FINANCIAL ACCOUNTING AND REPORTING REVIEW – BY SIR ANUAR I.

LOBO, CPA
1.1 ACCOUNTING PROCESS

1. Which is done first in the accounting process?

a. Financial statements are prepared.
b. Nominal accounts are closed
c. Adjusting entries are recorded.
d. A post-closing trial balance is prepared.

2. Which is done last in the accounting process considering the following?

a. Journalize and post-closing entries
b. Analyze transactions from source documents.
c. Prepare reversing entries
d. Record the transactions in a journal

3. Which is optional in the accounting cycle?

a. Reversing entries
b. Closing entries
c. Adjusting entries
d. Adjusted trial balance

4. The double entry accounting system means

a. Each transaction is recorded with two journal entries.
b. Each item is recorded in a journal entry and then in a general ledger.
c. The dual effect of each transaction is recorded with a debit and a credit.
d. All of these are choices regarding double entry system.

5. The normal balance of an account is on the

a. Debit side
b. Credit side
c. Side represented by the increase in the account balance
d. Side represented by the decrease in the account balance

6. Debits
a. Increase assets and decrease expenses, liabilities, revenue and equity.
b. Increase assets and expense and decrease liabilities, revenue and equity.
c. Increase liabilities, revenue and equity and decrease assets and expenses
d. Increase assets and equity and decrease liabilities and revenue

7. The debit and credit analysis of a transaction normally takes place

a. Before an entity is recorded in a journal.
b. When the entry is posted to the ledger.
c. When the trial balance is prepared.
d. At some other point in the accounting cycle.

8. A journal entry that contains more than two accounts is called

a. Simple journal entry
b. Compound journal entry
c. Erroneous journal entry
d. Adjusting entry

9. Which is not a possible combination of a journal entry?

a. Increase in asset and increase in liability
b. Decrease in equity and increase in liability
c. Decrease liability and decrease in asset
d. Increase in asset and decrease in equity
10. A chart of accounts is
a. A flowchart of all transactions
b. An accounting manual
c. A journal
d. A list of all account titles in the general ledger

11. Temporary accounts are known as

a. Real accounts
b. Nominal accounts
c. Mixed accounts
d. Contra accounts

12. Posting is the process of transferring information from

a. Source document to the journal
b. Journal to the source document
c. Journal to the general ledger
d. General ledger to the journal

13. What function do ledgers serve in the accounting process?

a. Reporting
b. Recording
c. Classifying
d. Summarizing

14. A trial balance may prove that debits and credits are equal, except
a. An amount could be entered in the wrong account.
b. A transaction could have been entered twice.
c. A transaction could have been omitted.
d. All of these may prove that debits and credits are equal.

15. Which of the following is not correct about an unadjusted trial balance?
a. It proves that debits and credits of equal amounts are in the ledger.
b. It is the basis for any adjustments to the account balances.
c. It supplies a listing of open accounts and their balances.
d. It proves that debits and credits were properly entered in the ledger accounts.

16. Adjusting entries affect

a. One nominal account and one real account
b. Two nominal accounts
c. Two real accounts
d. No particular combination of nominal and real accounts

17. What is the adjusting entry for ending inventory?

a. Debit ending inventory and credit beginning inventory
b. Debit beginning inventory and credit ending inventory
c. Debit ending inventory and credit income summary
d. Debit income summary and credit ending inventory

18. What is the adjusting entry for doubtful accounts?

a. Debit doubtful accounts and credit accounts receivable
b. Debit doubtful accounts and credit allowance for doubtful accounts.
c. Debit allowance for doubtful accounts and credit doubtful accounts.
d. Doubtful accounts do not require an adjusting entry.
19. What is the adjusting entry for depreciation?
a. Debit depreciation and credit asset
b. Debit asset and credit accumulated depreciation
c. Debit depreciation and credit accumulated depreciation
d. An adjusting entry is not required for depreciation

20. What is the adjusting entry for accrued expenses?

a. Debit accrued expenses and credit expense.
b. Debit expenses and credit accrued expense
c. Debit expenses and credit income
d. No need to adjust accrued expense.

21. What is the adjusting entry for prepaid expenses assuming the expense method is used?
a. Debit prepaid expenses and credit expenses.
b. Debit expenses and credit prepaid expenses
c. Debit prepaid expenses and credit accrued expense
d. It is not necessary to adjust prepaid expenses.

22. What is the adjusting entry for prepaid expenses assuming the asset method issued?
a. Debit prepaid expenses and credit accrued expenses
b. Debit expenses and credit accrued expenses
c. Debit expenses and credit prepaid expenses
d. No adjusting entry

23. What is the adjusting entry for accrued income?

a. Debit accrued income and credit income
b. Debit income and credit accrued income
c. Debit accrued income and credit accrued expenses
d. No adjusting entry

24. What is the adjusting entry for unearned income if the income method is used?
a. Debit unearned income and credit income
b. Debit income and credit unearned income
c. Debit accrued income and credit unearned income
d. No adjusting entry

25. What is the adjusting entry for unearned income if the liability method is used?
a. Debit income and credit unearned income
b. Debit accrued income and credit unearned income
c. Debit unearned income and credit income
d. No adjusting entry

26. An adjusting entry should never include

a. A debit to revenue and a credit to liability
b. A debit to expense and a credit to liability
c. A debit to liability and a credit to asset
d. A debit to asset and a credit to revenue

27. Which statement is not true about accrual and deferral?

a. An accrued expense is an amount not paid and currently matched with earnings.
b. A prepaid expense is an amount paid and not currently matched with earnings.
c. An accrued income is an amount not collected and currently matched with expenses.
d. A deferred income is an amount collected and currently matched with expenses.
28. Closing entries
a. Are optional in the accounting cycle
b. Affect only real accounts
c. Determine the amount of net income or net loss for the period
d. Reduce the balances of temporary accounts to zero

29. The postclosing trial balance

a. Provides a convenient listing of balances that can be used to prepare financial
statements.
b. Does not include nominal accounts
c. Is identical to the statement of financial position
d. Proves that accounts have been closed properly

30. Reversing entries apply to

a. All adjusting entries
b. All deferrals
c. All accruals
d. All closing entries

31. A reversing entry should never be made for an adjusting entry that
a. Accrues unrecorded revenue
b. Accrues unrecorded expenses
c. Adjusts expired costs from an asset account to an expense account
d. Adjusts unexpired costs from expense account to an asset account

32. Which of the following should be reversed assuming prepayments are initially recorded
in nominal accounts?
a. Adjusting entry to record ending inventory
b. Adjusting entry to record doubtful accounts
c. Adjusting entry to record depreciation
d. Adjusting entry to record portion of rental received in advance that is unearned at
year-end

33. An entity is a resort located in Boracay. The entity collects cash when guests make a
reservation. During December 2021, the entity collected P5,000,000 of cash and
recorded the receipt by recognizing unearned revenue. The entity had earned
P2,000,000 of this amount and the balance will be earned during January 2022. What is
the impact of the adjusting entry on December 31, 2021?

a. 3,000,000 increase in revenue

b. 2,000,000 decrease in liability
c. 5,000,000 increase in asset
d. 2,000,000 increase in liability

34. An entity recorded all purchases of supplies as expense. Prepaid supplies totaled
P400,000 on January 1, 2021. Supplies in the amount of P5,000,000 were purchased
during the current year. Actual year-end supplies unused amounted to P1,000,000. No
reversing entry was made on January 1, 2021. What is the adjusting entry on December
31, 2021?

a. Debit prepaid supplies and credit supplies expense P600,000

b. Debit supplies expense and credit prepaid supplies P600,000
c. Debit prepaid supplies and credit supplies expense P1,000,000
d. Debit supplies expense and credit prepaid supplies P1,000,000
35. An entity reported wages expense of P6,000,000 for 2021. The wages payable at the
beginning of year amounted to P1,500,000. Wage payments during the year totaled
P5,000,000. The previous year’s adjusting entry for unpaid wages was reversed on
January 1, 2021. What is the adjusting entry for accrued wages payable on December
31, 2021?
a. Debit wages expense and credit wages payable P1,000,000
b. Debit wages expense and credit wages payable P1,500,000
c. Debit wages expense and credit wages payable P2,500,000
d. Debit wages payable and credit wages expense P2,500,000

“When you have a dream, you’ve got to grab it and never let go.”
— Carol Burnett