FINANCIAL ACCOUNTING AND REPORTING

ACTIVITY NO. 1

1. Which of the following statements is correct?

a. Of the five major types of accounts, only two have normal debit balances.
b. All accounts are increased by a debit and decreased by a credit.
c. A contra asset account is increased through debit.
d. A debit and a debit result to a credit.

2. In accounting, recording a transaction in a debit-credit form is called

a. journalinging.
b. posting.
c. identifying and analyzing.
d. journalizing.

3. You are an accountant. You obtained the source documents for the business transactions your
company has entered into during the day and started inspecting the documents. What step of
the accounting cycle are you performing?
a. Reading
b. Identifying and analyzing
c. Journalizing
d. Posting

4. Your business sells goods to a credit customer. Which of the following accounts is increased?
a. Accounts receivable
b. Cost of sales
c. Sales
d. All of these

5. Your business collects ₱80,000 accounts receivable. What is the effect of this transaction on the
accounts?
Sales Accounts receivable Cash
a. Increase Increase No effect
b. No effect Increase Decrease
c. No effect Decrease Increase
d. Increase Increase Increase

6. In accounting, it means the allocation of the cost of an asset over the periods in which the asset is
used.
a. Allocationing
b. Depreciation
c. Bad debts
d. Cost spreading

7. Real accounts are presented in what formal report?

a. Income statement
b. Balance sheet

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 c. Unadjusted trial balance
d. Worksheet

8. Under the liability method of initial recording of advanced collections of income, an end-of-
period adjusting entry is needed to recognize the
a. earned portion of the mixed account.
b. unearned portion of the mixed account.
c. expired portion of the cost.
d. No adjusting entry is needed.

9. When property other than cash is invested in a partnership, at what amount should the noncash
property be credited to the contributing partner’s capital account?
a. Fair value at the date of contribution.
b. Contributing partner’s original cost.
c. Assessed valuation for property tax purposes.
d. Contributing partner’s tax basis.

10. On February 1, authorized ordinary share was sold on a subscription basis at a price in excess of
par value, and 20 percent of the subscription price was collected. On May 1, the remaining 80
percent of the subscription price was collected. Share premium would increase on
February 1 May 1
a. No Yes
b. No No
c. Yes No
d. Yes Yes

11. The main purpose of accounting is

a. to account for money so it will not be lost.
b. to provide information that is useful in making economic decisions.
c. to safeguard the assets of a company.
d. to provide a clear view of the state of the industry’s economy.

12. Under the accrual basis of accounting,

a. income is recorded only when cash is received and expenses are recorded only when cash is
paid.
b. liabilities, owner's capital, and drawings all have normal credit balances.
c. all real accounts have normal debit balances.
d. income is recorded in the period it is earned and expense is recorded in the period it is
incurred, irrespective of when cash is received or paid.

13. The branch of accounting that deals with providing financial information to external decision
makers is
a. Public accounting.
b. Government accounting.
c. Financial accounting.
d. Managerial accounting.

14. Financial accounting applies to which of the following:

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 a. Businesses
b. Non-profit organizations
c. Governments
d. All of the above

15. Under this concept, some costs are initially recognized as assets and recognized only as expenses
when the related revenue is recognized.
a. Separate entity concept
b. Historical cost concept
c. Going concern
d. Matching principle

16. It is the official accounting standard setting body in the Philippines.

a. Philippine Institute of Certified Public Accountants
b. Financial Reporting Standards Council
c. Accounting Standards Council
d. American Accounting Association

17. Businesses are required by law to file tax returns with this government agency.
a. Security and Exchange Commission
b. Bureau of Internal Revenue
c. Cooperative Development Authority
d. Bangko Sentral ng Pilipinas

18. Under this concept, assets are initially recorded at their acquisition cost.
a. Single entity concept
b. Historical cost concept
c. Going concern concept
d. Matching principle

19. Under this concept, the business is assumed to continue to exist for an indefinite period of time.
a. Separate entity concept
b. Historical cost concept
c. Going concern
d. Matching principle

20. Which of the following is not a correct expanded accounting equation?

a. Assets = Liabilities + Equity + Income - Expenses
b. Assets + Expenses = Liabilities + Equity + Income
c. Assets – Liabilities = Equity + Income - Expenses
d. Assets = Liabilities + Equity + Income + Expenses

21. The start-up capital of a business consisted of ₱1,000,000 cash provided by the business owner
and an additional ₱250,000 from a bank loan. The total start-up assets of the business therefore is
a. ₱1,250,000
b. ₱1,000,000
c. ₱750,000
d. ₱250,000

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22. It is the aggregate of estimated losses from uncollectible accounts receivable.
a. Bad debts expense
b. Allowance for bad debts
c. Accounts receivable
d. Notes receivable

23. If the ending balance of accounts receivable is ₱100,000 and the total debits and credits to that
account during period were ₱60,000 and ₱40,000, respectively, the beginning balance must be
a. 0
b. 20,000
c. 80,000
d. 120,000

Solution:
Accounts receivable
beg. (squeeze) 80,000
60,000 40,000

100,000 end.

24. The equipment of ABC Co. has a historical cost of ₱500,000 and an accumulated depreciation of
₱120,000. How much is the carrying amount of the equipment?
a. 620,000
b. 500,000
c. 480,000
d. 380,000

25. Which of the following is not an example of a source document?

a. Delivery receipt
b. Sales invoice
c. Special journal
d. Bank statement

26. It is a report that a business sends to its customer listing the transactions with the customer
during a period, the payments made by the customer and any remaining balance due from the
customer. It also serves as a notice of billing.
a. Check
b. Bank statement
c. Delivery receipt
d. Statement of account

27. Which of the following is not an external event?

a. Rendering services to clients
b. Production of goods for sale
c. Purchase of raw materials for processing
d. Payment of notes payable

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28. Journal entries are recorded in the journal
a. chromatically.
b. chronologically.
c. pharmaceutically.
d. cutely.

29. Which of the following is not one of the important parts of a journal entry?
a. Date
b. Account titles and amounts to be debited and credited
c. A detailed narrative of the reason why management entered into the transaction
d. Short description of the transaction
e. All of these

30. The primary purpose of posting is to

a. record transactions.
b. classify transactions.
c. summarize transactions in a report form.
d. all of these

31. The heading of a trial balance does not include which of the following?
a. Name of the business
b. Title of the report
c. Type of activity that the business is engaged with
d. Date of the report

32. If debits do not equal credits, the first step to find the error is to
a. call your manager and ask for advice.
b. add the debit and credit columns again.
c. review the journal entries for errors.
d. make correcting entries rather than adjusting entries.

33. Accounts are listed in the trial balance in this sequence.

a. Asset, Liabilities, Equity, Expense, and Income
b. Asset, Equity, Liabilities, Expense, and Income
c. Asset, Liabilities, Equity, Income, and Expense
d. Asset, Expense, Liabilities, Equity, and Income

34. Credit is on which side of an account?

a. Right
b. Left
c. Top
d. Bottom

35. A debit may signify an increase in

a. liability account.
b. asset account.

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 c. revenue account.
d. liability and revenue account.

36. Owner’s cash investment to the business.

Debit Credit
a. Cash Owner’s capital
b. Cash Owner’s drawings
c. Owner’s capital Cash
d. Cash Sales

37. Acquisition of equipment on cash basis.

Debit Credit
a. Cash Equipment
b. Expense Cash
c. Equipment Cash
d. Equipment Owner’s capital

38. Acquisition of inventory on cash basis

Debit Credit
a. Inventory Accounts payable
b. Expense Cash
c. Inventory Cash
d. Cost of sales Cash

39. Acquisition of inventory on credit.

Debit Credit
a. Inventory Accounts payable
b. Accounts payable Inventory
c. Accounts payable Cash
d. Cost of sales Accounts payable

40. Payment (settlement) of accounts payable

Debit Credit
a. Inventory Accounts payable
b. Cash Accounts payable
c. Accounts payable Cash
d. Cost of sales Inventory

41. Sale of inventory on cash basis

Debit Credit
a. Inventory Sales
b. Cash Accounts receivable
c. Cash Sales
d. Cost of sales Cash

42. Sale of inventory on credit

Debit Credit

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 a. Cost of sales Sales
b. Cash Accounts receivable
c. Cash Sales
d. Accounts receivable Sales

43. Collection of accounts receivable

Debit Credit
a. Cost of sales Sales
b. Cash Accounts receivable
c. Cash Sales
d. Accounts receivable Sales

44. Payment of advertising expense

Debit Credit
a. Advertising expense Cash
b. Cash Advertising expense
c. Cash Advertisement payable
d. Advertising expense Accounts payable

45. Owner’s drawings (owner’s withdrawal of cash from the business)

Debit Credit
a. Drawings expense Cash
b. Cash Owner’s drawings
c. Owner’s drawings Cash
d. Cash Owner’s capital

46. Recognition of depreciation

Debit Credit
a. Depreciation expense Cash
b. Depreciation expense Equipment
c. Depreciation expense Accumulated depreciation
d. Accumulated depreciation Depreciation expense

47. Recognition of bad debts

Debit Credit
a. Bad debts expense Cash
b. Bad debts expense Accounts receivable
c. Bad debts expense Allowance for bad debts
d. Allowance for bad debts Bad debts expense

48. Which of the following statements is correct?

a. The “Sales” account is used by both service and merchandising businesses in recording
revenues from primary business activities.
b. “Accounts receivable” is used only by service businesses but not by merchandising
businesses.
c. The “Inventory” account is most likely to be found in the financial statements of a
merchandising or manufacturing business but not of those of a service business.
d. A manufacturing business cannot be organized as a sole proprietorship.

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49. Recording assets at their acquisition cost (entry value), rather than at their net selling price (exit
value), is in line with the concept of
a. Single entity concept.
b. Historical cost concept.
c. Going concern concept.
d. Matching principle.

50. The term “posting” as used in accounting means

a. recording an accountable event in debit-credit format.
b. transferring the debits and credits of journal entries from the journal to the affected accounts
in the ledger.
c. checking the equality of the monetary totals of debits and credits of accounts in the ledger.
d. uploading photographs to the internet.

PCV 1/5/2022
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