1. These are the principal means through which an entity communicates its financial information to those outside it.

A) managerial reports

B) financial statements

C) segment reports

D) directors’ statements

2. Which of the following statements is incorrect regarding accounting concepts?

A) Under the Accrual Basis of accounting, revenues are recognized when earned and expenses are recognized when incurred, not
when cash is received and disbursed.

B) Under the Going concern concept, the business entity is assumed to carry on its operations for an indefinite period of time.

C) Under the Business entity/ Separate entity/ Entity/ Accounting entity Concept, the business is treated separately from its owners.

D) Under the Time Period/ Periodicity/ Accounting Period concept, the life of the business is divided into series of reporting periods.

E) Under the Cost-benefit concept, the cost of processing and communicating information should exceed the benefits derived from it.

3. Which of the following statements is incorrect regarding accounting concepts?

A) Under the Materiality concept, items deemed material and affect decision making should be separately disclosed.

B) Underlying assumptions are those that are mentioned in the Conceptual Framework; Implicit assumptions are those that are not
mentioned in the Conceptual Framework; Pervasive concepts are those that affect virtually all financial statement elements and all
aspects of accounting.

C) Under the Cost/ Historical cost concept, the value of an asset is to be determined on the basis of acquisition cost.

D) The Concept of Articulation states that all the components of a complete set of financial statement are interrelated.

E) Under the Matching concept, revenues are matched with expenses in order to properly determine the profit for a period.

4. Accrual accounting techniques are used to:

A) assign revenues and expenses to the appropriate accounting period.

B) record the anticipated effects of actions that may occur at a future date.

C) report the results of actions whose monetary effects are difficult to estimate.

D) allocate nonoperating revenues and expenses to the appropriate business unit.

5. Accrual accounting is used because

A) cash flows are considered less important.

B) it provides a better indication of ability to generate cash flows than the cash basis.

C) it recognizes revenues when cash is received and expenses when cash is paid.

D) none of the above.

6. The going concern assumption is also called

A) Periodicity

B) Entity
C) Business continuity

D) Entity

7. The valuation of an assurance to receive cash in the future at present value on a business entity’s financial statements is well-
founded because of the accounting concept of:

A) Entity

B) Going concern

C) Materiality

D) Neutrality

8. Business entity produces financial statements at arbitrary points in time in accordance with which basic accounting concept?

A) objectivity

B) periodicity

C) conservatism

D) matching

9. Treating partners’ salaries as an expense rather than as a means of allocating partnership profits is an application of what theory?

A) proprietary theory

B) entity theory

C) residual equity theory

D) funds theory

10. Mr. Van owns a butcher shop, a restaurant, and a catering business. Separate financial statements are prepared for each business
independent of the other businesses. What accounting principle or assumption is being applied in this situation?

A) Time period assumption

B) Separate entity assumption

C) Full-disclosure principle

D) Unit-of-measure assumption

11. Which of the following correctly relate to the Monetary/ Stable monetary/ Monetary Unit concept?

I. Assets, liabilities, equity, revenues, and expenses should be stated in terms of a unit of measure which is the peso in the Philippines

II. The purchasing power of the peso is stable or constant and that its instability is insignificant and therefore ignored.

A) I

B) II

C) I and II

D) None

12. The analytical phase of accounting which significantly portrays the liquidity, solvency, profitability of a business

A) interpreting
B) recording

C) summarizing

D) classification

13. An accounting (financial reporting) period may be

A) One month

B) One quarter

C) One year

D) a, b or c

14. Which of the following statements best reflects the accounting assumption of periodicity or time period?

I. A fiscal year begins in any month and ends in any month but covers a period of 12 months

II. A calendar year begins on any month and ends on any month but covers a period of 12 months

III. Technically, an accounting year is synonymous with an accounting period.IV. Accounting periods are usually equal in length.

A) I, II, III, IV

B) I, IV

C) I, III, IV

D) II, III, IV

15. Which of the following best reflect(s) the reason(s) why companies select accounting periods other than a calendar year?

A) to avoid closing books during peak sales period

B) to close the books at a time when inventories and business activity are lowest

C) to conform to auditors’ request in order to reduce audit efforts and cost of counting inventories

D) a and b

16. Most listed corporations in the Philippines have which type of accounting year?

A) fiscal year

B) calendar year

C) quarterly

D) indeterminate

17. For a fiscal year ending April 30, 20x2, the period covered by the statement of profit or loss and other comprehensive income is

A) April 1, 20x2 to April 30, 20x2

B) April 1, 20x1 to April 30, 20x2

C) May 1, 20x1 to April 30, 20x2

D) April 30, 20x1 to April 30, 20x2

18. Which of the following statements is incorrect regarding the basic accounting concepts?
A) Under the Consistency concept, the financial statements should be prepared on the basis of accounting principles which are
followed consistently.

B) Under the Entity theory, the accounting objective is geared toward proper income determination. Proper matching of cost against
revenue is the ultimate end. Entity theory emphasizes the income statement. This is explained by the equation Assets = Liabilities +
Capital.

C) Under the Proprietary theory the accounting objective is directed toward proper valuation of assets. This theory emphasizes the
importance of the balance sheet. It is exemplified by the equation Assets – Liabilities = Capital.

D) Under the Fund theory, the accounting objective is neither proper income determination nor proper valuation of assets but the
custody and administration of funds. The objective is directed toward cash flows exemplified by the formula “cash inflows minus cash
outflows equals fund.” Government accounting and fiduciary accounting are examples of the application of this concept.

E) Under the Residual equity theory, the accounting objective is proper valuation of assets. This is applicable when there are two
classes of stockholders, common and preferred. Thus, the equation is Assets – Liabilities + Preference Shareholders’ Equity = Ordinary
Shareholders’ Equity.

19. The basic purpose of accounting is

A) a. to provide information useful in making economic decisions

B) b. to provide information useful only for investors

C) c. to provide information regarding the economic resources controlled by an entity

D) d. to provide business owners, politicians, and other government officials an opportunity to evade taxes

20. Financial accounting applies to which of the following:

A) Businesses

B) Non-profit organizations

C) Governments

D) All of these

21. The most common form of business organization is a

A) corporation

B) partnership

C) sole proprietorship

D) cell phone stand

22. All of the following are events considered as external events other than transfers, except

A) obsolescence

B) inflation

C) imposition of fines

D) vandalism

23. These events result to a sudden or unanticipated loss from fortuitous events.

A) Internal events
B) Non-reciprocal transfers

C) External events other than transfers

D) Casualty

24. Events involving an entity and an external party.

A) External events

B) Non-reciprocal transfers

C) External events other than transfers

D) Internal events

25. Accounting has been given various definitions, which of the following is not one of those definitions

A) Accounting is a service activity. Its function is to provide quantitative information, primarily financial in nature, about economic
entities that is intended to be useful in making economic decisions.

B) Accounting is the art of recording, classifying, and summarizing in a significant manner and in terms of money, transactions and
events which are, in part of at least, of a financial character and interpreting the results thereof.

C) Accounting is a systematic process of objectively obtaining and evaluating evidence regarding assertions about economic actions
and events to ascertain the degree of correspondence between these assertions and established criteria and communicating the
results to interested users.

D) Accounting is the process of identifying, measuring, and communicating economic information to permit informed judgment and
decisions by users of information.