1. These are guidelines that accountants follow when 9.
A complete set of financial statements includes the
recording and communicating accounting information. following components, EXCEPT
a. Accounting concepts and principles a. Reports and statements such as environmental
b. Accounting law and regulations reports and value-added statements
c. Accounting walkthrough, guides, and cheats b. Statement of Changes in Equity
d. Accounting memos and guidelines c. Notes, comprising a summary of significant accounting
2. Debits policies and other explanatory information.
a. Increase assets and expenses and decrease liabilities, d. Statement of financial position, statement of comprehensive
revenue, and equity income and statement of cash flows.
b. Increase assets and decrease expenses, liabilities, revenue, 10. Normally, revenue from sale of goods is recognized
and equity a. When the title to the goods changes.
c. Increase assets and equity and decrease liabilities, expenses, b. When the customer order is accompanied by a check.
and revenue. c. Only if the transaction will create an account receivable.
d. Decrease assets and expenses and increase liabilities, d. When the customer order is received.
revenue, and equity. 11. The debit and credit analysis of a transaction normally
3. When economic benefits are expected to arise over takes place
several accounting periods and the association with a. Before an entry is recorded in a journal.
income can only be broadly or indirectly determined, b. At some other point in the accounting cycle.
expenses are recognized on the basis of c. When the trial balance is prepared.
a. Systematic and rational allocation d. When the entry is posted to the ledger.
b. Realization 12. Which statement is TRUE regarding debits and credits?
c. Immediate recognition a. The rules for debit and credit and the normal balance
d. Cause and effect association of an equity are the same for liability.
4. Which of the following is LEAST likely to be a source of b. In the income statement, revenue is increased by a debit
accounting concept? whereas in the statement of financial position, retained
a. Laws enacted by Congress earnings account is increased by a credit.
b. The general acceptance and long-time use in practice c. In the income statement, debits are used to increase account
c. The Conceptual Framework for Financial Reporting balances, whereas in the statement of financial position,
d. The Standards (i.e. PFRS or IFRS) credits are used to increase account balance.
5. Treating a business and its owner as one and the same d. Before adjustments, debits will not equal credits in the trial
balance.
violates which of the following principles?
a. Separate Entity 13. Which of the following statements is CORRECT regarding
b. Materiality financial accounting?
c. Going Concern a. Compared to the other branches of accounting,
d. Verifiability financial accounting necessarily needs to conform to
6. Which of the following is LEAST likely to be a decision the Philippine Financial Reporting Standards (PFRSs)
made by an EXTERNAL user of the financial information of for it to be able to produce useful information.
an entity? b. Information processed in financial accounting is not used in
a. Whether to obtain additional financing the other branches of accounting.
b. Whether to extend loan or other forms of credit c. Financial accounting is mainly intended to provide financial
c. All of these are decision that external users make information tailored to the needs of the entity’s
d. Whether to buy, hold, or sell investment in stocks management.
d. Financial accounting is the branch of accounting that deals
7. Information has this qualitative characteristic if two
with the inspection of an entity’s financial statements for the
different users could reach a general agreement as to
purpose of expressing an opinion thereon.
what the information intends to represent
14. Information has this qualitative characteristic if it provides
a. Verifiability
a true, correct, and complete depiction of what it intends
b. Comparability
to represent.
c. Faithful representation
d. Relevance a. Faithful representation
b. Relevance
8. This concept requires the preparation of financial
c. Understandability
statements at least annually.
d. Comparability
a. Reporting period
15.The revenue recognition principle states that revenue shall
b. Separate entity
be recognized at a point when
c. Accrual basis
d. Materiality
a. An exchange transaction has occurred, and the earning a. Evaluate economic performance of a firm.
process is essentially complete b. Evaluate economic resources and obligations of a firm.
b. The seller has shipped the merchandise under terms that c. Assess the amount, timing, and uncertainty of prospective net
customer need not pay until sold. cash inflows of a firm
c. An order for shipment of merchandise has been received. d. Evaluate changes in the ownership equity of a firm
d. A contract between the buyer and seller has been signed. 22. Which is an objective of financial reporting?
16. The process by which accounting standards are a. To provide information that is useful to those making
established is, by nature, investing and credit decisions.
a. Democratic because a majority of practicing accountants b. To provide information about prospective investors.
worldwide must agree with a standard before it becomes c. To provide information that is useful to management.
implemented d. To provide information about ways to solve internal and
b. Bureaucratic because only a group of privilege accountants external conflicts about the entity.
decides on whether a standard is to be implemented 23.It is the form of business organization that provides the
c. Democratic because a majority of the members of Congress highest degree of continuity.
need to concur before a standard becomes implemented, and a. Corporation
those representatives are elected by the people b. Partnership
d. Authoritarian because only one accountant dictates the c. Sole proprietorship
standards to be used throughout the world d. Cooperative
17. Which of the following statements is NOT correct 24.Although financial accounting and financial reporting are
regarding the basic accounting concepts? similar and are frequently interchanged in practice, there
a. Under the cost-benefit concept, the information’s costs is a subtle difference between them. Which of the
of processing and communication should exceed the following is correct regarding this difference?
benefits expected to be derived from its use. a. Financial accounting focuses on general purpose
b. The simultaneous recognition of income and expenses is financial statements, while financial reporting focuses on
referred to as Matching. general purpose financial statements plus “other
c. The concepts of historical concern, matching, accrual basis, and financial reporting”.
reporting period are all interrelated. The application of one
b. Financial accounting involves the processes of identifying,
necessarily results from, or results to, the application of the
recording, classifying and summarizing, while financial reporting
other.
involves only the process of communicating.
d. Information is material if its omission or misstatement could
c.Financial accounting is governed by U.S. standards, while
influence the decision of users.
financial reporting is governed by international standards.
18. The double entry accounting system means d. Financial accounting involves accounting while financial
a. (a) the dual effect of each transaction is recorded with a reporting does not.
debit and a credit. 25.General-purpose financial statements are intended to
b. (c) each transaction is recorded with two journal entries. meet
c. All of (a) (b) and (c) describe the double entry system.
a. The common needs of external users, primarily
d. (b) each item is recorded in a journal entry and then in a general
investors, lenders and other creditors
ledger account.
b. Both the common and specific needs of external users
19. Which is NOT an objective of financial reporting?
c. The common needs of both internal and external users
a. To provide information about the liquidation value of an d. All the information needs of all users-external and internal
entity. alike
b. To provide information that is useful in assessing sources and 26.Under this concept, amounts in the financial are stated in
uses of cash.
Philippine pesos and changes in the purchasing power due
c. To provide information that is useful in lending and investing
to inflation are generally ignored.
decisions.
d. To provide information about assets and claims against those
a. Stable monetary unit
b. Materiality
assets.
c. Verifiability
20.Which of the following is NOT a possible combination of a
d. Prudence or Conservatism
journal entry?
27.Today, you went to Phillip’s Canteen and ordered “halo-
a. Increase in asset and decrease in equity.
halo”. You told Mr. Phillip, the canteen owner, that you
b. Decrease in liability and decrease in asset.
c. Increase in asset and increase in liability.
will pay him next week. Mr. Phillip records immediately
d. Decrease in equity and increase in liability. the sale today, rather than next week after collecting your
21. A Statement of Financial Position also known as the due. Mr. Phillip is applying the accounting principle of
Balance Sheet is intended to help investors and creditors a. Accrual Basis
b. Historical Cost
c. Cost-Benefit 36.Which is FALSE concerning the rules of debit and credit?
d. Stable Monetary Unit a. The word “debit” means to increase, and the word
28. Financial statements must be prepared at least “credit” means to decrease.
a. Annually b. The normal balance of any account appears on the side for
b. Quarterly recording increases.
c. Semi-annually c. The left side of an account is always the debit side, and the right
d. Every two years side is always the credit side.
29. The normal balance of an account is on the d. Increases in assets and expenses are debit entries, and increases
a. Side represented by increases in the account balance. in liabilities, equity and revenue are credit entries.
b. Side represented by decreases in the account balance. 37. Which of the following statements is NOT correct
c. Debit side of the account regarding the basic accounting concepts?
d. Credit side of the account a. An entity that is going out of business is a going concern.
30.It is the process of incorporating in the statement of b. Applying the separate entity concept allows the reporting of a
financial position or statement of comprehensive income true and fair picture of business financial affairs.
an item that meets the definition of an element of the c. Applying the same accounting treatment for similar items from
financial statements one period to another relates to Consistency.
a. Recognition d. Rounding-off of large amounts when presenting financial
b. Allocation statements is acceptable under the concept of materiality.
c. Realization 38. A disadvantage of a partnership is
d. Measurement a. Unlimited liabilities of the partners
31.Which of the following is NOT an accepted basis for b. Better decisions- “two heads are better than one”
recognition of revenue? c. Unlimited life
d. Business risk is assumed by more than one owner
a. Upon signing of contract
b. Performance of Service 39. Under the accrual basis of accounting, a business records a
c. Passage of Time sale
d. Completion of percentage of a project a. (a) when the sale occurs
32.When making judgments and estimates under conditions b. (b) when the selling price is collected
of uncertainty, the accountant chooses the potentially c. A or b, as an accounting policy choice
d. At the point in time when (a) and (b) above are satisfied
unfavorable outcome over the favorable one. This concept
refers to 40. These are the qualitative characteristics that only
a. Prudence/Conservatism increase the usefulness of information that is already
b. Separate entity concept useful, but cannot make information that is not useful to
c. Going Concern be useful
d. Reporting period concept a. Enhancing qualitative characteristics
33.Which of the following is considered an INTERNAL user of b. Fundamental qualitative characteristics
financial information? c. Materiality
a. The entity’s management d. Conceptual Framework
b. Lenders and other creditors 1. What is the logical order of the following steps in the
c. Stockholders of the entity who are not directly involved in accounting cycle?
managing the entity. a. Journalizing the closing entries, post the closing entries
d. Rank and file employees of the reporting entity. and then take the post-closing trial balance.
34.Which of the following may NOT be an acceptable b. Post the journal entries to the ledger accounts, prepare a
deviation from recognizing revenue at the point of sale? worksheet and then take a trial balance.
a. Upon receipt of order c. Prepare the income statement, prepare the balance sheet and
b. Upon receipt of cash then prepare a worksheet.
c. During production d. Post the closing entries, take a post-closing trial balance, then
d. End of production journalize the closing entries.
35.In recording transactions 2. What is the last step in the accounting cycle considering the
a. Assets, expenses, and drawing accountant are debited following?
for increases. a. Prepare a post-closing trial balance.
b. The word “debit” means increase and the word “credit” means b. Journalize and post adjusting entries
decrease. c. Journalize and post-closing entries
c. Liabilities, revenue, and drawing accounts are debited for d. Prepare financial statements
increases. 3. Which of the following statements is TRUE?
d. Assets, expenses, and capital accounts are debited for increases.
a. Income statement accounts are closed at the end of the 10.Which of the following statements is TRUE?
period a. To decrease Accounts Payable, it must be debited.
b. Revenues are permanent/real accounts b. When cash is received from a customer, it must be credited.
c. When expenses exceed revenues, there is net income c. To increase Salaries expense, the account is credited.
d. Accounts that can be found in the balance sheet are called d. When accounts payable is settled/paid, it must be credited.
real/nominal accounts 11.An optional step in the accounting cycle is the preparation
4. The trial balance of
a. Can be used to uncover errors in journalizing and posting a. Post-closing trial balance and reversing entries
b. Is used to prepare the statement of financial position while the b. Posting to the ledger and unadjusted trial balance
general ledger is used to prepare the income statement c. Adjusting entries
c. Has the primary purpose of proving that all journal entries d. Closing entries
were made for the period. 12. Your bookkeeper is confused on the rules of debits and
d. Is a listing of all the accounts and their balances in the order of
credits. Which one of the following would you advise
accounts appearing in the statement of financial position.
him/her?
5. Which is done first in the accounting process considering
a. The normal balance of a contra account is the opposite
the following?
of its related account.
a. Adjusting entries are recorded
b. The normal balance of an account determines the side in
b. A post-closing trial balance is prepared
which the account is decreased.
c. Nominal accounts are closed
c. Assets, liabilities, and equity have normal debit balances.
d. Financial statements are prepared.
d. To combine a credit amount with another credit amount this
6. Which of the following is an INCORRECT statement?
means you subtract.
a. Tangible real accounts are assets that do not have
13. An unadjusted trial balance
physical existence.
a. Provides information that is helpful when making
b. The difference between the total debits and total credits in a
single account is the account’s balance. adjusting entries.
c. In the accounting equation, assets are on the left side of the b. Is a summary taken directly from the general journal.
equation which has a normal debit balance. c. Usually contains the account balances that should appear in
d. Nominal accounts are accounts relating to expenses/losses the financial statements
and incomes/gains. d. Proves that no errors have been made in the accounting
7. Which of the following items does not fall under the records
definition of Liability? 14. The following account balances were gathered from Phillip
a. Allowance for Bad Debts Company’s adjusted trial balance on December 31, 2021:
b. Deferred Revenue/Unearned Income
c. Bank Loan
d. Accounts Payable
8. On January 1, 2021 Phillip Company showed total assets of
5, 000, 000 and total liabilities and equity of 2, 000, 000
and 3, 000, 000 respectively. During the current year, he
invested additional capital of 800, 000 and withdraw funds
amounting to 300, 000. On December 31, 2021, total
assets increased by 2, 500, 000 and total liabilities
Calculate the total assets.
increased by 1, 200, 000. Calculate the profit for the
a. 538, 000
current year.
b. 642, 000
a. 1, 100, 000
c. 597, 000
b. 800, 000
d. 607, 000
c. 1, 300, 000
15.All are incorrect statements, except
d. 1, 200, 000
a. Increase in Assets: Debit
9. Which of these statements is FALSE?
b. Decrease in Liability: Credit
a. Unearned Revenue increases Equity.
c. Decrease in Assets: Debit
b. Accumulated depreciation and allowance for bad debts are
d. Increase in Equity: Debit
Contra-Assets.
16.The following account balances were gathered from Phillip
c. All expense accounts are nominal accounts because they will
be closed to Income Summary. Company’s adjusted trial balance on December 31, 2021:
d. Accounts that can be found in the Balance Sheet are real or
permanent accounts.
Calculate the total liabilities.
a. 1, 177, 000
b. 1, 348, 000
c. 1, 214, 000
d. 1, 281, 000
17. Phillip Company was formed on January 1, 2021 with 5,
000, 000 from his own pocket and borrowed funds of 1,
500, 000. During the 1st year, net profit was 2, 500, 000 and
Phillip withdraw 500, 000 cash. No additional activities
affected the equity in 2021. On December 31, 2021,
Phillip’s liabilities increased to 1, 800, 000. On December
31, what amount should be reported as total assets?
a. 8, 800, 000
b. 6, 500, 000
c. 6, 800, 000
d. 9, 300, 000
18. Which of the following is NOT a principal purpose of an
unadjusted trial balance?
a. It proves that debits and credits were properly
entered in the ledger accounts.
b. It is the basis for any adjustments to the account balances.
c. It proves that debits and credits of equal amounts are in the
ledger.
d. It supplies a listing of open account and their balances.
19. Mr. Cell, a supplier, has an account receivable from your
business. This means that your business
a. Has an accounts payable to Mr. Cell
b. Has a note payable to Mr. Cell
c. Borrow money from Mr. Cell
d. Sells goods to Mr. Cell
20. Which of the following statements regarding a trial balance
is INCORRECT?
a. A trial balance proves that no errors of any kind have
been made in the accounts during the accounting
period.
b. A trial balance is a test of the equality of the debit and credit
balances in the ledger.
c. A trial balance helps to localize errors within an identifiable
time period.
d. A trial balance is a list of all of the open accounts in the
ledger with their balances.
