equity account of a sole proprietorship
ACCOUNTING PERIOD represents only the original investment of the owner.
14. The business signed a contract to construct a building a FALSE
received full payment of the contract price. The business 7. If the balance sheet and the income statement are
did not recognize the income until the construction was presented together, the heading of the income statement
completed. may be omitted as the balance sheet already has a
ACCRUAL/REVENUE RECOGNITION heading.
15. This concept or principle will not apply if a business has FALSE
declared bankruptcy or insolvency. 8. Income statement accounts are classified as real accounts.
GOING CONCERN FALSE
9. The owner’s drawing and net loss are two factors that
---------------------------------------------------------------------------------- bring about decrease in proprietorship.
TRUE
 10. The amount of receivables approximated to have a low
probability of collection charged as expense for the period 2. The principle that supports the assumption that the same
is called Bad Debts Expense. Generally Accepted Accounting Principles have been applied in the
TRUE preparation of a company’s successive financial statements.
11. Accounts in the balance sheet are classified as temporary a. Objectivity Principle
account. b. Historical Cost
FALSE c. Adequate Disclosure
12. Every transaction that affects a balance sheet account d. Consistency
must also affect an income statement account to balance
the accounting equation. 3. The rights and claims of the owners of a business enterprise
FALSE a. Assets
13. Services rendered to a client will not only have a positive b. Liabilities
effect on the assets but also on the capital. c. Owner’s Equity
TRUE d. All of the above
14. Expenses have a negative effect on owner’s equity.
TRUE 4. This is used as a basis in accounting for the assets of a business
15. An increase in an expense account will have a because it can be measured objectively.
corresponding decrease in the owner’s capital account. a. Market value
TRUE b. Historical cost
16. Ever transaction that affects a revenue account must also c. Assessed value
affect another income statement account to balance the d. Inflation value
accounting equation.
FALSE 5. The concept that requires the distinction between the personal
17. Double Entry Bookkeeping is a system of recording that assets and liabilities of a proprietor for his business assets and
has two-fold effect on accounting values wherein for every liabilities.
debit there is a corresponding credit. a. Entity
TRUE b. Stable Monetary Unit
18. The trial balance determines the correctness of the journal c. Periodicity
entries. d. All of the above
FALSE
19. The trial balance proves that all transactions have been 6. X Company bought a pencil sharpener at a cost of P85. It is
completely recorded, posted and summarized. estimated to have a useful life of 10 years. Because of the length of
FALSE its useful life, the accountant recorded this as a debit to office
20. Accounting cycle is the principal procedures employed to equipment. The accounting principle violated is
process transactions during a fiscal period. a. Objectivity
TRUE b. Consistency
21. In the trial balance the number 246 was written as 264. c. Historical Cost
This type of error is called transplacement. d. Materiality
FALSE
22. The accounting records of the sole proprietorship include 7. The start of X Company’s accounting period is October 1 and ends
the proprietor’s personal financial records. September 30 of the following year. What kind of period is followed
FALSE by X Company?
23. A sole proprietorship can have more than one owner. a. Fiscal Year
FALSE b. Lunar Year
24. Government agencies require financial information from c. Calendar Year
enterprises as part of their regulatory function. d. None of the Above
TRUE
25. The accounting process for all three types of business 8. A company that purchases a finished product for future sale
organization is generally the same. a. Service company
TRUE b. Merchandising company
26. The elements directly related to the measurement of c. Manufacturing Company
financial position in the balance sheet are assets, liabilities, and d. None of the above
equity.
TRUE 9. In order to update the assets’ records with increases in their
current market values, Fidas Co. adjusts the balance sheet amounts
---------------------------------------------------------------------------------- for assets whenever there is a change in market value. The
accounting principle violated is
IV. Multiple Choice a. Materiality
1. The process of identifying, measuring, and communicating thee b. Accrual
economic activities of a business enterprise in order to assist users c. Consistency
of financial statements in making informed judgment is d. Historical cost
a. transacting
b. computing 10. It is a service activity whose purpose is to provide quantitative
c. accounting information about the economic entities that is intended to be
d. costing useful in making economic decisions.
a. Accounting 20. Reports which summarize the financial position and results of
b. Transaction operations of a business.
b. GAAP a. financial statements
d. Business Organization b. interim reports
c. report to Securities and Exchange Commission
11. The claims of creditors of the business enterprise d. none of the above
a. Assets
b. Liabilities 21. This shows the financial position of a firm as of a given date
c. Owner’s Equity a. Statement of Owner’s Equity
d. All of the above b. Income Statement
c. Balance Sheet
12. A twelve-month period that starts January 1 and ends December d. All of the above
31
a. Fiscal year 22. The total assets of the company are equal to its
b. Lunar year a. liabilities minus capital
c. Calendar year b. capital minus liabilities
d. None of the above c. liabilities plus capital
d. none of the above
13. The person to whom a liability is owed
a. Debtor 23. The capital account of the owner of a sole proprietorship is
b. Creditor comprised of
c. Owner a. his original investment
d. None of the above b. his additional investment
c. his withdrawal
14. This is the phase of accounting that make accounting the d. the results of operations
language of business e. all of the above
a. Recording
b. Classifying 24. These increase owner’s equity
c. Summarizing a. withdrawals and net loss
d. Interpreting b. investments and net income
c. donations to charitable institutions
15. Choose the incorrect statement about a “business transaction” d. none of the above
a. it can be measured objectively
b. a completed action expressed in monetary terms 25. A balance sheet in which the sections of the liabilities and
c. it must involve outside parties owner’s equity are listed on the right of the asset section is
d. none of the above a. account form balance sheet
b. report form balance sheet
16. This is the exchange price considered in the accounting books c. common balance sheet
upon recognition of the business transaction d. none of the above
a. cost
b. assessed value 26. The amount of assets consumed or services used in the process
c. market value of earning revenue
d. book value a. income
b. assets
17. A company that is engaged in the processing of raw materials to c. expenses
finished goods intended for sale d. liabilities
a. service company
b. merchandising company 27. Obligations that must be paid within twelve months or in the
c. manufacturing company normal course of the business’ operating cycle
d. none of the above a. current liabilities
b. non-current liabilities
18. This is the final figure in the income statement when expenses c. other liabilities
exceed revenue d. none of the above
a. net income
b. net loss 28. Which of the following has a positive effect on owner’s equity?
c. ending capital a. revenue
d. beginning capital b. expenses
c. net loss
19. A balance sheet in which sections of liabilities and the owner’s d. none of the above
equity are listed below the section of assets is
a. account form balance sheet 29. The person or company to whom a certain amount of cash is
b. report form balance sheet owed by the business payable at a future date
c. common balance sheet a. debtor
d. none of the above b. owner
c. creditor
d. none of the above d. Earned Commissions

30. An increase in an expense account 40. The cost of money borrowed to finance business operations is
a.. increases the owner’s equity recorded as
b. increases the assets a. Interest Income
c. decreases the liabilities b. Accrued Expense
d. decreases the owner’s equity c. Interest Expense
d. Prepaid Interest
31. Services rendered to a client will
a. increase owner’s equity 41. The cost allocated to the expiration of certain assets due to
b. decrease owner’s equity wear and tear is recorded as
c. decrease the assets a. Depreciation Expense
d. decrease the liabilities b. Accrued Expense
c. Allowance for Bad Debts
32. Which of the following transactions will give rise to revenue? d. Prepaid Expense
a. collection of an account receivable from a customer
b. cash received as proceeds from a bank loan 42. When an owner issued a personal checking account in payment
c. rendition of services to customer on account of the business liability, this is recorded as
d. payment of a liability a. Owner’s Drawing
b. Net Income
33. Which of the following is an expense? c. Net Loss
a. payment of a liability d. Owner’s Capital
b. payment of workers’ salaries
c. payment of the liability of the owner 43. When an owner uses the business funds to pay for his own
d.. cash withdrawal of the owner personal debt, this is recorded as
a. Owner’s Drawing
34. Checks received from customers are recorded as a debit to b. Net Income
a. Accounts Receivable c. Net Loss
b. Cash d. Owner’s Capital
c. Advances from Customers
d. Prepaid Checks 44. A two-column schedule listing the names and debit or credit
balance of all accounts in the ledger
35. The amount billed to customers for services made on account is a. balance sheet
debited to b. income statement
a. Accounts Receivable c. statement of owner’s equity
b. Cash d. trial balance
c. Service Income
d. Unearned Service Income 45. An entry with more than one debit accounts and/or more than
one credit accounts
36. Six-month rent received but not yet earned is recorded as a. single entry
a. Prepaid rent b. compound entry
b. Accrued rent c. double entry
c. Unearned rent d. simple entry
d. Rent income
46. The sequence of accounting steps performed during an
37. An invoice received from a supplier for supplies purchased is accounting period
recorded as a. accounting cycle
a. Accounts Receivable b. recording cycle
b. Supplies Income c. adjusting cycle
c. Accounts Payable d. periodic cycle
d. None of the above
47. A form of record used to show additions and deductions to each
38. Note bearing 10% interest already earned but still uncollected. individual asset, liability, capital, revenue and expense
The interest is recorded as a. journal
a. Interest Receivable b. trial balance
b. Interest Expense c. account
c. Prepaid Interest d. financial statements
d. None of the above
48. This is prepared every time a transaction is made
39. Power Books received a 20% commission from C&E Publishing a. journal entry
House although it has not yet sold the books. The commission b. account
received will be recorded as c. financial statements
a. Commissions Receivable d. trial balance
b. Unearned Commissions
c. Accrued Commissions
49. The process of transferring information from the books of b. To provide the information that the creditors of an economic
original entry to the book of the final entry entity can use in deciding whether to make additional loans to the
a. recording entity
b. posting c. To measure the periodic income of the economic entity
c. journalizing d. To provide quantitative financial information about an entity
d. adjusting that is useful in making rational economic decision

50. Forms serving as evidences of transactions which are used as 59. These are events that affect the entity and in which other
sources in recording these transactions entities participate
a. books a. Internal events
b. accounts b. External events
c. entries c. Current events
d. business documents d. Past events

51. The arrangements of accounts in the ledger and trial balance 60. The communicating process of accounting includes all of the
a. chronological following, except
b. alphabetical a. Recording
c. financial statement order b. Classifying
d. by amount c. Summarizing
d. Interpreting
52. A listing of all account titles used by a company
a. chart of accounts 61. What is the law regulating the practice of the accountancy in the
b. trial balance Philippines?
c. income statement a. R.A. No. 9298
d. journal b. R.A. No. 9198
c. R.A. No. 9928
53. A list of accounts in the general ledger with their respective debit d. R.A. No. 9892
and credit balances
a. journal 62. It is the body authorized by law to promulgate rules and
b. chart of accounts regulations affecting the practice of the accountancy profession in
c. trial balance the Philippines.
d. financial statements a. Board of Accountancy
b. Philippine Institute of Certified Public Accountants
54. Which of the following statements regarding a trial balance is c. Securities and Exchange Commission
not correct. d. Financial Reporting Standards Council
a. A trial balance is a proof that all transactions have been correctly
recorded, posted, and summarized. 63. Accountants employed in entities of various capacity as
b. A trial balance proves the equality of the debits and credits. accounting staff, chief accountant or controller are said to be
c. A trial balance is useful in preparing the financial statements. engaged in
d. A trial balance should always be balanced. a. Public accounting
b. Private accounting
55. Posting is the process of c. Government accounting
a. adding the debit and credit column of the journal d. Financial accounting
b. recording entries in the journal
c. transferring information from the journal to the ledger 64. It is the accounting standard setting body in the Philippines at
d. verifying the amounts recorded in the ledger the present time.
a. Accounting Standards Council
56. Which of the following is a transaction? b. Auditing and Assurance Standards Council
a. an agreement to be the exclusive supplier of a company c. Philippine Accounting Standards Board
b. a phone call from a customer inquiring the price of goods d. Financial Reporting Standards Council
c. sale of land on account
d. none of the above 65. As independent or external auditors, CPAs are primarily
responsible for
57. Accounting is a service activity and its functions is to provide a. Preparing financial statements in conformity with GAAP
quantitative information, primarily financial in nature about b. Certifying the accuracy of financial statements
economic entities, that is intended to be useful in making economic c. Expressing an opinion as to the fairness of the financial
decision. This accounting definition is given by statements
a. Accounting Standards Council d. Filing financial statements with SEC
b. AICPA Committee on Accounting Terminology
c. American Accounting Association 66. The singularly unique function performed by Certified Public
d. Board of Accountancy Accountants is
a. Tax preparation
58. The basic objective of accounting is b. Management advisory services
a. To provide the information that the managers of an economic c. The attest function
entity need to control its operations d. The preparation of financial statements
 76. What is the accounting concept that justifies the usage of
67. Which of the following statements best describes the term accruals and deferrals?
“going concern”? a. Going concern
a. When current liabilities of an entity exceed current assets b. Materiality
b. The ability of the entity to continue in operations for the c. Consistency
foreseeable future d. Stable monetary unit
c. The potential to contribute to the flow of cash and cash
equivalents to the entity 77. During the lifetime of an entity, accountants produce financial
d. The expenses of an entity exceed its income statements at arbitrary points in time in accordance with what basic
accounting concept?
68. The relatively stable economic, political and social environment a. accrual
supports b. periodicity
a. Conservatism c. unit of measure
b. Materiality d. continuity
c. Timeliness
d. Going concern 78. These users require information on risk and return on
investment.
69. Which basic assumption may not be followed when an entity in a. Investors
bankruptcy reports financial results? b. Employees
a. Economic entity assumption c. Lenders
b. Going concern assumption d. Customers
c. Periodicity assumption
d. Monetary unit assumption 79. These users are interest in information about the profitability
and stability of an entity in order to assess the ability of the entity
70. The financial statements that are prepared for the business are to provide remuneration, retirement benefits and employment
separate and distinct from the financial statements of the owner. opportunities.
a. Going concern assumption a. customers
b. Matching principle b. the public
c. Economic entity assumption c. governments and their agencies
d. Accounting period assumption d. employees

71. The economic entity assumption 80. These users are interested in information that enables them to
a. is inapplicable to unincorporated businesses assess whether their loans, the related interest thereon, and other
b. recognizes the legal aspects of business organizations amounts owing to them will be paid when due.
c. requires periodic income measurement a. lenders and other creditors
d. is applicable to all forms of business organizations b. borrowers
c. trade creditors
72. Which underlying assumption serves as the basis for preparing d. owners
the financial statements at regular artificial points in time?
a. Accounting entity 81. These users are interested in information about the continuance
b. Going concern of an entity when they have along-term involvement with or are
c. Accounting period dependent on the entity.
d. Stable monetary unit a. customers
b. employees
73. Which basic accounting assumption is threatened by the c. trade unions
existence of severe inflation in an economy? d. suppliers
a. monetary unit assumption – STABILITY OF PESO (P1 TODAY = P1
TOMORROW) 82. These users are interested in information in order to regulate
b. periodicity assumption the activities of an entity, determine taxation policies and provide a
c. going concern assumption basis for national statistics.
d. economic entity assumption a. governments and their agencies
b. major organization of users
74. The concept of accounting entity is applicable c. Bureau of Internal Revenue
a. only to the legal aspects of business organizations d. Department of Finance
b. only to the economic aspects of business organizations
c. only to business organizations 83. These users need information on trends and recent
d. whenever accounting is involved developments where an entity makes a substantial contribution to
the local economy providing employment and using local suppliers.
75. When a parent and subsidiary relationship exists, consolidated a. the public
financial statements are prepared in recognition of b. governments and their agencies
a. legal entity c. finance entities
b. economic entity d. private entities
c. stable monetary unit
d. time period 84. Which of the following statements best describes the term
“financial position”?
a. the net income and expenses of an entity b. entirely credited to unearned income
b. the net financial assets less liabilities of an entity c. applicable to both current and succeeding years
c. the potential to contribute to the flow of cash and cash d. appropriately credited to both earned and unearned income
equivalents to the entity
d. the assets, liabilities and equity of an entity 7. An asset with a credit adjustment will have a
a. lesser balance extended to the Statement of Financial Position
85. Which of the following best describes “financial performance” credit
of an entity? b. lesser balance extended to the Statement of Financial Position
a. the revenue, expenses, and net income or loss for a period of an debit
entity c. greater balance extended to the Statement of Financial Position
b. the assets, liabilities and equity of an entity credit
c. the total assets minus total liabilities d. greater balance extended to the Statement of Financial Position
d. the total cash inflows minus cash outflows debit

86. The four phases of accounting are recording, classifying, 8. Which of the following are not credit transactions?
summarizing and interpreting. The phase whereby liquidity, solvency a. asset increase and liability decrease
and profitability of an entity are significantly portrayed is known as b. cost decrease and expense increase
a. summarizing c. capital increase and income decrease
b. classifying d. all of the above
c. recording
d. interpreting 9. Adjusting entry to adjust the unearned income is posted to the
a. credit balance of the adjusted column
---------------------------------------------------------------------------------- b. debit balance of the adjustment column
c. credit balance of the adjustment column
V. Multiple Choice d. debit balance of the adjusted column
1. In summarizing the results of business transactions, a list of
account balance is made. This report is termed 10. What is not a debit item?
a. Statement of Cash Flows a. income decrease
b. Trial Balance b. asset increase
c. Statement of Income c. capital increase
d. Statement of Financial Position d. liability decrease

2. During profitable periods, the Income Statement pair of columns 11. Transactions and events are deemed to have a two-fold nature
would have and are best recorded using
a. debit total greater than the credit total a. dual effect accounting
b. equal totals b. double-entry accounting
c. none of the above c. daily lists of transactions
d. debit total lesser than credit total d. single-entry accounting

3. The company maintained the following accounts in the chart of 12. The company issued a note for an overdue supplier’s account.
accounts: Accounts Receivable, Accounts Payable, Office Supplies, Which of the following procedure is correct?
and Office Equipment. Which of the following do not belong to the a. the note is credited in the general journal by a debit to accounts
group? payable
a. Office Supplies b. the amount will be posted to the credit side of the supplier’s card
b. Accounts Receivable c. this will be posted to the accounts payable general ledger on the
c. Office Equipment credit side
d. Accounts Payable d. the amount will be posted to the debit side of the customer’s card

4. An income account that increases capital in a merchandising 13. Generally, the owner of the goods in transit should pay the
company, is freight, so if goods are shipped FOB Destination
a. Sales Returns a. seller is owner and shoulders the freight
b. Purchase Discounts b. buyer is owner and shoulders the freight
c. Sales Allowances c. buyer is owner and pays the freight
d. Sales d. seller is owner and pays the freight

5. Beginning balance of office supplies and credit adjustment will 14. Accounting recognizes the effect of transactions and other
give an adjusted balance of events when they occur rather than when cash or its equivalent is
a. credit balance of statement of financial position received or paid
b. debit balance of statement of financial position a. Entity Concept
c. debit balance of statement of income b. Periodicity Concept
d. credit balance of statement of income c. Going Concern
d. Accrual Basis
6. There is no need of adjusting entries if the amount of income
collected is
a. totally credited to a specific income
15. The company maintained the following accounts in the chart of c. both assets and liabilities may decrease
accounts: Insurance Expense, Prepaid Expense, Accrued Expense and d. both assets and capital may decrease
Salaries Expense. Which one does not belong to the group?
a. Prepaid Expense 25. A stakeholder who is interested in the retail selling price, the
b. Salaries Expense contents, and the weight of the product. He is also interested in the
c. Insurance Expense name of the manufacturer and the sources of ingredients. Who is
d. Accrued Expense he?
a. Supplier
16. The following accounts are not subject for adjustment except b. Management
one: c. Government
a. Capital d. Customer
b. Allowance for Bad Debts
c. Accounts Receivable 26. The company made partial payment on bank loan, P200,000. The
d. Cash account to be debited would be:
a. Notes Payable
17. An event that happens in the business which can affect the b. Accounts Payable
accounting elements c. Cash
a. Business Transaction d. Loans Payable
b. Answer not given
c. Business Event 27. The amount of Value Added Tax Payable to be remitted to the
d. Non-business Transaction Bureau of internal Revenue is equal to the amount of VAT on sales
a. plus output tax
18. The adjusted balance of an account is part of the adjusted trial b. plus input tax
balance and this amount will appear in the financial statement. c. less input tax
Thus, unearned income account will appear in the d. less output tax
a. credit balance of the statement of financial position
b. debit balance of the statement of financial position 28. Division of profit is based on the agreement of every member of
c. debit balance of the statement of income the entity and must conform to the agreement between them. This
d. credit balance of the statement of income agreement is followed by
a. Corporation
19. A transaction in exchange of values between an enterprise and b. Partnership
other entities c. Sole Proprietorship
a. taking place at a point of time and over some time d. Cooperatives
b. occurring both internally and externally
c. taking place at different points of time 29. Adjusting entry debiting expense and crediting asset account is
d. occurring internally within the enterprise an adjustment to report the expense incurred during the period.
This adjustment is not used for
20. An account with a dual nature, as asset and as a reduction of a. prepaid rent
cost, is b. supplies
a. Inventory end c. rent expense
b. Purchases d. prepaid insurance
c. Inventory beginning
d. Freight in 30. Peter owns a barber shop and a computer rental business. In
preparing financial report, he was advised to have a separate record
21. Current liabilities would not include of the two businesses. This principle is based on
a. accrued expenses a. Going Concern
b. agency liabilities (SS, Philhealth, etc) b. Cost Principle
c. notes payable to supplier c. Periodicity Concept
d. accounts due from customers d. Business Entity Concept

22. The following accounts are subject for adjustment except one 31. The business entity reports should always adopt the saying
a. accumulated depreciation “Business is business”.
b. equipment a. Entity Concept
c. allowance for bad debts b. Going Concern
d. prepaid rent c. Periodicity Concept
d. Accrual Basis
23. Which is not a credit item?
a. capital increase 32. The financial statements presume that an entity will continue in
b. liability increase operation indefinitely and the assets are presented on its historical
c. income increase cost and not in its fair value
d. expense increase a. Periodicity Concept
b. Entity Concept
24. When the company receives owner’s investment c. Accrual Basis
a. both assets and capital may increase d. Going Concern
b. both assets and liabilities may increase
33. When a customer pay their account within the discount period, 43. Adjustments for accrued revenues:
the amount that is indicated as a Debit to Cash is a. Have a liabilities and revenues account relationship
a. greater than the amount in Accounts Receivable Credit b. Have an assets and revenues account relationship
b. lesser than the amount in Accounts Receivable Credit c. Decrease assets and revenues
c. lesser than the amount in Accounts Receivable Debit d. Decrease liabilities and increase revenues
d. greater than the amount in Accounts Receivable Debit
44. One of the following statements about the accrual basis of
34. Sm South EDSA was constructed at a cost of P3,000,000,000. accounting is false:
After 10 years, the amount of P3,000,000,000 will still appear in the a. Events that change a company’s financial statements are recorded
financial statement and note present the market value of the in the period in which the events occur
property. The principle involved is b. Revenue is recognized in the period in which it is earned
a. Going Concern Principle c. This basis is in accord with generally accepted accounting
b. Time Period Assumption principles (GAAP)
c. Cost Principle d. Revenue is recorded only when cash is received, and expense is
d. Business Entity Concept recorded only when cash is paid

35. When output tax is greater than input tax, the difference is 45. Each of the following is major type (category) of adjusting entries
a. debited to VAT Payable and remitted to BIR except
b. debited to Prepaid Tax (VAT) and applied to VAT due next period a. Prepaid Expenses
c. credited to Tax (VAT) and applied to VAT due next period b. Accrued Expenses
d. credited VAT Payable and remitted to BIR c. Accrued Revenues
d. Earned Revenues
36. Adjusting entry to adjust allowance for bad debts would appear
in the credit portion of adjustment column if the intention is to 46. Adjustments for unearned revenues:
a. answer not given a. decrease liabilities and increase revenues
b. increase the allowance for bad debt b. have an assets and revenues account relationship
c. decrease the allowance for bad debt c. increase assets and increase revenues
d. decrease the account receivable account d. decrease revenues and decrease assets

37. Credit to Purchase Discount is a column heading found in the 47. A purchase of Office Supplies that was recorded in the Office
a. Cash Receipts Journal Equipment account would require a correcting entry that
b. Cash Disbursements Journal a. credits Office Supplies
c. Purchases Journal b. credits Cash
d. Sales Journal c. debits Office Equipment
d. credits Office Equipment
38. When a liability is paid, it may not involve
a. a decrease in asset 48. The time period assumption states that
b. an increase in asset a. Revenue should be recognized in the accounting period in which it
c. a decrease in liability is earned
d. an increase in another liability b. Expenses should be matched with revenues
c. The economic life of a business can be divided into artificial time
39. An asset with a credit adjustment will have a periods
a. greater balance extended to Balance Sheet credit d. The fiscal year should correspond with the calendar year
b. lesser balance extended to Balance Sheet credit
c. lesser balance extended to Balance Sheet debit 49. Accrual accounting involves all of the following except
d. greater balance extended to Balance Sheet debit a. recording all revenues when cash was received
b. applying the matching rule
40. Worksheet is a scheduler form used to facilitate the preparation c. recognizing expense when incurred
of financial statement, the following except one will not be part of d. adjusting the accounts
the adjusted debit balance
a. service income 50. Which of the following is an example of a deferral?
b. prepaid insurance a. apportioning costs between two or more periods
c. petty cash fund b. recognizing an accrued expense
d. cash on hand c. recognizing an unearned revenue
d. recognizing an accrued revenue
41. If adjusting entries are recorded in the worksheet, there is no
need for them to be journalized or posted 51. Accrual accounting is used because
a. True a. cash flows are considered less important
b. False b. it provides a better indication of ability to generate cash flows
than the cash basis
42. A contra asset account is an account that is added to another c. it recognizes revenues when cash is received and expenses when
asset account cash is paid
a. True d. none of the above
b. False
52. Which of the following is not a basic element of financial ASSET
statements? 4. Requires that all relevant information that would affect
a. Assets the user’s understanding and assessment of the accounting
b. Balance Sheet entity be disclosed in the financial statements.
c. Losses ADEQUATE DISCLOSURE
d. Revenue 5. It provides that accounting records and statements should
be based in the most reliable data available so that they will
53. Which of the following basic elements of financial statements is be as accurate and useful as possible.
more associated with the balance sheet than income statement? OBJECTIVITY PRINCIPLE
a. Equity
b. revenue ----------------------------------------------------------------------------------
c. Gains
d. Expenses VII. Multiple Choice
1. Debit always means
54. Which basic element of financial statements arises from a. increase
peripheral or incidental transactions? b. decrease
a. Assets c. right side of an account
b. liabilities d. none of these
c. Gains
d. Expenses 2. An accounting record into which the essential facts and figures in
connection with all transactions are initially recorded is called the
55. Which basic assumption may not be followed when a firm in a. ledger
bankruptcy reports financial results? b. account
a. Economic entity assumption c. trial balance
b. Going concern assumption d. none of these
c. Periodicity assumption
d. Monetary unit assumption 3. A trial balance
a. proves that debits and credits are equal in the ledger
56. Which accounting assumption or principle is being violated if a b. supplies a listing of open accounts and their balances that are
company provides financial reports in connection with a new used in preparing financial statements
product introduction? c. is normally prepared three times in the accounting cycle
a. Economic entity d. all of these
b. Periodicity
c. Revenue recognition 4. Which of the following is a real (permanent) account?
d. Full disclosure a. Prepaid Expense
b. Sales
57. The allowance for doubtful accounts, which appears as a c. Accounts Receivable
deduction from accounts receivable on a balance sheet and which is d. Both Prepaid Expense and Accounts Receivable
based on an estimate of bad debts, is an application of the
a. consistency characteristic 5. Which of the following is a nominal account?
b. expense recognition principle a. Inventory
c. materiality constraint b. Unearned Revenue
d. revenue recognition principle c. Salary Expense
d. Prepaid Expense
58. Which of the following serves as the justification for the periodic
recording of depreciation expense? 6. Nominal accounts are also called
a. Association of efforts (expense) with accomplishments (revenue) a. temporary accounts
b. Systematic and rational allocation of cost over the periods b. permanent accounts
benefited c. real accounts
c. Immediate recognition of an expense d. none of these
d. Minimization of income tax liability
7. The double-entry accounting system means
---------------------------------------------------------------------------------- a. Each transaction is recorded with two journal entries
b. Each item is recorded in a journal entry, then in a general ledger
VI. Identification account
1. One of the financial statement users who needs c. The dual effect of each transaction is recorded with a debit and a
information that will help them determine whether they credit
should buy, sell, or hold their investments. d. More than one of the above
INVESTORS
2. It provides that an entity’s life can be meaningfully 8. When an entity pays a note payable and interest
subdivided into equal time periods for reporting purposes. a. they will debit cash
PERIODICITY CONCEPT b. the accounts payable will be increased
3. Is a resource owned and controlled by the enterprise as a c. the account interest expense will be decreased
result of past events and from which economic future d. they will debit notes payable and interest expense
benefits are expected to flow to the enterprise.
9. The debit and credit analysis of a transaction normally takes place b. credit to accounts receivable
a. when the trial balance is prepared c. debit to accounts payable
b. before an entry is recorded in the journal d. credit to accounts payable
c. when the entry is posted to the ledger
d. at some other point in the accounting cycle 19. A journal entry to record a receipt of rent revenue in advance
will include a
10. The accounting equation must remain in balance a. debit to rent revenue
a. throughout each step in the accounting cycle b. credit to rent revenue
b. only when journal entries are recorded c. credit to cash
c. only at the time the trial balance is prepared d. credit to unearned rent
d. only when formal financial statements are prepared
20. Which of the following errors will cause an imbalance in the trial
11. The difference between the accounting process and the balance?
accounting cycle is a. Omission of a transaction in the journal
a. the accounting process results in the preparation of financial b. Posting an entire journal entry twice to the ledger
statements, whereas the accounting cycle is concerned with c. Posting a credit of P720 to Accounts Payable as a credit of P720
recording business transactions to Accounts Receivable
b. the accounting cycle represents the steps taken to accomplish d. Listing the balance of an account with a debit balance in the
the accounting process credit column of the trial balance
c. the accounting process represents the steps taken to accomplish
the accounting cycle 21. Which of the following is not a principal purpose of an
d. merely systematic, because both concepts refer to the same thing unadjusted trial balance?
a. It proves that debits and credits of equal amounts are in the
12. An optional step in the accounting cycle is the preparation of ledger
a. adjusting entries b. It is the basis for any adjustments to the account balances
b. closing entries c. It supplies a listing of open accounts and their balances
c. a statement of cash flows d. It proves that debits and credits were properly entered in the
d. a post-closing trial balance ledger accounts

13. Which of the following criteria must be met before an event or 22. An adjusting entry should never include
item should be recorded for accounting purposes? a. a debit to an expense account and a credit to a liability account
a. The event or item can be measured objectively in financial terms b. a debit to an expense account and a credit to a revenue account
b. The event or item is relevant and reliable c. a debit to a liability account and a credit to a revenue account
c. The event of item is an element d. a debit to a revenue account and a credit to a liability account
d. All of these must be met
23. Which of the following is an example of an accrued expense?
14. Which of the following is a recordable event or item? a. Office supplies purchased at the beginning of the year and
a. Changes in managerial policy debited to an expense account
b. the value of human resources b. Property taxes incurred during the year, to be paid in the first
c. Changes in personnel quarter of the subsequent year
d. None of these c. Depreciation expense
d. Rent earned during the period, to be received at the end of the
15. A trial balance may prove that debits and credits are equal, but year
a. a transaction could have been entered twice
b. a transaction could have been omitted 24. Which of the following statements is associated with the accrual
c. an amount could be entered in the wrong account basis of accounting?
d. all of these a. The timing of cash receipts and disbursements is emphasized
b. A minimum amount of record keeping is required
16. A general journal c. This method is used less frequently by businesses than the cash
a. chronologically lists transactions and other events, expressed in method of accounting
terms of debits and credits d. Revenues are recognized in the period they are earned,
b. contain one record for each of the asset, liability, and regardless of the time period the cash is received
stockholders’ equity, revenue, and expense accounts
c. lists all the increases and decreases in each account in one place 25. An adjusting entry to record an accrued expense involves a debit
d. contains only adjusting entries to:
a. expense account and a credit to a prepaid account
17. A journal entry to record the sale of inventory on account will b. expense account and a credit to Cash
include a c. expense account and a credit to a liability account
a. debit to inventory d. liability account and a credit to an expense account
b. debit to accounts receivable
c. debit to sales 26. The failure to properly record an adjusting entry to accrue an
d. credit to cost of goods sold expense will result in an:
a. understatement of expenses and an understatement of liabilities
18. A journal entry to record a payment on account will include a a. understatement of expenses and an overstatement of liabilities
a. debit to accounts receivable a. understatement of expenses and an overstatement of assets
a. overstatement of expenses and an understatement of assets
35. Adjusting entries are necessary to
27. Which of the following properly describes a deferral? 1. obtain a proper matching of revenue and expense
a. Cash is received after revenue is earned 2. achieve an accurate statement of assets and equities
b. Cash is received before revenue is earned 3. adjust assets and liabilities to their fair market value
c. Cash is paid after expense is incurred a. 1
d. Cash is paid in the same time period that an expense is incurred b. 2
c. 3
28. The failure to properly record an adjusting entry to accrue a d. 1 and 2
revenue item will result in:
a. understatement revenues and an understatement of liabilities 36. When an item of expense is paid and recorded in advance, it is
a. overstatement revenues and an overstatement of liabilities normally called
a. overstatement revenues and an overstatement of assets a. prepaid expense
a. understatement revenues and an understatement of assets b. accrued expense
c. estimated expense
29. The omission of the adjusting entry to record depreciation d. cash expense
expense will result in:
a. overstatement of assets and overstatement of owner’s equity 37. When an item of revenue or expense has been earned or
b. understatement of assets and an understatement of owner’s incurred but not yet collected or paid, it is normally called ________
equity revenue or expense
c. overstatement of assets and an overstatement of liabilities a. prepaid
d. overstatement of liabilities and understatement of owner’s equity b. adjusted
c. estimated
30. Adjustments are often prepared d. accrued
a. after the balance sheet date, but dated as of the balance sheet
date 38. When an item of revenue is collected and recorded in advance, it
a. after the balance sheet date, but dated after the balance sheet is normally called _________ revenue
date a. accrued
a. before the balance sheet date, but dated as of the balance sheet b. prepaid
date c. unearned
a. before the balance sheet date, but dated after the balance sheet d. cash
date
39. An accrued expense can be best described as an amount
31. How do the following prepaid expenses expire? a. paid and currently matched with earnings
Rent Supplies b. paid and not currently matched with earnings
a. With the passage of time Through use and consumption c. not paid and not currently matched with earnings
b. With the passage of time With the passage of time d. not paid and currently matched with earnings
c. Through use and consumption Through use and consumption
d. Through use and consumption With the passage of time 40. If, during an accounting period, an expense item has been
incurred and consumed but not yet paid for or recorded, then the
32. Recording the adjusting entry for depreciation has the same end-of-period adjusting entry would involve
effect as recording the adjusting entry for a. a liability account and an asset account
a. an unearned revenue b. an asset or contra asset account and an expense account
b. a prepaid expense c. a liability account and an expense account
c. an accrued revenue d. a receivable account and a revenue account
d. an accrued expense

33. Unearned revenue on the books of one company is likely to be:

a. a prepaid expense on the books of the company that made the
advance payment
b. an unearned revenue on the books of the company that made the
advance payment
c. an accrued expense on the books of the company that made the
advance payment
d. an accrued revenue on the books of the company that made the
advance payment

34. To compute interest expense for an adjusting entry, the formula

is (principal x annual rate x a fraction). The numerator and
denominator of the fraction are:
Numerator Denominator
a. Length of time note has been outstanding 12 months
b. Length of note 12 months
c. Length of time until notes matures Length of note
d. Length of time note has been outstanding Length of a note