OUR LADY OF THE PILLAR COLLEGE=CAUAYAN

PRELIM EXAMINATION ACCOUNTING 1 &2

NAME: ___________________________SECTION________ SCORE: ________

TEST I - IDENTIFICATION

Accounting 1. A service activity. Its function it to provide quantitative information,

primarily financial in nature, about economic entities.
Merchandisin 1. The kind of business that buys goods or commodities then sells the
g same at a profit.
Accrual 2. The accounting principle which requires that revenue or income be
recognized when earned regardless of when received, and expense
be recognized when incurred regardless of when paid.
Partnership 3. An association of two or more persons who bind themselves to
contribute money, property or industry to a common fund, with the
intention of dividing the profits among themselves.
Expense 4. The gross outflow of economic benefits during the period in the course
of regular activities when said outflows result in decline in equity other
than those relating to distribution to owners.
Business 5. An organization in which basic resources are assembled and
processed to provide goods or services to customers or clients.
Equity 6. It is the residual interest in the assets after deducting all its liabilities.
Assets 7. These are resources controlled by the enterprise resulting from past
transactions and events, and from which future economic benefits are
expected to pour into the enterprise.
Prepaid 8. These are expenses paid for by the business in advance.
expense
Sole 9. Owner of a sole proprietorship business.
proprietor
Business 10. An assumption which regarded the business as an entity that is
entity separate and distinct from the owner.
assumption
Calendar Year 11. An annual accounting period that begins on January 1 and ends on
December 31, of the same year.
Going 12. An assumption which gives the business a continuous life of
concern existence.
Time period 13. An assumption which divides the life of the business into equal
periods.
Monetary unit 14. An assumption which considers peso as our unit of measure.

TEST III = SELECT YOUR ANSWER FROM THE FOLLOWING. WRITE ONLY THE
LETTER OF YOUR CHOICE ON THE ANSWER SHEET.

a. Increase in asset and increase in liability

b. Decrease in asset and decrease in liability
c. Increase in one asset and decrease in another form of asset.
d. Increase in asset and increase in capital
e. Increase in asset, increase liability and decrease capital
f. Decrease in asset and decrease in capital
g. Decrease in asset, decrease in capital and increase in liability
h. Increase in one asset, decrease in another form of asset and increase in liability.
i. Increase in one asset, increase in another form of asset, increase in capital
j. Increase in asset, decrease in another form of asset and increase in capital
k. Increase in liability, decrease in capital
l. Increase in liability and decrease in another liability
 15. Borrowed money from a financing institution, amount received is net of service charges.
A
17. Paid for various permit and licenses.. C
18. Paid the salaries of office staff, net of Withholding Tax and SSS deductions. G
19. Collected customer’s note in full with interest.C
20. Recorded the bill from ISELCO 3. No payment is made yet.
21 Issued a 30-day promissory note to a supplier, in lieu of an open account. A
22. Rendered services receiving 90-day note. C
23. Rendered professional services, receiving cash for 50% of the fee and the balance , 30
day note. I
24. Purchased furniture. Terms: 60 day note. A
25. Recorded the office supplies consumed during the month.

TEST III TRUE (T) OR FALSE (F)

26. Decreases in assets accounts must be always be entered on the right. T
27. Both decreases in liabilities and capital should be entered on the right. F
28. Purchase of supplies for cash should be entered as debit to cash and supplies. F
29. Money borrowed from a bank is debited to cash and credited to Notes Payable. F
30. Owners of business firms are the only people who need accounting information. F
31. Management of a business enterprise is the major internal user of information.F
32. A working knowledge of accounting is not relevant to a lawyer or an architect. F
33. The economic entity assumption requires that the activities of an entity be kept separate
and distinct from the activities of its owner and all other economic entities.F
34. The monetary unit assumption states that transactions that can be measured in terms of
money should be recorded in the accounting records. T
35. The basic accounting equation states that Assets = Liabilities plus Owner’s Equity. T
36. The purchase of store equipment for cash reduces the owner's equity by an equal
amount. F
37. The purchase of office equipment on credit increases total assets and total
liabilities.T
38. A trial balance does not prove that all transactions have been recorded or that the
ledger is correct. T
39. The double-entry system is a logical method for recording transactions and
results in equal debits and credits for each transaction. T
40. The normal balance of an expense is a credit. F
41. The journal provides a chronological record of transactions. T
42. The primary purpose of a trial balance is to prove the mathematical equality of
the debits and credits after posting. T
43. An account is often referred to as a T-account because of the way it is
constructed. T
44. A debit to an account indicates an increase in that account. F
45. If a revenue account is credited, the revenue account is increased. T
46. A credit balance in a liability account indicates that an error in recording has
occurred. F
47. All business transactions must be entered first in the general ledger. F
48. A simple journal entry requires only one debit to an account and one credit to an
account. T
49. A compound journal entry requires several debits to one account and several
credits to one account. F
50. A journal is also known as a book of original entry. T

PART IV. — MULTIPLE CHOICE

Instructions: Choose the best answer for each of the following questions.

____51. Which of the following is not a user of internal accounting information

a. Store manager
b. Chief, executive officer
c. Creditor
d. Chief, financial officer
_____52. PLDT bill for a period is recorded by the bookkeeper as expense but not payment is
made yet. The effect of this transaction in the accounting equation is :
 a. Decrease in asset and decrease in liability
b. Increase in liability and decrease in owner’s equity
c. Increase in asset and increase in liability
d. Decrease in asset and decrease in owner’s equity.

53. A dental clinic recorded cash received for services rendered. The effect of this
transaction in the accounting equation is :
a. increase both assets and liabilities.
b. Increase liabilities and owner’s equity
c. Increase asset and increase owner’s equity.
d. Increase assets and decrease another form of asset.
54. A transaction caused P25,000 decrease in both total assets and total liabilities.
This transaction could have been:
a. Purchase of equipment for cash, P25,000
b. Collection of accounts receivable, P25,000.
c. Payment of accounts payable, P25,000
d. Payment of salaries, P25,000.

____55. The initials CPA stand for

a. Chicken Pork Adobo
b. Copy Phase Accountant
c. Certified Public Accountant.
d. Can't Pass Anymore

____56. The process of transferring transaction effects into the appropriate accounts is referred
to as
a. closing.
b. journalizing.
c. recording.
d. posting.

____57. Transactions are initially recorded in the

a. general ledger.
b. trial balance.
c. general journal.
d. balance sheet.

____58. For which of the following accounts is the normal balance a debit?
a. Rent Payable
b. Unearned Rent Revenue
c. Rent Revenue
d. Prepaid Rent

59. Owner's equity is best depicted by the following:

a. Assets = Liabilities.
b. Liabilities + Assets.
c. Residual equity + Assets.
d. Assets – Liabilities.

60. The basic accounting equation may be expressed as

a. Assets = Equities.
b. Assets – Liabilities = Owner's Equity.
c. Assets = Liabilities + Owner's Equity.
d. all of these.

61. Liabilities of a company would not include

a. notes payable.
b. accounts payable.
c. wages payable.
d. cash.
 62 When an owner withdraws cash or other assets from a business for personal use, these
withdrawals are termed
a. depletions.
b. consumptions.
c. drawings.
d. a credit line.

63. The basic accounting equation cannot be restated as

a. Assets – Liabilities = Owner's Equity.
b. Assets – Owner's Equity = Liabilities.
c. Owner's Equity + Liabilities = Assets.
d. Assets + Liabilities = Owner's Equity.
64. Owner's equity is decreased by all of the following except
a. owner's investments.
b. owner's withdrawals.
c. expenses.
d. owner's drawings.

65. If an individual asset is increased, then

a. there must be an equal decrease in a specific liability.
b. there must be an equal decrease in owner's equity.
c. there must be an equal decrease in another asset.
d. none of these is possible.

66. If services are rendered for credit, then

a. assets will decrease.
b. liabilities will increase.
c. owner's equity will increase.
d. liabilities will decrease.

67. If expenses are paid in cash, then

a. assets will increase.
b. liabilities will decrease.
c. owner's equity will increase.
d. assets will decrease.

68. If an owner makes a withdrawal of cash from a proprietorship, then

a. there has been a violation of accounting principles.
b. owner's equity will increase.
c. owner's equity will decrease.
d. there will be a new liability showing the owner owes money to the business.

.69. Journalizing involves:

a. Preparation of various source documents before recording the transaction in the general
journal.
b. transfering the amounts from the source documents to the general journal in the form of
journal entry.
c. Transfering the amounts from the general journal to the general ledger.
d. All of the above statements are correct.

70. A transaction reads: The owner applied for a loan from a local bank for P100,000. The
loan was approved and he received P90,000 cash. The P10,000 deducted is for
financing charges. The effect of this transaction is :

a. Increase in asset for P90,000; increase in liabilities for P90,000

b. Increase in assets for P100,000; increase in liabilities for P100,000.
c. Increase in assets for P90,000; increase in liabilities for P100,000; increase in capital for
P10,000.
d. Increase in assets for P90,000; increase in liabilities for P100,000; decrease in capital for
P10,000.

71. An example of a business activity that would increase the equity of the onwer is :
 a. Purchase of land by the owner for cash.
b. Receipt of cash from a customer in payment of and old account.
c. Receipt of cash from a bank as proceeds of loan.
d. Rendered services to a customer on account.

72. The owner of an enterprise received cash from a customer in payment of account. The
effect of this transaction in the accounting equation is:
a. Increase in asset; increase in capital
b. Increase in asset, increase in liability
c. increase in asset, decrease in another form of asset.
d. Increase in asset, decrease in liability

73.The owner withdrew cash from the business for the tuition fee of his son. Which of the
following is correct?
a. Decrease in asset, increase in capital.
b. Decrease in asset, decrease in another form of asset
c. Decrease in asset, decrease in capital
d. Decrease in asset, decrease in liability.

74. An account consists of

a. a title, a debit balance, and a credit balance.
b. a title, a left side, and a debit balance.
c. a title, a debit side, and a credit side.
d. a title, a right side, and a debit balance.

75. Credits
a. decrease both assets and liabilities.
b. decrease assets and increase liabilities.
c. increase both assets and liabilities.
d. increase assets and decrease liabilities.

76. A debit to an asset account indicates

a. an error.
b. a credit was made to a liability account.
c. a decrease in the asset.
d. an increase in the asset.

77. The normal balance of any account is the

a. left side.
b. right side.
c. side which increases that account.
d. side which decreases that account.

78. A credit is not the normal balance for which account listed below?
a. Capital account
b. Revenue account
c. Liability account
d. Drawing account

79. Which one of the following represents the expanded basic accounting equation?
a. Assets = Liabilities + Owner's Capital + Owner's Drawings – Revenue – Expenses.
b. Assets + Owner's Drawings + Expenses = Liabilities + Owner's Capital + Revenues.
c. Assets – Liabilities – Owner's Drawings = Owner's Capital + Revenues – Expenses.
d. Assets = Revenues + Expenses – Liabilities.

80. An account will have a credit balance if the

a. credits exceed the debits.
b. first transaction entered was a credit.
c. debits exceed the credits.
d. last transaction entered was a credit.

81. Which of the following statements is true?

 a. Debits increase assets and increase liabilities.
b. Credits decrease assets and decrease liabilities.
c. Credits decrease assets and increase liabilities.
d. Debits decrease liabilities and decrease assets.

82. When an owner makes a withdrawal

a. it doesn't have to be cash, it could be another asset.
b. the drawing account will be increased with a credit.
c. the capital account will be directly increased with a debit.
d. the drawing account will be decreased with a debit.

83. A credit to a liability account

a. indicates an increase in the amount owed to creditors.
b. indicates a decrease in the amount owed to creditors.
c. is an error.
d. must be accompanied by a debit to an asset account.

84. A compound entry must have:

a. Two accounts debited and two accounts credited always.
b. One debit entry and two credit entries or two debit entries
c. Two transactions to record in one journal entry.
d. All of the above statements are correct.

85. Evidence that would not help with determining the effects of a transaction on the
accounts would be
a. a cash register sales tape.
b. a bill.
c. an advertising brochure.
d. a check.

86. After transaction information has been recorded in the journal, it is transferred to the
a. trial balance.
b. income statement.
c. book of original entry.
d. ledger.

87. The usual sequence of steps in the recording process is to analyze each transaction,
enter the transaction in the
a. journal, and transfer the information to the ledger accounts.
b. ledger, and transfer the information to the journal.
c. book of accounts, and transfer the information to the journal.
d. book of original entry, and transfer the information to the journal.

88. A journal provides

a. the balances for each account.
b. information about a transaction in several different places.
c. a list of all accounts used in the business.
d. a chronological record of transactions.

89. When two accounts are required in one journal entry, the entry is referred to as a
a. balanced entry.
b. simple entry.
c. posting.
d. nominal entry.

90. Another name for journal is

a. listing.
b. book of original entry.
c. book of accounts.
d. book of source documents.
91. The standard format of a journal would not include
a. a reference column.
b. an account title column.
c. a T-account.
d. a date column.

92 Transactions in a journal are initially recorded in

a. account number order.
b. peso amount order.
c. alphabetical order.
d. chronological order.

93 A complete journal entry does not show

a. the date of the transaction.
b. the new balance in the accounts affected by the transaction.
c. a brief explanation of the transaction.
d. the accounts and amounts to be debited and credited.

94. The name given to entering transaction data in the journal is

a. chronicling.
b. listing.
c. posting.
d. journalizing.

95. The standard form of a journal entry has the

a. debit account entered first and indented.
b. credit account entered first and indented.
c. debit account entered first at the extreme left margin.
d. credit account entered first at the extreme left margin.

96. On June 1, 2005 Diane Leno buys a copier machine for her business and finances this
purchase with cash and a note. When journalizing this transaction, she will
a. use two journal entries.
b. make a compound entry.
c. make a simple entry.
d. list the credit entries first, which is proper form for this type of transaction.

97. accounting record of the balances of all assets, liabilities, and owner's equity accounts is
called a
a. compound entry.
b. general journal.
c. general ledger.
d. chart of accounts.

98. A list of accounts and their balances at a given time is called

a. a journal.
b. a posting.
c. a trial balance.
d. an income statement.

99. If the sum of the debit column equals the sum of the credit column in a trial balance, it
indicates
a. no errors have been made.
b. no errors can be discovered.
c. that all accounts reflect correct balances.
d. the mathematical equality of the accounting equation.

100. A trial balance would only help in detecting which one of the following errors?
a. A transaction that is not journalized
b. A journal entry that is posted twice
c. Offsetting errors are made in recording the transaction
d. A transposition error when transferring the debit side of journal entry to the ledger