Fundamentals of Accounting

Diagnostic Test
Prof. John Christopher A. Durano
Multiple Choice Questions (30-Item Examination)
Instruction: Choose the correct answer

1. Which of the following accounts is not a temporary account?

a. Income Summary
b. Rental Revenue
c. Capital
d. Withdrawals

2. The subtotals of the Income Statement columns of the work sheet are P3,500 and P4,900, respectively. If
the subtotal of the Balance Sheet Debit column is P,600, then the subtotal of the Balance Sheet Credit
column should be

a. P1,400
b. P11,000
c. P8,200
d. P6,800

3. The subtotals of the Income Statement columns of the work sheet are P6,200 and P4,900, respectively. If
the subtotal of the Balance Sheet Debit column is P19,000, then the subtotal of the Balance Sheet Credit
column should be

a. P20,300
b. P1,300
c. P17,700
d. P14,400

4. Revenue and expense accounts at the beginning and end of the accounting period should have

a. a balance of zero
b. balances of cumulative amounts of activity during the period
c. a net balance (credits minus debits) equal to the capital account
d. a net balance equal to assets minus liabilities

5. Which is true about an adjusting entry?

a. only a permanent account is adjusted

b. only a temporary account is adjusted
c. a permanent account and a temporary account is adjusted
d. it is required to satisfy the realization principle only

6. After the closing procedure is complete, which of the documents proves the equality of debits and credits?

a. Income Statement
b. Account form balance sheet
c. Post-Closing Trial Balance
d. Work Sheet

7. At the end of the fiscal year, an adjusting entry was made for accrued salaries of $500. On the first day of
the new year the adjusting entry was reversed. The salaries for one week, $1,250, were paid on the first
Friday. The entry to record paying the salaries expense for the week would be a

a. Sal. Exp., dr., P750; Salaries Payable, dr., P500; Cash, cr., P1,250
b. Sal. Exp., dr., P500; Salaries Payable, dr., P750; Cash, cr., P1,250
c. Salaries Exp., dr., P1,250; Cash, cr., P1,250
d. Salaries Exp., dr., P1,250; Salaries Payable, cr., P1,250

8. Optional entries that transfer the balances in balance sheet accounts which arose as a result of certain
adjusting entries to income statement accounts is the definition for which term below?

FUNDAMENTALS OF ACCOUNTING 1
 a. adjusting entries
b. reversing entries
c. closing entries
d. declarations of cash dividends

9. The last account listed on the post-closing trial balance for a corporation is the

a. Capital account
b. Withdrawals account
c. Retained Earnings account
d. Common Stock account

10. The last account listed on the post-closing trial balance for a single proprietorship business is the

a. Capital account
b. Withdrawals account
c. Retained Earnings account
d. Common Stock account

11. Combining several business units is called as ______________.

a. merger.
b. acquisition.
c. integration.
d. retreat.

12. The duration of short term plan is ______________.

a. 18 months.
b. 16 months.
c. 14 months.
d. 12 months.

13. The external environment factor that includes: Factors that have a less immediate effect on a business
such as the nation’s rate of inflation or recession, unemployment rate, or standard of living, is
______________.

a. political factors.
b. sociological factors.
c. indirect economic factors.
d. direct economic factors.

14. A manufacturing company has divided its departments into pattern making, fabric cutting, and fabric
coloring. What type of departmentalization is this?

a. Geography Departmentalization.
b. Process Departmentalization.
c. Matrix/Project Departmentalization.
d. Function Departmentalization.

15. Which type of organization is permanent and stable?

a. Formal Organization.
b. Informal Organization.
c. Business Or Oganisation.
d. Strategic Organization.

16. The revenues and expenses of a company are displayed in which statement?

a. Balance Sheet
b. Cash Flow Statement
c. Income Statement
d. None of the above

FUNDAMENTALS OF ACCOUNTING 2
17. The main Purpose of Financial Accounting is?

a. To Provide financial information to shareholders

b. To maintain balance sheet
c. To minimize taxes.
d. To keep track of liabilities

18. The expanded accounting equation is used by which statement?

a. Cash Flow Statement

b. Balance Sheet
c. Income Statement
d. None of the above

19. What type of balance do asset accounts have?

a. Contra
b. Credit
c. Debit
d. All of the above

20. The kind of debts which are needed to be repaid in a short term is known as?

a. Fixed Liabilities
b. Current Liabilities
c. Depreciating Assets
d. Intangible Assets

21. The account which increases equity is known as?

a. Debit Account
b. Credit Account
c. Revenue
d. Treasury Stock

22. What are the long-term assets which do not have any physical existence?

a. Intangible Assets
b. Tangible Assets
c. Current Liabilities
d. Current Assets

23. The Expenses, Profit & Loss of an organization are recorded in which account?

a. Current Account
b. Personal Account
c. Nominal Account
d. None of the above

24. Which person owes an amount to a business organisation for buying goods and services on a credit basis?

a. Creditors
b. Debtors
c. Owner
d. None of the above

25. When are balance sheets prepared?

a. Quarterly
b. Yearly
c. Monthly
d. None of the above

FUNDAMENTALS OF ACCOUNTING 3
26. What is Current Liability?

a. Assets of a company that are expected to be sold or used as a result of standard business operations
over the next year.
b. A potential liability that may occur in the future.
c. Company's short-term financial obligations that are due within one year or within a normal operating
cycle.
d. Obligations listed on the balance sheet not due for more than a year.

27. An objective of financial reporting is

a. Providing information useful to investors, creditors, donors, and other users for decision making.
b. Assessing the adequacy of internal control.
c. Evaluating management results compared with standards.
d. Providing information on compliance with established procedures.

28. The management of ABC Corporation is analyzing the financial statements of XYZ Corporation because
ABC is strongly considering purchasing a block of XYZ ordinary shares that would give ABC significant
influence over XYZ. Which financial statement should ABC primarily use to assess the amounts, timing,
and certainty of future cash flows of XYZ Company?

a. Income statement.
b. Statement of changes in equity.
c. Statement of cash flows.
d. Statement of financial position.

29. Which of the following is true regarding the comparison of managerial and financial accounting?
a. Managerial accounting is generally more precise.
b. Managerial accounting has a past focus, and financial accounting has a future focus.
c. The emphasis on managerial accounting is relevance, and the emphasis on financial accounting is
timeliness.
d. Managerial accounting need not follow generally accepted accounting principles (GAAP), while
financial accounting must follow them.

30. The primary purpose of the statement of financial position is to reflect

a. The fair value of the firm assets at some moment in time.

b. The status of the firm assets in case of forced liquidation of the firm.
c. The success of a company operations for a given amount of time.
d. Items of value, debt, and net worth.

****END of Exam****
***GODBLESS***

FUNDAMENTALS OF ACCOUNTING 4