CHAPTER 1

1. Which of the following statements regarding accounting is incorrect? A

a. All business transactions and events are recorded in the accounting books.
b. Although bookkeeping and accounting are interrelated, they are not the same.
c. The purpose of accounting is to provide information that is useful in making economic
decisions.
d. A transaction or event is recorded in the accounting records only if it has an effect on the
assets, liabilities, equity, income or expenses of the business.
2. Which of the following is not one of the necessary processes performed in accounting in
order to provide information that is useful to interested users? D
a. Identifying
b. Summarizing
c. Recording
d. Counting
3. Accounting is described in various ways. Which of the following is not one of those
descriptions? D
a. Accounting is a process and a service activity.
b. Accounting is a social science and a practical art.
c. Accounting is the “language of business” because it is fundamental to the
communication of financial information.
d. Accounting is the art of professionally stealing money and other evil purposes.
4. Accounting has a long history. Which of the following is incorrect regarding the history of
accounting? C
a. Accounting can be traced as far back as the prehistoric times.
b. Accounting is as old as civilization and has evolved in response to economic and social
needs of men.
c. Fra Luca Pacioli is the mama of modern accounting.
d. All of these are correct.
5. The main purpose of accounting is B
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.
6. In accounting, the term “recording” is also called A
a. journalizing.
b. communicating.
c. debiting.
d. videoing.
7. This process refers to the reporting of the information processed in the accounting system to
interested users. C
a. Measuring
b. Identifying
c. Communicating
d. Classifying
8. Which of the following statements is correct? C
a. Financial accounting is the branch of accounting that deals with the specific needs of an
entity’s management.
b. The internal users of accounting information include management, owners and creditors.
c. The external users of accounting information include potential and existing investors and
lenders and other creditors.
d. Government accounting is the branch of accounting that deals with the analysis of the
costs of products and services.

9. Which of the following statements is incorrect? D

a. Erroneous financial statements can lead to bad financial decisions.
b. Internal users of financial information refer to the entity’s management personnel.
c. Tax accounting refers to the branch of accounting that deals with tax computations, filing
of tax returns, and tax planning.
d. Accounting education is the branch of accounting that deals with the teaching of
accounting and related subjects in order to produce competent and responsible business
professionals.
10. The most common form of business organization is B
a. corporation.
b. sole proprietorship.
c. partnership.
d. cell phone stand.
11. This branch of accounting focuses on catering to the information needs of external users. B
a. Management accounting
b. Financial accounting
c. Auditing
d. External accounting
12. These users need accounting information in order to regulate businesses that are within the
scope of their legal authority. D
a. Employees
b. Creditors
c. Auditors
d. Government regulatory bodies or agencies
13. These users need accounting information in evaluating the stability of the business in so far
as their job security, future remuneration, and career growth and opportunities are
concerned. A
a. Employees
b. Creditors
c. Auditors
d. Regulatory authorities
14. The following are decisions made by external users except D
a. whether to hold or sell investments in stocks.
b. whether or not to extend a loan to the business.
c. whether to sell goods on credit to the business.
d. whether to obtain additional capital from outside creditors or to generate it internally.
15. Which of the following users of financial information is not considered a creditor of the
business? C
a. A loan provider, such as a bank
b. A supplier that sells goods to the entity on credit
c. A customer that buys goods from the entity on credit
d. A financing company that provides the entity with machineries on a “rent-to-own” basis
 CHAPTER 2
1. Which of the following terms may not refer to the logical notions and procedures that guide
the accountant in recording and communicating financial information?
a. Accounting concepts
b. Accounting principles
c. Accounting standards
d. Accounting laws and regulations
2. Under this concept, a business is not expected to end its operations in the near term.
a. Separate entity concept
b. Going concern
c. Stable monetary unit
d. Materiality
3. Transactions and other events are recorded in the periods in which they occur, not when they
affect cash.
a. Going concern
b. Accrual basis
c. Reporting period
d. Consistency
4. The personal transactions or the business owner that do not involve the business are not
recorded in the books of accounts of the business. This relates to the concept of
a. Separate entity concept.
b. Going concern.
c. Stable monetary unit.
d. Materiality.
5. Presenting all amounts in the financial statements in Philippine pesos and disregarding the
effects of inflation on the purchasing power of the Philippine peso relate to the concept of
a. Separate entity concept.
b. Going concern.
c. Stable monetary unit.
d. Materiality.
6. Under this concept, the life of the business is divided into a series of reporting periods.
a. Time period
b. Periodicity
c. Reporting period
 d. All of these
7. The banking industry in the Philippines is mainly regulated by the
a. CDA.
b. SEC.
c. BSP.
d. BIR.
8. The Standards used in the Philippines are patterned from
a. U.S. GAAP.
b. Spanish Standards.
c. Japanese Financial Reporting Standards
d. international standards, called the International Financial Reporting Standards
(IFRS)issued by the International Accounting Standards Board (IASB) which is based in
the U.K.
9. 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.
10. Which of the following relates to the concept of consistency?
a. Treating the business as a separate entity from its owner.
b. Recording sales revenue when a sale occurs rather than when the sale price is collected
c. Measuring assets at their acquisition cost.
d. Using the same accounting treatment for similar items from period to period.
11. Which of the following is an application of the concept of prudence or conservatism?
a. Choosing a potentially unfavorable outcome over a potentially favorable one.
b. Choosing a potentially favorable outcome over a potentially unfavorable one.
c. Deliberately understating assets and income and deliberately overstating liabilities and
expenses
d. Doing nothing in cases of uncertainty
12. The cost of providing or using information should not exceed the information’s usefulness.
a. Materiality
b. Cost-benefit or Cost constraint
c. Going concern
 d. Relevance
13. 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
14. 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
15. The accounting standards that are currently used in the Philippines are referred to as the
a. Philippine Financial Reporting Standards (PFRS).
b. Philippine GAAP.
c. Filipino Accounting Standards (FAS).
d. Juan's GAAP.
16. The usefulness of information is accessed in terms of is
a. qualitative characteristics
b. Verifiability
c. Umenness
d. size.
17. Which of the following is one of the fundamental qualitative characteristics?
a. Comparability
b. Relevance
c. Timeliness
d. Verifiability
18. Which of the following is correct concerning the qualitative characteristics?
a. Free from error means the information contained in the financial statements is perfectly
accurate in all aspects.
b. Neutrality means information is selected or presented with bias to increase the probability
that the information will be received favorably by the users.
c. Information that is not capable of affecting the decisions of users is considered irrelevant.
 d. The enhancing qualitative characteristics can convert non-useful information to useful
information.
19. A business purchased equipment for P10,000 but deliberately reported it as P100,000.
Which of the following principles is most likely not violated?
a. Faithful representation
b. Free from erroe\r
c. Historical cost
d. Materiality
20. This qualitative characteristic requires at least two items.
a. Comparability
b. Timeliness
c. Verifiability

CHAPTER 3
1. It is an economic resource controlled by the entity that has resulted from past events and
has a potential to produce economic benefits. A
a. Asset c. Equity
b. Liability d. Income
2. The term ‘economic resource’ connotes A
a. an asset. c. an equity.
b. a liability. d. all of these
3. The term ‘present obligation’ connotes B
a. an asset. c. an equity.
b. a liability. d. all of these
4. The claim of the owner(s) on the total assets of an entity is also called C
a. assets. c. equity.
b. liabilities. d. profit.
5. It is a present obligation that has resulted from past events and has the potential to cause a
transfer of an economic resource in its settlement. B
a. asset. c. expense.
b. liability. d. income.
6. A business owner’s contribution to the business results in D
a. an increase in assets and an increase in income.
 b. a decrease in assets and an increase in owner’s equity.
c. an increase in assets and an increase in liabilities.
d. an increase in assets and an increase in owner’s equity.
7. Indicating to others, through your past action, that you will accept and discharge certain
responsibilities, thereby creating an expectation on them that you will do so, creates an
obligation called D
a. legal obligation.
b. construction obligation.
c. indicative obligation.
d. constructive obligation.
8. A decrease in the economic benefits of a resource would be treated as C
a. asset. c. expense.
b. liability. d. income.
9. Which of the following would not give rise to income? C
a. enhancement in the value of an asset
b. decrease in liabilities
c. investment by the business owner to the business
d. all of these
10. In accounting, a negative amount is normally presented C
a. beginning with a minus sign.
b. as a squeezed amount.
c. in parentheses.
d. negatively.
11. Assets and liabilities result from A
a. past events.
b. future events.
c. income and expenses.
d. life events.
12. Which of the following is incorrect regarding profit? D
a. Profit is measured only indirectly as an arithmetical difference.
b. Profit is the excess of total income over total expenses.
c. Profit increases equity.
d. Profit is earned if total income is less than total expenses.
13. A business incurs total expenses of ₱630,000 and reports loss of ₱270,000. How much is
the total income? D
a. 900,000
b. 320,000
c. 380,000
d. 360,000
14. Which of the following is a correct accounting equation? D
ASSETS LIABILITIES EQUITY INCOME EXPENSE
S
a. ₱920,000 ₱710,000 ₱290,000 ₱440,000 ₱420,000

b. ₱870,000 ₱310,000 ₱240,000 ₱570,000 ₱150,000

c. ₱890,000 ₱240,000 ₱340,000 ₱600,000 ₱190,000

d. ₱740,000 ₱530,000 ₱170,000 ₱1,900,00 ₱1,860,00

0 0

15. Entity A had total assets, liabilities, and equity of ₱130M, ₱80M and ₱50M, respectively, at
the beginning of the period. During the period, Entity A’s total liabilities decreased by ₱20M,
while its profit was ₱25M. There were no other transactions or events that affected equity
during the period. How much is Entity A’s ending total assets? B
a. ₱95M

b. ₱135M

c. ₱85M

d. ₱125M