QUIZZES

21-FAR Prelim Quiz 1

6. The entity concept states that the
transactions of different entities should
1. The Philippine accountant considers not be accounted for together.
peso as the common unit of measure for all
business transactions. a. True
b. False
a. True
b. False 7. Accounting is a service activity whose
function is to provide quantitative
2. For accounting purposes, a business information about economic entities that
firm and its owner are considered as one is intended to be useful in making
and the same. economic decisions.
a. True a. True
b. False b. False
3. A partnership is a business owned by
two or more persons, who bind 8. A business transaction is the occurrence
themselves to contribute money, property of an event or of a condition that must be
or industry to a common fund, with the recorded.
intention of dividing the profits among
themselves. a. True
b. False
a. True
b. False 9. This accounting concept assumes that
the business has an indefinite life.
4. Manufacturing companies buy raw
materials, convert them into finished a. Business entity
products, and then sell these finished b. Time period
products to other firms or to final c. Going concern
consumers. d. Materiality

a. True 10. Which of the following processes best

b. False describes accounting? *

5. The accounting phase of summarizing a. measures economic activities

reduces the effects of numerous b. communicates results to interested
transactions into useful groups or users
categories. c. prevents fraud
d. both a & b
a. True e. both a & c
b. False f. all of the above
11. A business that prepares financial 14. Which accounting concept should be
statements every year is following which considered if the business owner gets cash
accounting concept? from the business which he will use for
personal purposes? *
a. business entity
b. adequate disclosure a. substance over form concept
c. materiality b. going concern concept
d. periodicity c. time period concept
d. business entity concept
12. Which of the following statements
about accounting concepts and the 15. Accounting changes are often made
characteristics of financial reporting and the monetary effect is reflected in the
information is not correct? * financial statements of an entity even
though in theory, this may be a violation of
a. Entities may exclude the accounting concept of: *
information that is relevant in
financial statements, because it a. materiality
is too difficult for the users to b. objectivity
understand. c. comparability
d. consistency
b. Only the transactions and events
capable of being measured in 16. The principle of objectivity includes
monetary terms are recognized in the attribute of:
the financial statements.
a. verifiability
c. Consistency in the use of the same b. summarization
accounting policies or methods for c. classification
the same or similar items from one d. conservatism
accounting period to the next is
essential to enhance comparability. 17. The periodicity concept:

13. Which accounting concept states that a. Requires that all companies prepare
omitting or misstating this information monthly, quarterly, and annual financial
could influence or affect the assessment, statements.
and consequently, the decision of the users b. Results from the Bureau of Internal
of the financial statements? * Revenue requirement that all taxable
income be reported on an annual basis.
a. consistency concept c. Requires all companies to adopt the
b. materiality concept calendar year ending December 31.
c. accrual concept d. Involves dividing the life of a
d. business entity concept business entity into accounting periods
of equal length, thus enabling the users
to periodically evaluate the results of 21. This accounting concept states that an
business operations. accounting transaction should be
supported by sufficient evidence to allow
18. Accountants do not recognize that the two or more qualified individuals to arrive
value of the peso changes over time. This at essentially similar conclusion.
concept is the:
a. matching
a. stable monetary unit concept b. objectivity
b. going concern concept c. periodicity
c. cost principle d. stable monetary unit
d. entity concept
22. Which of the following is an
19. The basic purpose of accounting is: appropriate definition of accounting?

a. To provide the information that the a. the measurement, processing, and

managers of an economic entity need to communication of financial
control its operations information about an identifiable
b. To provide information that the economic entity
creditors of an economic entity can use in b. a means of recording transactions and
deciding whether to make additional loans keeping records
to the entity c. the interconnected network of
c. To measure the periodic income of the subsystems necessary to operate a
economic entity business
d. To provide quantitative financial d. electronic collection, organization, and
information about a business communication of vast amounts of
enterprise that is useful in making information
rational economic decisions
23. The entity concept means that: *
20. This concept states that the financial
statements should be stated in terms of a a. Because a firm is separate and distinct
common financial denominator. * from its owners, those owners cannot have
access to the firm’s assets unless the firm
a. accrual concept ceases to operate.
b. unit of measure
b. The financial affairs of a business
c. going concern
firm and its owner/s are always kept
d. exchange price
separate for the purpose of preparing
their accounts or records.
c. The owner of the business can, at any
time, take any property from the firm for
his/her personal use.
d. none of the above
 21-Prelim FAR Quiz 2
24. The consistency concept means that:
1. The liability created when supplies are
a. When preparing the accounts of a bought on account is called an account
firm, similar items should be accounted payable. *
for in the same way from one
accounting period to the next. a. True
b. False
b. Firms in the same industry must account
for similar items in the same way.
2. The owner’s drawing account is
c. Firms should never change the way in included among the expenses of the
which they prepare their accounts. business.

d. None of the above a. True

b. False

25. The consistency standard of reporting 3. The owner’s withdrawal is recorded as a

requires that: * decrease in asset and an increase in
a. Expenses be reported as charges against expense.
the period in which they are incurred.
a. True
b. The financial effects of any change in b. False
accounting policy or method be
properly disclosed in the financial 4. Every transaction is recorded in terms of
statements. increases and/or decreases in two or more
c. Extra-ordinary gains and losses should accounts or elements.
not appear in the financial statements.
a. True
d. Accounting procedures which give a b. False
consistent rate of return should be
adopted. 5. Liabilities represent amounts owed to
creditors.

a. True
b. False

6. In the fundamental accounting equation,

assets are added to liabilities. *

a. True
b. False
7. When a business receives cash, it is 13. In a few selected transactions, the
always recorded as an increase in Cash and accounting equation may not be
a decrease in an Expense. * maintained *

a. True a. True
b. False b. False

8. Accounts Receivable is classified as an 14. An expense may be recognized and

asset. * recorded even though no cash payment
has been made. *
a. True
b. False a. True
b. False
9. A business owner can invest cash or
non-cash assets in the business. * 15. When owner’s equity decreases, a
liability may increase.
a. True
b. False a. True
b. False
10. Both sides of the fundamental
accounting equation must be equal. * 16. Which of the following is not a feature
of a business transaction? *
a. True
b. False a. Two parties are involved.
b. Information may be financial or non-
11. Transactions are analysed on the basis financial.
of source documents. * c. There is an exchange of values.
d. It is expressed in terms of money.
a. True
b. False 17. The financial structure may be stated
in the following accounting equations
except: *
12. Every business transaction affects a
minimum of three accounting elements. * a. Assets = Claims of Creditors and
Owner/s
a. True b. Assets – Creditors’ Claims = Owner’s
b. False Equity
c. Assets – Owner’s Claims = Liabilities
d. Assets = Owner’s Equity - Liabilities
18. Increase in an asset may be a result of: 22. At the start of the month, the assets of
the business totalled P1,000,000, with
a. a decrease in another asset owner’s equity of P800,000. During the
b. an increase in a liability month, equipment worth P500,000 was
c. an increase in owner’s equity purchased with a down payment of
d. all of the above P150,000 and the balance on credit. At the
e. none of the above end of the month, how much are the
liabilities? *
19. Purchasing supplies for cash: *
a. P1,150,000
a. decreases both assets and liabilities b. P1,000,000
b. increases both assets and liabilities c. P 550,000
c. increases assets and decreases liabilities d. P 800,000
d. does not affect total assets
23. On January 1, the assets were P500,000
and the liabilities were P200,000. During
20. The company’s assets are P12,000,000 the year, the assets increased by P100,000,
of which one-third represents owner’s while the liabilities decreased by P50,000.
equity. Liabilities amount to: * Owner’s equity on January 1 was: *
1/1
a. P6,000,000 a. P800,000
b. P3,000,000 b. P700,000
c. P8,000,000 c. P300,000
d. P4,000,000 d. P400,000

21. At the start of the month, the assets of 24. On January 1, the assets were P500,000
the business totalled P1,000,000, with and the liabilities were P200,000. During
owner’s equity of P800,000. During the the year, the assets increased by P100,000
month, equipment worth P500,000 was while the liabilities decreased by P50,000.
purchased with a down payment of Owner’s equity on December 31 was: *
P150,000 and the balance on credit. At the
start of the month, liabilities amounted a. P300,000
to: * b. P350,000
c. P250,000
a. P1,800,000 d. P450,000
b. P1,200,000
c. P 200,000
d. Zero
25. Nature Trip purchased equipment for 4. Footing is the process of: *
P120,000, made a down payment of
P50,000 and signed a promissory note for a. Preparing a chart of accounts
the balance. This transaction: * b. Adding a column of figures
c. Transferring journal entries to ledger
a. increased total assets by P120,000 accounts
b. increased total liabilities by P50,000 d. Recording entries in a journal
c. did not affect owner’s equity
d. all of the above 5. What are increases in resources that a
e. none of the above firm earns by providing services or goods
to its customers? *
1/1
FAR PRELIMS EXAMS 2021
a. Assets
1. An increase in an expense: * b. Liabilities
c. Income
a. Increases revenues d. Expenses
b. Decreases liabilities
c. Increases assets 6. In the accounting cycle, which is/are
d. Decreases owner's equity considered the output document/s? *

a. The financial statements

2. A proprietorship business with total b. The journal
owner's equity of P85,000 paid a P10,000 c. The ledger
business debt. As a result of this d. The worksheet
transaction, total owner's equity: *
7. If assets increase by P100,000 and the
a. Did not change liabilities decrease by P30,000, owner’s
b. Decreased by P10,000 equity must: *
c. Increased by P10,000
d. Increased to P95,000 a. Remain unchanged
b. Decrease by P70,000
3. The right side of an account is always: * c. Increase by P130,000
d. Decrease by P130,000
a. The debit side
b. The credit side 8. Which of the following is true? *
c. The balance of that account
d. Carried forward to the next accounting a. The debit is on the right side of an asset
period account.
b. The debit is on the left side of an asset
account.
c. The credit is on the left side of a liability 13. Which accounting concept states that
account. omitting or misstating this information
d. The debit is on the right side of an could influence the decision of the users of
expense account. the financial statements? *
1/1
9. How many parts does a T-account a. Consistency concept
have? * b. Materiality concept
1/1 c. Accrual concept
a. One d. Going concern concept
b. Three
c. Two 14. During the lifetime of an entity,
d. Four accountants produce financial statements
at specific points in time in accordance
10. Which of the following accounts is with which basic accounting concept? *
increased by a credit? * 1/1
a. Objectivity
a. Accounts Receivable b. Materiality
b. Office Equipment c. Periodicity or time period
c. Service Fees Earned d. Business entity
d. Taxes and Licenses
15. The best definition of assets is: *
11. Which of the following statements is
correct in applying the rules of debit and a. The collection of resources belonging to
credit? * the company and the sources of, or claims
on, these resources.
a. The word “debit” means to increase, and b. The cash owned by the company
the word “credit” means to decrease. c. The resources owned by a company
b. Asset, expense and capital accounts are from which the company expects a
debited for increases. future benefit to flow to the entity.
c. Liability, income and capital accounts d. The owner’s investment in the business
are credited for increases.
d. Asset, expense and drawing accounts 16. An investment by the owner in a
are debited for decreases. business: *
1/1
12. Which accounting concept should be a. Increases assets and owner’s equity
considered if the owner of a business takes b. Increases assets and liabilities
goods from the business for his personal c. Increases liabilities and owner's equity
use? * d. Increases assets only
a. Going concern concept
b. Business entity concept
c. Periodicity concept
d. Objectivity
17. The purchase of an asset for cash: * 22. The effects on the accounting equation
of which of the following events cannot be
a. Increases assets and owner’s equity determined? *
b. Increases assets and liabilities
c. Decreases assets and increases liabilities a. Purchase of a one-year insurance policy
d. Has no effect on total assets b. Agreement to perform a service at a
future date
18. The purchase of an asset on credit: * c. Purchase of equipment partly on cash
and on account
a. Increases assets and owner's equity d. Payment for a service performed
b. Increases assets and liabilities previously
c. Decreases assets and increases
liabilities 23. The account credited for cash received
d. Leaves total assets unchanged on account is: *

19. The payment of a liability: * a. Cash

b. Service Revenue
a. Decreases assets and owner's equity c. Accounts Receivable
b. Increases assets and decreases liabilities d. Accounts Payable
c. Decreases assets and increases liabilities
d. Decreases assets and liabilities 24. An account is said to have a debit
balance if: *
20. Revenue earned: *
a. The total debits to the account exceed
a. Increases assets and liabilities its total credits.
b. Increases assets and owner's equity b. There are more entries on the debit side
c. Increases assets and decreases owner's than on the credit side.
equity c. Its normal balance is debit without
d. Leaves total assets unchanged regard to the amounts or number of
entries on the debit side.
21. A withdrawal by the owner: * d. The last entry of the accounting period
was posted on the debit side.
a. Increases assets and owner's equity
b. Increases assets and decreases owner's
equity 25. Suppose a customer who owes the
c. Decreases assets and owner's equity business P50,000 pays his debt by
d. Decreases assets and increases owner's transferring the payment into the bank
equity account of the business. What would be
the effects on the accounting equation of
the business?
a. Both assets and liabilities increase by 29. Assets are usually valued under which
P50,000. basis? *
b. Both assets and liabilities decrease by
P50,000. a. Replacement cost
c. Only the assets increase by P50,000. b. Net realizable value
d. Total assets and liabilities remain c. Cost or exchange price
unchanged. d. None of the above

26. Under the double-entry system, what is 30. The financial statements should be
the value of X if assets, liabilities and stated in terms of a common financial
owner’s equity are: X, P100,000 and denominator. *
P350,000, respectively? *
a. Unit of measure concept
a. P250,000 b. Time period or periodicity concept
b. P370,000 c. Going concern concept
c. P350,000 d. Stable monetary unit concept
d. P450,000
e. None of the above 31. Which of the following states that an
accounting transaction should be
27. Which of the following processes best supported by sufficient evidence to allow
defines accounting? * two or more qualified individuals to arrive
at essentially similar conclusion? *
a. Measuring economic activities
b. Communicating results to interested a. Matching principle
parties b. Periodicity
c. Preventing fraud c. Objectivity
d. Both a and b d. Stable monetary unit

28. Which of the following concepts means 32. Which of the following is correct under
that similar items should receive the same the double-entry system? *
accounting treatment? *
a. The asset amount must be equal to the
a. Going concern liability amount.
b. Substance over form b. The change in the asset must be
c. Accrual concept compensated by a change in the liability.
d. Consistency c. The change in a debit-side entry must
be compensated by a change in a credit-
side entry.
d. An increase in asset must be
compensated by a decrease in asset.
33. Which of the following statements 1/1
regarding the double-entry system is a. P240,000
incorrect? * b. P360,000
c. P120,000
a. An increase in asset means a credit d. P480,000
entry in the asset account. e. None of the above
b. A decrease in liability means a debit
entry in the liability account. 37. The liabilities of LL Stylist are equal to
c. An increase in owner’s drawings means one-third of its total assets, and the
a debit entry in the owner’s personal owner’s equity is P240,000. How much are
account. its assets? *
d. A decrease in assets means a credit
entry in the asset account. a. P240,000
b. P360,000
34. Which of the following transactions c. P120,000
affects the total liabilities of a firm? * d. P480,000
1/1 e. None of the above
a. Goods purchased on cash from suppliers
b. Interest income received from the bank 38. At the beginning of the year, the assets
c. Office equipment bought on credit of Cleofe Services were P360,000 and
d. Services rendered on credit to owner’s equity was P200,000. How much
customers were its liabilities at the beginning of the
year? *
35. Which of the following is correct if the
sole proprietor of a business firm borrows a. P360,000
P300,000 in the name of the business and b. P560,000
then deposits the money in the bank c. P200,000
account of the business? * d. P160,000

a. The assets of the entity increase by 39. At the beginning of the year, the assets
P300,000. of Cleofe Services were P360,000 and
b. The liabilities of the firm decrease by owner’s equity was P200,000. During the
P300,000. year, its assets increased by P120,000 and
c. The capital of the owner increases by the liabilities also increased by P20,000.
P300,000. How much were its assets at the end of the
d. The owner’s drawings increase by year? *
P300,000.
a. P360,000
36. The liabilities of LL Stylist are equal to b. P560,000
one-third of its total assets, and the c. P480,000
owner’s equity is P240,000. How much are d. P180,000
its liabilities? *
40. At the beginning of the year, the assets 44. Which of the following is classified
of Cleofe Services were P360,000 and differently from the others? *
owner’s equity was P200,000. During the 1/1
year, its assets increased by P120,000 and a. Office Equipment
the liabilities also increased by P20,000. b. Accounts Receivable
How much was owner’s equity at the end c. Accounts Payable
of the year? *
d. Store Supplies
a. P160,000
b. P480,000 45. When owner’s equity decreases, one of
c. P140,000 the following must occur: *
d. P300,000 1/1
a. An asset increases
41. The normal balance of an account is on b. A liability increases
the: * c. An expense decreases
d. An income increases
a. Side represented by decreases in the
account 46. The first financial statement that is
b. Debit side of the account prepared from the trial balance is the: *
c. Side represented by increases in the 1/1
account a. Income statement
d. Credit side of the account
b. Statement of Cash Flows
42. Office supplies are expensed: * c. Statement of Financial Position
d. Statement of Owner’s Equity
a. At no time, since they are assets
b. When they are paid for 47. A trial balance: *
c. When they are purchased
d. When they are consumed or used up a. Covers a specific period, the shortest of
which is a month
43. The primary function of an account is b. Is a list of open accounts and their
to: * balances as of a given date
c. Is prepared after the financial
a. Store accounting transactions until they statements are done
are classified d. None of the above
b. Identify the type of organization
c. Accumulate accounting information
d. Determine at what point a transaction
should be recorded
48. Which of the following accounts does 52. Secured business permit and paid
not affect the balance sheet totals? * business license, P5,000. The effects are: *
2/2
a. Purchasing P50,000 supplies on account a. Debit Taxes and Licenses, P5,000;
b. Collecting P40,000 from customers Credit Cash, P5,000
on account b. Debit Greg, Capital, P5,000; Credit Cash,
c. Paying a P30,000 note payable to the P5,000
bank c. Debit Taxes and Licenses, P5,000; Credit
d. Withdrawal of P20,000 cash by the Greg, Capital, P5,000
firm’s owner d. None of the above

49. The following are found in the 53. Purchased P20,000 of repair supplies
statement of financial position: * for cash. The effects are: *

a. Assets, liabilities and owner’s equity a. Debit Cash, P20,000; Credit Supplies,
b. Revenues and expenses P20,000
c. Operating, investing and financing b. Debit Supplies, P20,000; Credit
activities Accounts Payable, P20,000
d. Net income and owner’s drawing c. Debit Supplies, P20,000; Credit Cash,
P20,000
50. All of the following financial d. None of the above
statements cover a specific period, except
the: * 54. Bought repair equipment, P100,000,
on credit. The effects are: *
a. Income Statement
b. Statement of Owner’s Equity a. Debit Repair Equipment, P100,000;
c. Statement of Cash Flows Credit Cash, P100,000
d. Statement of Financial Position b. Debit Repair Equipment, P100,000;
Credit Accounts Payable, P100,000
51. Greg organized a repair shop by c. Debit Repair Equipment, P100,000;
investing P500,000 cash in his business. Credit Notes Payable, P100,000
The effects of this transaction are: * d. None of the above

a. Debit Cash, P500,000; Credit Greg, 55. Rendered repair services for cash,
Capital, P500,000 P10,000. The effects are: *
b. Debit Cash, P50,000; Credit Service
Income, P500,000 a. Debit Service Income, P10,000; Credit
c. Debit Cash, P500,000; Credit Loans Greg, Capital, P100,000
Payable, P500,000 b. Debit Accounts Receivable, P10,000;
d. None of the above Credit Greg, Capital, P10,000
c. Debit Cash, P10,000; Credit Service
Income, P10,000
d. None of the above
 59. Collected from the customer who
56. Paid P25,000 for its account on the promised to pay after one week. The
repair equipment previously bought on effects are: *
credit. The effects are: *
a. Debit Accounts Receivable, P8,000;
a. Debit Cash, P25,000; Credit Accounts Credit Service Income, P8,000
Payable, P25,000 b. Debit Cash, P8,000; Credit Service
b. Debit Repair Equipment, P25,000; Income, P8,000
Credit Cash, P25,000 c. Debit Cash, P8,000; Credit Accounts
c. Debit Accounts Payable, P25,000; Receivable, P8,000
Credit Cash, P25,000 d. None of the above
d. None of the above
60. The owner withdrew P4,000 cash for
57. A customer promised to pay after one his personal use. The effects are: *
week for repair services rendered to him
by the business, P8,000. The effects are: * a. Debit Greg, Drawing, P4,000; Credit
Cash, P4,000
a. Debit Service Income, P8,000; Credit b. Debit Cash, P4,000; Credit Greg,
Accounts Payable, P8,000 Drawing, P4,000
b. Debit Accounts Receivable, P8,000; c. Debit Drawing Expense, P4,000; Credit
Credit Service Income, P8,000 Cash, P4,000
c. Debit Cash, P8,000; Credit Accounts d. None of the above
Receivable
d. None of the above

58. Received the utility bills for the month,

P4,500. The effects are: *

a. Debit Utilities Expense, P4,500; Credit

Cash, P4,500
b. Debit Utilities Expense, P4,500;
Credit Utilities Payable, P4,500
c. Debit Utilities Expense, P4,500; Credit
Service Income, P4,500
d. None of the above
1. An example of a contra account is: * 6. Which of the following is an example of
an adjusting entry? *

a. Depreciation expense
b. Sales revenue a. Recording the purchase of supplies on
c. Accounts receivable account
d. Accumulated depreciation b. Recording depreciation expense on a
truck
c. Recording the billing of customers for
2. At the date of purchase of a service which services rendered
is not immediately used up, the cost of such d. Recording the payment of wages to
unused service is a/an: * employees

a. Revenue 7. In the worksheet, the trial balance debit

b. Liability or credit amount of each account is
c. Asset combined with the amount of any debit or
d. Expense credit adjustment to that account to
determine the new or adjusted balance of
the account. This process is known as: *
3. Making insurance payments in advance
is an example of a/an: *
a. Balancing
a. Accrued receivable b. Footing
b. Unearned revenue c. Cross-footing
c. Accrued liability d. Totalling
d. Prepaid expense
8. An adjusting entry to record utilities used
4. Recording revenue earned from a during a month for which a bill has not yet
customer, but not yet received or collected, been received is an example of: *
is an example of a/an: *
1/1 a. Allocating assets to reflect the actual
a. Prepaid expense operating expenses incurred during the
b. Accrued liability accounting period
c. Unearned revenue b. Allocating revenues received in advance
d. Accrued income to revenue to reflect actual revenues
earned during the accounting period
c. Accruing expenses to reflect
5. Prepayments occur when: * expenses incurred during the
accounting period but which are not yet
paid or recorded
a. Cash payment precedes expense d. Accruing revenues to reflect revenues
recognition earned during the accounting period that
b. Sales are delayed pending credit are not yet received or recorded
approval
c. Customers are unable to pay the full
amount due when goods are delivered
d. Manufactured goods await quality control
inspections
9. Which of the following is an example of 13. Which of the following accounts is an
an accrual? * income statement account? *

a. Payment of two years’ insurance in a. Accounts receivable

advance b. Salaries and wages
b. Services rendered by employees but c. Owner’s capital
whose salaries have not yet been paid d. Accrued Salaries
c. Purchase of office supplies
d. Tuition fees received in advance
14. Which of the following is an example of
a deferral? *
10. An adjusted trial balance is prepared
to: *
a. Legal fees already earned but not yet
collected
a. Prove that the ledger is still in balance b. Taxes accrued but not yet paid
after the accounts have been adjusted c. Accumulation of interest in a bank
and facilitate preparation of the financial account
statements. d. Fees received this month for services
b. Facilitate preparation of the adjusting to be rendered next month
entries.
c. Facilitate preparation of the closing
entries. 15. Failure to adjust for accrued salaries at
d. Test if the ledger is still in balance before the end of the period will result in an: *
the accounts have been adjusted.
a. Overstatement of assets
11. Which of the following accounts would b. Overstatement of liabilities
normally be found on the credit side of the c. Overstatement of profit for the period
adjusted trial balance? * d. Understatement of profit for the period

a. Accumulated Depreciation-Equipment 16. Expenses are incurred: *

b. Depreciation Expense-Equipment
c. Prepaid Interest a. Only during the adjustment process
d. Accounts Receivable b. To generate revenue
c. To produce assets
12. Which of the following is not an d. To incur liabilities
application of accrual accounting? *
17. Failure to record the unearned portion of
a. Adjusting unearned advertising revenues rent received in advance would: *
to the correct balance at the end of the
month a. Understate income
b. Recording advertising revenues at the b. Understate profit
time cash payment is received c. Overstate expenses
c. Recording advertising revenues at the d. Understate total liabilities
time the work is done
d. Recording telephone expense when the
monthly bill is received
18. Failure to record the unexpired portion 22. On Jan 1, 2020, P140,000 was paid for
of insurance premiums paid would: * rent for 14 months. The payment was
recorded in the Rent Expense account. How
much is the Prepaid Rent as of Dec 31,
a. Understate total expenses 2020? *
b. Understate profit
c. Overstate owner’s equity
d. Overstate total liabilities a. P140,000
b. P 20,000
c. P120,000
19. Which of the following is an application d. P 10,000
of accrual accounting? * e. None of the above

a. Depreciating a building as quickly as 23. On Nov 1, 2021 insurance premiums

allowed by income tax regulations amounting to P125,000 for five months were
b. Expensing a machine in its entirety as paid and recorded in the Prepaid Insurance
expense when purchased account. Of this amount, how much was the
c. Recording revenue at the time payment Prepaid Insurance as of Dec 31, 2021? *
is received
d. Recording utilities expense when the
monthly bill is received a. P125,000
b. P 50,000
c. P 25,000
20. Which of the following results in the d. P 75,000
recognition of an expense? * e. None of the above

a. Expiration of usefulness of equipment 24. For the fiscal year ended Mar 31, 2020,
during the accounting period a business that offers yoga lessons received
b. Payment of the principal amount of a loan P14,000 in yoga fees, which was recorded
c. Payment of accounts in the Yoga Fees Earned account. Included
d. Withdrawal of cash by the owner in this amount is P3,500 for April 2020 yoga
lessons. Of the P14,000 how much was
21. The beginning balance of Accounts actually earned during the fiscal year? *
Receivable was P120,000. Services billed
to customers for the period were P215,000, a. P14,000
and the collections on account from the b. P10,500
customers were P236,000. What was the c. P17,500
ending balance of Accounts Receivable? * d. P 3,500
e. None of the above
a. P335,000
b. P 99,000
c. P141,000
d. P331,000
e. None of the above
25. On January 1, 2021, a P150,000 28. The company provides for uncollectible
payment was made for rent expense for 15 accounts based on an estimate. This is
months, which was recorded in the rent called the: *
expense account. How much was the
prepaid rent expense as of December 31,
2021? * a. Allowance method
b. Accrual method
c. Direct write-off method
a. P 10,000 d. Matching method
b. P 120,000
c. P 30,000
d. P 150,000 29. Adjusting entries are: *
e. None of the above
a. The same as correcting entries.
26. Cash of P235,000 was received in 2020 b. Needed to bring accounts up to date
and recorded in the commission income and to match revenues and expenses
account. It was discovered that an additional c. Optional under generally accepted
commission income of P47,000 was earned accounting principles.
but was not yet received as at Dec. 31, 2020. d. Rarely needed in large companies.
How much was the commission income
earned during the year ended Dec 31, 30. Adjusting entries are made to ensure
2020? * that: *

a. P 47,000 a. Assets, liabilities, income and expenses

b. P235,000 have correct balances at the end of the
c. P188,000 accounting period.
d. P282,000 b. Revenues and expenses are recognized
e. None of the above in the period in which they are earned and
incurred, respectively.
27. Equipment costing P50,000 showed an c. Part of the asset that has been used up
adjusted accumulated depreciation of is recognized as expense.
P13,500 as of December 31, 2020. If the d. All of the above
estimated useful life is ten years and scrap e. None of the above
value is P5,000, the date of acquisition
was: * 31. A business has Cash of P30,000; Notes
Payable of P25,000; Accounts Payable of
a. January 1, 2018 P43,000; Service Revenue of P70,000 and
b. June 30, 2017 Accrued Rent Expense of P18,000. On the
c. January 1, 2017 basis of these data, how much are its total
d. June 30, 2018 liabilities? *
e. January 1, 2016
a. P 55,000
b. P 86,000
c. P 68,000
d. P138,000
32. Insurance Expense account has a 35. The Giveaway Enterprises reported an
balance of P10,800 before adjustment. This Allowance for Bad Debts of P16,000 (credit)
amount represents insurance premiums for at December 31, 2020, before any
three months beginning December 1, 2020. adjustment. At the end of the year, the
Based on these data, the insurance company reports accounts receivable of
expense for the year ended December 31, P800,000, 3% of which is estimated to be
2020 is: * uncollectible. The adjusting entry required
at December 31, 2020 would be: *
a. P0
b. P 7,200 a. Dr. Bad Debts Expense, 8,000; Cr.
c. P 3,600 Allowance for Bad Debts, 8,000
d. P 10,800 b. Dr. Bad Debts Expense, 16,000; Cr.
Allowance for Bad Debts, 16,000
c. Dr. Bad Debts Expense, 24,000; Cr.
33. Prior to adjustments, Supplies Expense Allowance for Bad Debts, 24,000
account has a balance of P13,500. d. Dr. Bad Debts Expense, 40,000; Cr.
Adjustment data gathered shows that Allowance for Bad Debts, 40,000
supplies inventory on hand at year-end
amounted to P4,500. The amount of
supplies expense to be shown in the income 36. In the worksheet, the owner’s capital
statement is: * account is found in the: *

a. P 4,500 a. Balance sheet debit column and nowhere

b. P 13,500 else
c. P 9,000 b. Trial balance credit column, adjusted
d. P 18,000 trial balance credit column and balance
sheet credit column
c. Trial balance credit column, adjustments
34. Rent Income account has a credit credit column, adjusted trial balance credit
balance of P240,000 as at Dec 31, 2020 column, and balance sheet credit column
composed of the following: Rent received d. Trial balance credit column and income
for three months ending March 31, 2020, statement debit column
P45,000• A credit of P195,000 representing e. Trial balance debit column, adjustments
advance rental collection for one year debit column, adjusted trial balance credit
beginning April 1, 2020.The December 31, column, and income statement credit
2020 adjusting entry will require a debit to column
Rent Income and a credit to Unearned Rent
of: *
37. Which two steps in the accounting cycle
are aided by the preparation of the
a. P 45,000 worksheet? *
b. P 191,250
c. P 48,750
d. P195,000 a. Adjusting the accounts and preparing
the financial statements
b. Analysing source documents and
preparing financial statements
c. Posting journal entries and adjusting the
accounts
d. Journalizing transactions and posting to
the accounts
38. Which columns of the worksheet show 42. In the adjusted trial balance, the owner’s
unadjusted amounts? * capital account reflects the: *

a. Trial balance a. Beginning balance

b. Income statement b. Increase in income
c. Adjustments c. Ending balance
d. Balance sheet d. Net effect of all the adjusting entries

39. Which situation indicates a loss in the 43. Which of the following steps comes first
income statement columns of the in worksheet preparation? *
worksheet? *
a. Compute each account’s adjusted
a. When the total debits equal total credits balance by combining the trial balance and
b. When the total credits exceed the total adjustment figures.
debits b. Compute the profit or loss as the
c. When the total debits exceed the total difference between total revenues and total
credits expenses in the income statement.
d. None of the above c. Enter the account balances in the
unadjusted trial balance columns and
foot the debit and credit columns.
40. Which sections of the worksheet show d. Enter the adjusting entries in the
profit? * adjustment columns and total the amounts.

a. Balance sheet 44. If the income statement debit and credit

b. Adjusted trial balance columns are not equal after adding the
c. Income statement respective columns: *
d. Both a and c
e. Both b and c a. An error has been made.
b. The entity either generated a net profit
41. Supplies has a P60,000 balance in the or incurred a net loss.
unadjusted trial balance. At year-end the c. The entity generated a profit.
count of supplies showed P20,000. What d. The entity incurred a loss.
adjustment will appear on the worksheet? * e. The liabilities must exceed the assets.

a. Dr. Supplies, 40,000; Cr. Supplies 45. The amount of net profit will appear on
Expense, 40,000 the debit side of the income statement
b. Dr. Supplies Expense, 20,000; Cr. columns on a worksheet: *
Supplies, 20,000
c. Dr. Supplies Expense, 40,000; Cr. a. If profit exceeds the owner’s withdrawals
Supplies, 40,000 b. If total assets exceeded total liabilities for
d. No adjustment is needed because the the period
Supplies account balance is correctly c. If total expenses exceeded total revenue
stated. for the period
d. If total revenues exceeded total
expenses for the period
e. If withdrawals were made during the
period
 49. The income statement debit column of
46. Assuming an entity is profitable in the the worksheet contains: *
current period, the total of the balance sheet
credit column in the worksheet will be: *
a. Asset account balances
b. Expense account balances
a. Larger than the balance sheet debit c. Contra asset account balances
column d. Liability account balances
b. Larger than the income statement credit e. Revenue account balances
column
c. Larger than the income statement debit
column 50. Which of the following comes first in the
d. Smaller than the balance sheet debit accounting process? *
column
a. Journalizing business transactions
47. In which columns of the worksheet b. Preparation of an adjusted trial balance
would the adjusted balance of Accumulated c. Preparation of an unadjusted trial
Depreciation appear? * balance
d. Preparation of the worksheet

a. Adjusted trial balance credit, balance

sheet credit 51. The purpose of the post-closing trial
b. Adjusted trial balance credit, income balance is to: *
statement credit
c. Adjusted trial balance debit, balance a. Provide the account balances for the
sheet debit preparation of the balance sheet
d. Trial balance credit, adjustments credit, b. Ensure that the ledger is in balance for
adjusted trial balance credit, balance sheet the completion of the worksheet
credit c. Aid in the journalization and posting of
e. Trial balance debit, adjusted trial balance the closing entries
debit d. Ensure that the general ledger is in
balance for the start of the next
48. If total credits exceed total debits in the accounting period
balance sheet columns of a worksheet, *
52. If the last item on a trial balance reads
a. A net loss was incurred. “Owner’s Capital”, this must be the: *
b. A net profit was generated.
c. A mistake was committed. a. Unadjusted trial balance
d. The assets exceeded liabilities. b. Adjusted trial balance
e. No conclusion can be drawn until the c. Trial balances of totals
closing entries have been made. d. Post-closing trial balance
53. If a trial balance were to be prepared on 57. Which of the following sequences of
the first day of the new accounting period, documents or records describes the proper
and the account Salaries Expense had a sequence in the accounting cycle? *
credit balance, you would know that: * 1/1
a. Source documents, ledger, journal,
a. The trial balance is a post-closing trial financial statements, worksheet
balance b. Journal, source documents, ledger,
b. The adjusting entries have been worksheet, financial statements
recorded c. Source documents, journal, ledger,
c. A reversing entry has been made worksheet, financial statements
d. The trial balance is an unadjusted trial
balance d. Ledger, source documents, financial
statements, journal, worksheet
54. Reversing entries are: *
58. Closing entries will: *
a. Optional
b. Made to record a change in corporate a. Increase the owner’s capital balance.
objectives b. Decrease the owner’s capital balance
c. Required by generally accepted c. Not affect the owner’s capital balance
accounting principles d. Either increase or decrease the
d. Made prior to preparing a post-closing owner’s capital balance
trial balance
59. If no adjustments are needed for a
55. An important purpose of closing entries particular entity, its: *
is to: *

a. Adjust the accounts in the ledger a. Post-closing trial balance will be identical
b. Set nominal account balances to zero to its trial balance.
at the start of the next accounting period b. Adjusted trial balance will be the same as
c. Set real account balances to zero at the its post-closing trial balance.
start of the next accounting period c. Trial balance will be the same as its
d. Set all account balances to zero at the adjusted trial balance.
start of the next accounting period d. Trial balance, adjusted and post-closing
trial balance will be the same.

56. Which of the following is done last in the

accounting process during the current 60. Which of the following could not possibly
accounting period? * be a closing entry? *

a. Journalizing reversing entries a. Dr. Income Summary and Cr. Owner’s

b. Preparing the post-closing trial Capital
balance b. Dr. Owner’s Capital and Cr. Owner’s
c. Preparing the adjusted trial balance Drawings
d. Preparing the financial statements c. Dr. Income Summary and Cr. Owner’s
Drawings
d. Dr. Owner’s Capital and Cr. Income
Summary
61. At the end of the accounting period, the 65. Which of the following accounts could
equation Assets = Liabilities + Owner’s appear in an adjusting entry, a closing entry
Equity does not balance. Which of the and a reversing entry? *
following actions balances the equation? * 1/1
a. Salaries Payable
a. Subtract revenues from and add b. Interest Income
expenses to owner’s equity. c. Depreciation Expense
b. Subtract revenues from owner’s equity d. Prepaid Advertising
and add expenses to assets.
c. Add to owner’s equity the difference
between revenues and expenses. 66. In preparing closing entries, which of the
d. Add revenues to and subtract expenses following columns of the worksheet are most
from assets. helpful? *

62. The post-closing trial balance a. Adjustments columns

contains: * b. Adjusted trial balance columns
c. Income statement columns
d. Balance sheet columns
a. Real accounts only
b. Nominal accounts only
c. Both real and nominal accounts 67. An accrued expense is classified as
d. Neither real nor nominal accounts a/an: *

63. In which financial statement does a. Current asset

Income Summary appear? * b. Current liability
c. Operating expense
d. Operating income
a. Income statement
b. Statement of changes in equity
c. Statement of financial position 68. The adjustment for a prepaid expense
d. Statement of Cash Flows requires a/an: *
e. It does not appear in any financial
statement. a. Decrease in asset and increase in
expense
64. If an entity suffered a loss, the amount b. Increase in asset and increase in
of the loss is entered on the worksheet on revenue
the: * c. Decrease in revenue and decrease in
asset
a. Debit side of the Income Statement and d. Increase in asset and decrease in
credit side of the Balance Sheet expense
b. Credit side of the Income Statement
and debit side of the Balance Sheet
c. Debit side of both the Income Statement
and Balance Sheet
d. Credit side of both the Income Statement
and Balance Sheet
69. Which of the following statements is 3. The Statement of Cash Flows would
true? * disclose the owner’s cash withdrawal in
the: *
a. Only nominal accounts are contained in
an adjusted trial balance. a. Financing activities section
b. The accrual principle records revenue b. Investing activities section
only when cash is received, and records c. Operating activities section
expenses only when cash is paid. d. Notes to the financial statements
c. The post-closing trial balance provides
the basis for the preparation of the financial
statements. 4. Which of the following payments is a cash
d. The worksheet is accomplished at the outflow from operating activities? *
end of the accounting period to work out
the adjustments and prepare the a. For purchase of supplies
financial statements. b. To acquire property and equipment
c. To settle notes payable
70. Accrued income is classified as a/an: * d. To owners in the form of withdrawals

a. Current asset 5. Which of the following receipts is a cash

b. Current liability inflow from financing activities? *
c. Non-current liability
d. Operating expense a. From collection of customers’ accounts
b. From interest on notes receivable
c. From issuance of notes payable
QUIZ MIDTERMS d. From sale of property and equipment

1. Which of the following is an example of a 6. Closing entries reduce the following types
financing activity? * of accounts to a zero balance at the end of
the accounting period. *
a. Obtaining a bank loan
b. Paying taxes to the government a. Income and expenses
c. Producing goods and services b. Income summary
d. Purchasing a building c. Withdrawals
d. All of the above
2. Which of the following is an example of e. Only a and b
an investing activity? *
7. If the last item on a trial balance reads
a. Employing workers “Owner’s Capital”, this must be the: *
b. Paying off a loan
c. Selling idle land not used by the entity a. Post-closing trial balance
d. Owner’s cash contribution b. Unadjusted trial balance
c. Adjusted trial balance
d. Reversed trial balance
8. Reversing entries are: * 12. Closing entries will ultimately affect
the: *
a. Made to record a change in corporate
objectives a. Total liabilities
b. Required by generally accepted b. Cash account
accounting principles c. Total assets
c. Optional d. Owner’s Capital account
d. Made prior to the preparation of the post-
closing trial balance
13. If no adjustments are needed for a
particular entity, its: *
9. Which of the following is done last in the
accounting process? *
a. Post-closing trial balance will be the
a. Preparation of the post-closing trial same as its unadjusted trial balance.
balance b. Adjusted trial balance will be the same as
b. Preparation of an adjusted trial balance its post-closing trial balance.
c. Preparation of the worksheet c. Unadjusted trial balance will be
d. Preparation of the trial balance from the identical to its adjusted trial balance.
general ledger d. Unadjusted trial balance, adjusted trial
balance and post-closing trial balance will
all be identical.
10. An important purpose of closing entries
is to: *
14. Which of the following could not possibly
be a closing entry? *
a. Adjust the accounts in the ledger.
b. Set nominal accounts to a zero
balance at the start of the next a. Debit Income Summary and credit
accounting period. Owner’s Capital
c. Set real account balances to zero at the b. Debit Owner’s Capital and credit Owner’s
start of the next accounting period. Withdrawals
d. Help in the preparation of the financial c. Debit Income Summary and credit
statements. Owner’s Withdrawals
d. Debit Owner’s Capital and credit Income
Summary
11. Which of the following accounting cycle
steps is done before the others? *
15. In preparing closing entries, which of the
following columns of the worksheet are most
a. The financial statements are prepared. helpful? *
b. Closing entries are recorded and posted.
c. Source documents are analysed and
recorded. a. Adjustments columns
d. Adjusting entries are recorded and b. Adjusted trial balance columns
posted. c. Income Statement columns
d. Balance Sheet columns
16. Which of the following accounts could 21. Financial statement time periods should
appear in an adjusting entry, closing entry be of equal length, *
and reversing entry? *
a. And should correspond with the calendar
a. Interest Income year
b. Salaries Payable b. And should end during the peak season
c. Depreciation Expense c. To comply with loan agreements
d. Accumulated Depreciation d. To make comparison meaningful

17. When there is a loss, the entry to close

the Income Summary account is: * 22. As the usefulness of the asset Property
and Equipment expires, *

a. Debit Loss and credit Income Summary

b. Debit Owner’s Capital and credit a. A liability is created.
Income Summary b. An amount is transferred from one asset
c. Debit Income Summary and credit Loss account to another
d. Debit Income Summary and credit c. A related expense account is reduced.
Owner’s Capital d. The cost of the asset is allocated to an
expense account.

18. In which financial statement does the

Income Summary account appear? * 23. If the amount of profit for the current
period is less than the amount of the
owner’s withdrawals, there will be a/an: *
a. Income statement
b. Statement of changes in equity
c. Balance sheet a. Decrease in the cash account
d. It does not appear in any financial b. Decrease in the owner’s capital
statement. account
c. Increase in liabilities on the balance
sheet
d. Increase in the cash account
19. Which of the following accounts is not e. Increase in the owner’s capital account
closed? *
24. The primary purpose of reversing entries
a. Income Summary is to: *
b. Owner’s Capital
c. Commission Income
d. Taxes and Licenses a. Correct errors.
b. Simplify the recording of regular
transactions in the next accounting
20. Consider the steps in the accounting period.
cycle. Which part of the accounting cycle c. Transfer the balance of the expense
provides information to help a business accounts to the owner’s capital account and
decide whether to expand its operations? * set the accounts equal to zero.
d. Place the expenses for the current period
in the proper accounts.
a. Post-closing trial balance
b. Adjusting entries
c. Closing entries
d. Financial statements
25. Which of the following pairs of accounts
could not be included in the same adjusting
entry? *

a. Interest Expense and Interest

Receivable
b. Rent Expense and Rent Payable
c. Salaries Expense and Accrued Salaries
d. Precollected Fees and Fees Earned

FINALS
TRUE or FALSE QUESTIONS

FALSE Under the periodic (perpetual) inventory system, purchases of merchandise

are recorded in the Merchandise Inventory account.

TRUE Taking a physical inventory refers to making a count of all merchandise on

hand at a particular time.

TRUE Sales Returns and Allowances is a contra-revenue account.

TRUE An advantage of using the periodic inventory system is that it requires less
record-keeping than the perpetual inventory system.

FALSE Trade discounts (Purchase Discounts: buyer; Sales Discounts: seller) are
offered to the buyer to encourage early payment of accounts.

FALSE The purchase of equipment for use in the business, not for resale, should be
debited to the Purchases (Equipment) account.

FALSE The terms “freight prepaid or freight collect” will dictate who should bear the
transportation costs. (who paid the freight)

TRUE The perpetual inventory system requires the recording of the cost of each
sale as it occurs.

TRUE The two systems in accounting for merchandise bought and sold are the
periodic and perpetual inventory methods.

TRUE Sales Discount normally has a debit balance.

FALSE Under the periodic (perpetual) inventory system, the Cost of Goods Sold is
treated as an account.

An entity would more likely know the amount of inventory on hand or unsold
FALSE merchandise at any time if it uses the periodic (perpetual) inventory method
rather than the perpetual inventory method.

TRUE Under the perpetual inventory system, the Merchandise Inventory account
is not affected when a sales allowance is granted by the seller.

TRUE Goods bought or sold should be recorded at the list price less any trade
discounts involved.

TRUE Under the periodic inventory system, the Purchases account is used to
accumulate all items acquired primarily for resale purposes.

FALSE FOB shipping point implies that while the goods are in transit, the seller is
still the owner of such goods.

TRUE FOB destination means that the seller agrees to shoulder the freight cost.

FALSE Cash discounts are termed Purchases Discounts from the viewpoint of the
seller (buyer).

FALSE A credit term of “2/10, n/30” means that the buyer may deduct 2% from the
 invoice price if payment is made within 10 days from the end of the month
(date of purchase).

FALSE There is no need for a physical count if the entity uses the perpetual
inventory method. (there is still a need for comparable tally; to verify if
inventory in stock cards are the same with the physical count.)

TRUE Transportation In is considered as an added cost of merchandise purchased.

TRUE Merchandise inventory could include goods that are still in transit.

TRUE The perpetual inventory method provides an up-to-date amount of inventory

still on hand.

TRUE The terms “FOB shipping point or FOB destination” determine who should
bear the freight cost.

TRUE When the periodic inventory method is used, a physical inventory should be
made at the end of the year to determine the unsold merchandise.

1. A supplier offers the following discounts: Trade discount of 10% at list price and 5% cash
discount if paid in full before the due date. How much will a customer pay before due date at
a list price of P16,000? *

a. P13,680
b. P14,000
c. P15,520
d. P16,000

2. Which account does a merchandiser, but not a service entity, use? *

a. Sales
b. Inventory
c. Cost of sales
d. All of the above
e. None of the above

3. The main inventory systems are *

a. Purchases and sales

b. Returns and allowances
c. Cash and accrual basis
d. Periodic and perpetual

4. Which of the following activities is not a component of the operating cycle? *

a. Collection of accounts from credit sales of goods

b. Ordering of merchandise
c. Acquisition of merchandise
d. Sale of goods

5. The perpetual inventory system is most commonly used by entities that sell: *

a. High-priced, high-volume merchandise

b. High-priced, low-volume merchandise
c. Low-priced, high-volume merchandise
d. Low-priced, low-volume merchandise

6. A physical count of inventory is usually taken: *

a. At the end of the accounting period

b. At the peak of the busy season
c. At the start of the accounting period
d. In the middle of the accounting period

7. A merchandiser will earn an operating income of exactly zero when the: *

a. Cost of goods sold equals gross margin/gross profit

b. Gross profit equals total operating expenses
c. Net sales equals cost of goods sold
d. Total operating expenses equal net sales

8. Which of the following is not a reason for sales discounts to be offered to the credit
customers? *

a. Increase the amount paid by the customers.

b. Improve the liquidity by converting the accounts receivable into cash.
c. Encourage earlier settlement of debts by debtors/customers.
d. Reduce the amount of bad debts.

9. Which of the following is correct about purchases discounts? *

a. It refers to the discounts offered by a third party for some reason.

b. It refers to the discounts enjoyed by customers due to bulk purchases.
c. It refers to the discounts enjoyed by customers due to the early settlement of the
debt.
d. It refers to a reduction in list price.

10. Which of the following items can lead to a difference between values of gross profit and
net profit? *

a. Sales returns
b. Freight in
c. Purchases returns
d. Freight out

11. Freight in represents the expenses spent on carrying the goods: *

a. Returned from the customers
b. Returned to the suppliers
c. Sold to the customers
d. Purchased from suppliers to the buyer entity

12. Which of the following equations correctly shows the meaning of net sales? *

a. Net sales = Gross sales – Purchases

b. Net sales = Gross sales – Sales returns
c. Net sales = Gross sales – Purchases returns
d. Net sales = Gross sales – Sales returns – Freight in

13. Transportation out refers to the cost: *

a. Needed to sell the goods to the customers

b. Incurred to transport the goods sold to the customers
c. Incurred in advertising the goods available for sale
d. Regarding the human resource needed to manufacture the products

14. Each of the following companies is a merchandising entity, except a: *

a. Candy store
b. Appliance store
c. Car wash
d. Drugstore

15. Operating income will result if gross profit exceeds: *

a. Cost of goods sold

b. Cost of goods sold plus operating expenses
c. Total operating expenses
d. Purchases

16. Which of the following is not considered an operating expense? *

a. Administrative expenses
b. Advertising expense
c. Cost of goods sold
d. Transportation out

17. A sale on March 15 with terms of n/eom is due to be collected by: *

a. March 31
b. April 30
c. April 10
d. None of the above
18. An amount deducted from the list price for an item of merchandise is called a: *

a. Customer discount
b. Sales discount
c. Purchases discount
d. Trade discount

19. Under the perpetual inventory system, which of the following accounts would not be
used? *

a. Cost of sales
b. Purchases
c. Merchandise inventory
d. Sales

20. Which of the following is not considered in computing the net cost of purchases? *

a. Purchases
b. Purchases returns and allowances
c. Freight paid on goods shipped to customers
d. Freight paid on goods bought

21. The entry to record a sale of P7,500 with terms of 2/10, n/30 would include a: *

a. Credit to Accounts receivable for P7,500

b. Credit to Sales for P7,500
c. Debit to Sales discounts for P150
d. Debit to Sales for P7,350

22. The collection of a P4,000 account within the 2% discount period would result in a: *

a. Credit to Accounts receivable for P3,920

b. Credit to Cash for P3,920
c. Debit to Accounts receivable for P3,920
d. Debit to Sales discounts for P80

23. The collection of a P5,000 account beyond the 2% discount period would result in a: *

a. Credit to Accounts receivable for P5,000

b. Credit to Cash for P5,000
c. Debit to Cash for P4,900
d. Debit to Sales discounts for P100

24. Assuming that net purchases was P900,000 during the year, and that the ending
merchandise inventory was P20,000 less than the beginning merchandise inventory of
P250,000, how much was cost of goods sold? *
a. P1,130,000
b. P 920,000
c. P 670,000
d. P1,170,000

25. The entry to record a payment of a P15,000 account within the 2% discount period would
include a: *

a. Credit to Accounts payable for P14,700

b. Credit to Cash for P14,700
c. Debit to Accounts payable for P14,700
d. Debit to Purchases discounts for P300

26. Under a perpetual inventory system, the entry to record a purchase of P60,000 with
terms of 2/10, n/30 would include a: *

a. Credit to Accounts payable for P58,800

b. Debit to Purchases for P60,000
c. Debit to Accounts payable for P58,800
d. Debit to Merchandise Inventory for P60,000

27. The basic differences between the financial statements of a merchandising entity and a
service entity include the cost of sales section of the income statement and the: *

a. Equity section of the balance sheet

b. Inclusion of merchandise inventory on the balance sheet as a current asset
c. Other income section of the income statement
d. Profit amount

28. In preparing a ten-column worksheet that uses the perpetual inventory system, *

a. Only the beginning merchandise inventory is extended to the debit side of the income
statement columns.
b. The beginning merchandise inventory is extended to the debit side and the ending
inventory to the credit side of the income statement columns.
c. Only the ending merchandise inventory is extended to the debit side of the balance
sheet columns.
d. The beginning merchandise inventory is extended to the debit side and the ending
inventory to the credit side of the income statement columns, and also to the debit side of
the balance sheet columns.

29. Cost of goods sold is a major expense of a merchandising entity. *

a. True
b. False

30. Which of the following is not relevant to the computation of net purchases? *

a. Purchases returns and allowances

b. Purchases discounts
c. Sales discounts
d. Freight in

31. When preparing a worksheet for a merchandising entity that uses the perpetual inventory
system, the merchandise inventory amount shown on the trial balance is the beginning
balance that will be carried over to the income statement debit column. *

a. True
b. False

32. When preparing closing entries under the periodic inventory system, Sales and
Purchases Returns and Allowances are both closed in the same entry. *

a. True
b. False

33. Under the periodic inventory method, the two Merchandise Inventory accounts appear in
the closing entries made at the end of the period. *

a. True
b. False

34. Under the perpetual inventory method, the ending Merchandise Inventory is closed at the
same time as Cost of sales. *

a. True
b. False

35. The excess of gross profit over total operating expenses is called operating profit or
income from operations. *

a. True
b. False
 SPECIAL JOURNALS AND VOUCHER SYSTEM

1. The special journal in which the purchase of merchandise on account may be recorded is
the: *

a. Cash disbursements journal

b. Purchases journal
c. General journal
d. Sales journal

2. If only credit sales of goods are recorded in the Sales Journal, a cash sale of merchandise
should be recorded in the: *

a. Cash receipts journal

b. Cash disbursements journal
c. Sales journal
d. General journal

3. How is a return of goods by a credit customer recorded in the books of the seller? *

a. Dr. Accounts receivable; Cr. Sales

b. Dr. Sales Returns; Cr. Accounts receivable
c. Dr. Accounts Payable; Cr. Purchases Returns
d. Dr. Purchases; Cr. Accounts Payable

4. If only goods bought on credit are recorded in the Purchases Journal, the purchase of
supplies on account is recorded in the: *

a. General journal
b. Purchases journal
c. Cash disbursements journal
d. Sales journal

5. To which account is the debit entry for the total of the Sales Journal posted? *

a. Accounts payable
b. Accounts receivable
c. Sales
d. Purchases

6. Collections of accounts receivable are recorded in the: *

a. Sales journal
b. General journal
c. Cash disbursements journal
d. Cash receipts journal
7. Which of the following is not a benefit of using special journals? *

a. Similar transactions are recorded in one book.

b. The clerical work of journalizing and posting is minimized.
c. Several employees can work simultaneously.
d. It eliminates the need for the general journal.

8. The total of the cash disbursements journal is posted to which side of the account, Accounts
Payable? *

a. Debit
b. Credit
c. Neither debit nor credit side
d. Both sides

9. Which of the following should be maintained to be able to monitor the individual balances
of the account customers? *

a. General ledger
b. General journal
c. Accounts payable subsidiary ledger
d. Accounts receivable subsidiary ledger

10. Credit sales of merchandise are recorded in the: *

a. Purchases journal
b. General journal
c. Sales journal
d. Cash payments journal

11. The payment of accounts is recorded in the: *

a. Cash payments journal

b. Cash receipts journal
c. Purchases journal
d. Sales journal

12. The adjusting entry to record accrued income is recorded in the: *

a. Cash receipts journal

b. General journal
c. Sales journal
d. Purchases journal

13. The individual amounts in the accounts payable column of the purchases journal are
posted to the appropriate accounts in the: *

a. Accounts payable subsidiary ledger

b. Accounts receivable subsidiary ledger
c. General ledger
d. General journal
14. The controlling account that summarizes the individual accounts with creditors in a
subsidiary ledger is: *

a. Accounts receivable
b. Accounts payable
c. Purchases

15. A special journal contained columns for cash, purchases discounts, and accounts payable.
This is a: *

a. Sales journal
b. Purchases journal
c. Cash receipts journal
d. Cash disbursements journal

16. Which of the following is true of a voucher system? *

a. All major expenditures, including cash transactions, would first be credited to

Vouchers Payable before any payment is made.
b. The check register replaces the cash receipts journal.
c. The voucher register contains a debit column for vouchers payable.
d. Transactions are first entered in the check register, and later, when payment is made, in
the voucher register.

17. Special journals are modified in 19. The primary ledger that contains all of
practice to adapt to the specific needs of an the balance sheet and income statement
entity. * accounts is the general ledger. *

a. True True
b. False False

18. Each amount in the “Other Accounts” 20. When special journals, control
column of the cash receipts journal must be accounts and subsidiary ledgers are used,
posted individually to the appropriate no posting to any ledger account is done
general ledger account. * until the end of the month. *

True True
False False
 FAR Finals Quiz 1 – 2021
Journalize the following transactions of Chesca Trading, a VAT-registered entity, during the
month of November of the current year. All sales, purchases and freight are inclusive of 12%
VAT. Credit sales are on terms of 3/5, 2/10, n/20, FOB destination. The entity uses the
perpetual inventory system. Cost of goods sold is 75% of sales. (Round off to the nearest peso
all amounts)
Nov 02 - Purchased store equipment, P33,600, from Alum Company. Terms: 2/5, n/15.
FOB shipping point. Freight paid, P1,120.

Nov 2 Store Equipment (P33,600 / 1.12) 30,000

Input Tax (P30,000 x 12%) 3,600
Accounts Payable - Alum Co. 36,600
To record store equipment bought on
account

Nov 2 Store Equipment (P1,120 / 1.12) 1,000

Input Tax (P1,000 x 12%) 120
Accounts Payable 1,120
To record transportation cost

03 –Bought goods from DCQ Enterprises, P94,080. Terms: 3/10, n/30, FOB shipping
point. Freight paid on the above goods, P3,360.

Compound Entry
Nov 3 Merchandise Inventory (P97,440 / 1.12) 87,000
Input Tax (P87,000 x 12%) 10,440
Accounts Payable 94,080
Cash 3,360
To record merchandise bought on account

Single Entries
Nov 3 Merchandise Inventory (P94,080 / 1.12) 84,000
Input Tax (P84,000 x 12%) 10,080
Accounts Payable 94,080
To record merchandise bought on account
 Nov 3 Merchandise Inventory (P3,360 / 1.12) 3,000
Input Tax (P3,000 x 12%) 360
Cash 3,360
To record the transportation cost

04 - Returned damaged goods worth P2,800 to DCQ and received a credit memo.

Nov 4 Accounts Payable 2,800

Merchandise Inventory (P2,800 / 1.12) 2,500
Input Tax (P2,500 x 12%) 300
To record returned merchandise bought on
account

06 - Sold goods on account to 3M Store, P112,000.

Nov 6 Accounts Receivable 112,000

Sales (P112,000 / 1.12) 100,000
Output Tax (P100,000 x 12%) 12,000
To record credit sales

6 Cost of Sales 75,000

Merchandise Inventory 75,000
To record cost of goods sold
(P100,000 x 75% = 75,000)

- Freight paid on the above shipment, P1,568.

6 Freight Out (P1,568 / 1.12) 1,400

Input Tax (P1,400 x 12%) 168
Cash 1,568
To record shipping cost on merchandise
sold
07- Paid in full its account to Alum Company.

Nov 7 Accounts Payable 33,600

Store Equipment (P30,000 x 2%) 600
Input Tax (P600 x 12%) 72
Cash (P33,600 - 600 - 72) 34,128
To record full payment of account at 2% discount

08 - 3M Store returned P2,240 worth of goods.

Nov 8 Sales Returns and Allowances (P2,240 / 1.12) 2,000

Output Tax (P2,000 x 12%) 240
Accounts Receivable (P100,000 x 12%) 2,240
To record goods returned

Nov 8 Merchandise Inventory 1,500

Cost of Sales 1,500
To record receipt of return merchandise
(P2,000 x 75% = 1,500)

10 –3M paid its account in full.

Nov 10 Cash (P109,760 - 2,940 - 353) 106,467

Sales Discount [P100,000 - 2,000] x 3% 2,940
Output Tax (P3,293 x 12%) 353
Accounts Receivable (P112,000 - 2,240) 109,760
To record full collection of account at 2%
discount

12 – Sold merchandise on credit to Ariba Co., P134,400.

Nov 12 Accounts Receivable 134,400

Sales (P134,400 / 1.12) 120,000
Output Tax (P120,000 x 12%) 14,400
To record credit sales
 12 Cost of Sales 90,000
Merchandise Inventory 90,000
To record cost of goods sold
(P120,000 x 75% = 90,000)

- Paid P896 for the delivery of the goods to Ariba.

12 Freight Out (P896 / 1.12) 800
Input Tax (P800 x 12%) 96
Cash 896
To record shipping cost on merchandise sold

13 – Paid account to DCQ.

Nov 13 Accounts Payable (P94,080 - 2,800) 91,280

Merchandise Inventory (P84,000 - 2,500 = 81,500) x
3% 2,445
Input Tax (P2,445 x 12%) 293
Cash (P91,280 - 2,445 - 293) 88,542
To record full payment of account at 3% discount

15 – Bought merchandise, P112,000, from Viva Wholesalers. Terms: 3% eom, n/30,

FOB destination. Freight cost, P3,920.

Nov 15 Merchandise Inventory (P112,000 / 1.12) 100,000

Input Tax (P100,000 x 12%) 12,000
Accounts Payable 112,000
To record merchandise bought on account

18 – Bought supplies, P20,160. Terms: 1/5, n/15, FOB destination.

Nov 18 Supplies (P20,160 / 1.12) 18,000

Input Tax (P18,000 x 12%) 2,160
Accounts Payable 20,160
To record supplies bought on account
20 – Returned supplies worth P1,120 and received a credit memo.

Nov 20 Accounts Payable 1,120

Supplies (1,120 /1.12) 1,000
Input Tax (P 1,000 x 12%) 120
To record supplies return

21 – Sold goods on account to Lei Co., P100,800. Lei Co. paid the freight of P1,008.

Nov 21 Accounts Receivable 100,800

Sales (P100,800 / 1.12) 90,000
Output Tax (P90,000 x 12%) 10,800
To record credit sales

21 Cost of Sales 67,500

Merchandise Inventory 67,500
To record cost of goods sold
(P90,000 x 75% = 67,500)

21 Freight Out (P1,008 / 1.12) 900

Input Tax (P900 x 12%) 108
Accounts Receivable 1,008
To record shipping cost on merchandise
sold

22 – Collected the account of Ariba Co.

Nov 22 Cash (P134,400 - 2400 - 288) 131,712

Sales Discount (P120,000 x 2%) 2,400
Output Tax (P2,400 x 12%) 288
Accounts Receivable 134,400
To record full collection of account at 2%
discount
23 – Paid the supplies bought on the 18th.

Nov 205 Accounts Payable (P20,160 - 1,120) 19,040

Supplies (17,000 x 1%) 170
Input Tax (P170 x 12%) 20
Cash (19,040 - 170 - 20) 18,850
To record full payment of account at 1%
discount

25 – Purchased merchandise, P84,000, from Lala Traders. Terms: 3/5/ n/15, FOB
destination.

Nov 23 Merchandise Inventory (P84,000 / 1.12) 75,000

Input Tax (P75,000 x 12%) 9,000
Accounts Payable 84,000
To record merchandise bought on account

26 – Lei Co. paid its account.

Nov 26 Cash (P99,792 - 2,700 - 324) 96,768

Sales Discount (P90,000 x 3%) 2,700
Output Tax (P2,700 x 12%) 324
Accounts Receivable (P100,800 - 1,008) 99,792
To record full collection of account at 2%
discount

28 – Paid its account to Viva.

Nov 28 Accounts Payable 112,000

Merchandise Inventory (P100,000 x 3%) 3,000
Input Tax (P3,000 x 12%) 360
Cash (P112,000 - 3,000 - 360) 108,640
To record full payment of account at 3%
discount
30 – Paid in full its account to Lala Traders.

Nov 30 Accounts Payable 84,000

Merchandise Inventory (P75,000 x 3%) 2,250
Input Tax (P2,250 x 12%) 270
Cash (P84,000 - 2,250 - 270) 81,480
To record full payment of account at 3%
discount

- Paid salaries of helpers, P50,000.

Nov 30 Salaries Expense 50,000

Cash 50,000
To record salaries paid to helpers

- Closed the input and output tax accounts.

Nov 13 Output Tax 35,995

Deferred Tax 262
Input Tax 36,257
To close the input and output tax accounts
Breakdown:

Input Tax Output Tax

3,600 300 240 12,000
120 72 353 14,400
10,080 293 288 10,800
360 120 324
168 20
96 360
12,000 270
2,160
108
9,000

37,692 1,435 1,205 37,200

36,257.00 > 35,995.00

IT > OT Deffered Tax Deffered Tax 262

IT < OT Tax Payable

Purchases and Freight

= Increase the Input Tax

Purchase Returns and Allowanaces & Purchase Discounts

= Decrease the Input Tax

Sales
= Increase Output Tax

Sales Returns and Allowances & Sales Discounts

= Decrease Output
 MIDTERMS ADJUSTING ENTRIES
(For December 31, 2020)

1. The following are selected account balances taken from the trial balance as of the end of the
year:
Accounts Receivable P 160,000
Allowance for Doubtful Accounts 2,550
Sales 1,500,000
Additional information revealed that 60% of the sales are on account (credit sales). It is the
policy of the company to provide 2% of credit sales as doubtful accounts

Doubtful Accounts Expense P 18,000

Allowance for Doubtful Accounts P 18,000
To record doubtful accounts expense for the year

2. Using the same information in No. 1, but the policy of the company is to provide an allowance
for doubtful accounts equal to 8% of the outstanding accounts.

Doubtful Accounts Expense P 10,250

Allowance for Doubtful Accounts P 10,250
To record doubtful accounts expense for the year

3. Equipment worth P450,000 with an estimated life of 10 years and a scrap value of P10,000,
acquired on April 1 of this year.

Depreciation Expense – Equipment P 33,000

Accumulated Depreciation – Equipment P 33,000
To record depreciation of 9 months on the equipment

4. Furniture and fixtures costing P120,000 with an estimated life of 8 years, no scrap value,
acquired on July 1, 2020.

Depreciation Expense – Furniture and Fixtures P 7,500

Accumulated Depreciation – Furniture and fixtures P 7,500
To record depreciation of 6 months on the equipment
5. Issued to PNB for a bank loan an 18%, 90-day note for P150,000 dated November 1, 2020. No
interest has been paid on this note.

Interest Expense P 4,500

Interest Payable P 4,500
To record accrued interest for 2 months

6. Paid premiums for a two-year insurance policy of P18,000 on September 1, 2019.This was
recorded in the Prepaid Insurance account. The expired portion in 2019 was properly recorded
on Dec. 31, 2019.

Insurance Expense P 9,000

Prepaid Insurance P 9,000

To record the insurance premiums expired during the year

7. Recorded in Advertising Expense is P12,000 for a ten-month contract effective October 1,

2020.

Prepaid Advertising P 8,400

Advertising Expense P 8,400
To record unused portion of advertising

8. Received a 6%, 60-day note for P18,000 dated December 1, 2020 from a customer. No
interest has been collected on this note.

Interest Receivable P 90
Interest Income P 90
To record accrued interest income for 1 month

9. Cash received in advance and credited to Rent Income for a lease contract on land and
building owned by the business is P600,000 for 15 months effective July 1, 2020.

Rent Income P 360,000

Unearned Rent Income P 360,000
To record the unearned portion for 9 months
10. Included in the Unearned Tours Revenue balance of P85,000 is P50,000 that was already
earned during the year.

Unearned Tours Revenue P 50,000

Tours Revenue P 50,000
To record tours revenue earned