Quiz 1

Red means False

1. A merchandising business is a business that acquires finished product and sell it a higher price.
2. Partnership is considered as the simplest type of business organization and the most easy to
form.
3. A creditor is an example of internal user of financial statements and they are interested in the
financial performance of the business so that they would know if they are to grant credit or not.
4. One of the disadvantage of a corporation is its complexity of its formation and control from
government.
5. A cooperative is a non profit business organization that operates for the interest of its members
owners.
6. One advantage of a sole proprietorship is that it has a greater source of capitalization and ease of
transfer of ownership.
7. Bookkeeping includes the phase of communicating the financial statements to the users of
financial information.
8. The focus of management accounting is the preparation of tax returns and tax advisory.
9. Creditors are considered as users of accounting information because they are interested to
know the earning capacity of business and safety of their investment.
10. Partnership is considered as a legal entity. It has the right to acquire assets and dispose assets,
incur and pay liabilities, to sue and be sued under its own name.
11. Corporations are entities that has limited life and unlimited liabilities.
12. Entity Concept considers that business and owners are separate individuals. Personal
transactions of the owners must not be mixed with the transactions of the business.
13. The principle of understandability states that accounting standards and policies should be
consistently applied from one period to another.
14. Any amount (small or big) is considered material especially to a small business.
15. Revenues are considered as the cost of operations that a company incurs to generate income.
16. A statement of changes in equity
a. Has no relationship with the balance sheet
b. Indicates whether the cash position of the entity will permit withdrawals by the owner
c. Provides a link between the income statement and the balance sheet
d. Shows the income and expenses of the entity for a given period

17. The statement of changes in equity would not show

a. revenues and expenses
b. the owner’s ending capital balance
c. the owner’s initial capital balance
d. profit or loss during the period
18. It refers to the process of transferring the debit and credit amounts from journals to the ledgers.
a. Posting
b. Transferring
c. Closing
 d. Balancing

19. Which of the following statements is/are true?

I. Accounting is a service activity intended to fulfill a useful function in society

II. Accounting involves the art of recording, classifying and summarizing

transaction and events, and interpreting the results thereof.

III. Accounting is an art but not a science

IV. Accounting provides quantitative financial information intended to be useful in

making economic decisions

a. I, II, III, IV c. I, II, IV

b. I, II, III d. II, III, IV

20. The branch of accounting concerned with the presentation of financial information
primarily for use of third person outside of business enterprise.

a. Financial Accounting c. Government Accounting

b. Management Accounting d. All of the above

21. Accounting is an art because

a. of the existence of a body knowledge governing accounting practice
b. of accounting theory
c. the necessity of applying creative skill and ability
d. None of the above

22. Financial accounting is the branch of accounting that focuses on

a. special purpose reports of financial position and results of operations

b. financial statements

c. the various need of statement users

d. general purpose reports of financial position and results of operations

23. General-purpose information is

a. not intended to satisfy the specialized needs of individual users.
b. intended to satisfy the specialized needs of individual users

c. not intended to satisfy the common needs of individual users.

d. Provided by managerial accounting.

24. Which of the following is not true?
a. Accounting is concerned primarily with quantitative information used by persons
who must make economic decisions among alternative actions.
b. Governmental accounting is also known as municipal or fund accounting

c. The branch of accounting concerned with the presentation of financial

information to assist management in planning and controlling operations is called
managerial accounting.

d. Financial accounting emphasizes special purpose information based on

presumption that significant numbers of users need similar information.

25. The body of rules and principles which govern accounting practices is referred to as
a. Accounting practice c. Accounting concepts

b. Accounting principles d. Accounting theory

26. “The accounting entity is assumed to be separate and distinct from other entities and from
the owners, managers and employees which constitute the firm”. This postulate is referred
to as
a. Matching c. Historical cost
b. Going concern d. Specific-separate-entity

27. Unless there is specific evidence to the contrary, the firm will continue to be in existence
in the foreseeable future. This postulate is referred to as

a. Matching c. Historical cost

b. Going concern d. Specific-separate-entity

28. “Money is the best measuring unit of a firm’s assets, liabilities and equity, as well as
changes therein; its instability is immaterial”. This postulate is referred to as
a. Historical cost c. Money-measuring unit

b. Revenue recognition d. Fiscal period

29. “Cost is normally the proper money measurement of a firm’s assets, liabilities, and equity,
and changes in them because it is objective, verifiable and convenient to obtain,
approximating value at time of acquisition. “ This postulate is referred to as
a. Historical cost c. Money measuring unit

b. Revenue recognition d. Fiscal period

30. “The life of a business firm can be segmented into short run time periods in order to
provide timely financial information to aid in financial decision making; hence, periodic
 reporting implies the use of accrual accounting and use of estimates ( approximations) and
informed judgment by accountants.” This postulate is referred to as
a. Historical cost c. Money measuring unit
b. Revenue recognition d. Fiscal period

31. “The point of sale when goods are delivered or services are rendered, is the time at which
revenue is to be recognized.” This postulate is referred to as
a. Expense recognition c. Entity Concept
b. Revenue recognition d. Timelines

32. The branch of accounting that deals with collecting and controlling the costs of producing
a given product or service is called

a. internal auditing

b. bookkeeping

c. cost accounting

d. Government accounting

33. The advantages of a partnership do not include

a. Unlimited liability
b. Ease of formation
c. Freedom from government regulation
d. Ease of decision making
34. Which of the following is a primary goal to provide managers with a clear understanding
of the activities to be undertaken and completed to accomplish the company's objectives?

financial accounting

budgeting

auditing

management accounting

35. External user of financial information include all of the following except:

a. Shareholders

b. Customers

c. Managers
 d. Suppliers

36. This is a characteristic of a partnership

a. is a legally separate business entity.

b. enables owners to limit their liability.

c. Limited life

d. is taxed on the partners' individual income tax return.

37. In the annual report, where would a financial statement reader find out if
the company’s financial statements give a fair depiction of its financial
position and operating results?
a. Notes to the financial statements
b. Management discussion and analysis section
c. Balance sheet
d. Auditor’s report
e. None of the options listed

38. Which accounting assumption assumes that an enterprise will continue in

operation long enough to carry out its existing objectives and commitments?
a. Monetary unit assumption
b. Economic entity assumption
c. Time period assumption
d. Going concern assumption
 39. Johnny’s Car Repair Shop started the year with total assets of P60,000
and total liabilities of P40,000. During the year the business recorded
P100,000 in car repair revenues, P55,000 in expenses, and dividends income
from his personal investment amounting to P10,000.
3. The net income reported by Johnny’s Car Repair Shop for the year was
a. P35,000
b. P45,000.
c. P20,000.
d. P55,000.
40. If beginning capital was P25,000, ending capital is P37,000, and the
owner's withdrawals were P23,000, the amount of net income or net loss for
the period was:
a. net loss of P35,000
b. net income of P35,000
c. net income of P14,000
d. net loss of P14,000
e. none of the options listed

External user of financial information include all of the following except:

a. Shareholders

b. Customers

c. Managers

d. Suppliers

1-10. A partnership
a. is a legally separate business entity.
 b. enables owners to limit their liability.

c. requires one or more owners.

d. is taxed on the partners' individual income tax return.

Identify the letter of the choice that best completes the statement or
answers the question.____
1. In the annual report, where would a financial statement reader find out if
the company’s financial statements give a fair depiction of its financial
position and operating results?
a. Notes to the financial statements
b. Management discussion and analysis section
c. Balance sheet
d. Auditor’s report
e. None of the options listed

2. Which accounting assumption assumes that an enterprise will continue in

operation long enough to carry out its existing objectives and commitments?
a. Monetary unit assumption
b. Economic entity assumption
c. Time period assumption
d. Going concern assumption