1st Quiz in FABM1 (Part I)

Name: ____________________________
Grade & Section: ________________
Multiple Choice
1. A business received Php 6,000.00 cash from charge customers to apply on account. The effect of the transaction is:
a. an increase in an asset and an increase in revenue.
b. an increase in an asset and a decrease in capital.
c. an increase in an asset and a decrease in a liability.
d. an increase in an asset and a decrease in an asset.
e. an increase in an asset and an increase in capital.
Answer: D.
Initial entry for service rendered on account is:
Accounts Receivable 6,000
Service Revenue 6,000
So, upon collection or receipt of payment from customers on account (charge customers), the entry would be:
Cash 6,000
Accounts Receivable 6,000
An increase in an asset (Cash), and a decrease also in another asset account (Accounts Receivable).

2. When the rent for the business is paid with a check,

a. Cash is decreased and Rent Expense is decreased.
b. Cash is decreased and Rent Income is increased.
c. Cash is decreased and Rent Expense is increased.
d. Cash is decreased and Accounts Payable is decreased.
e. Cash is increased and Rent Expense is decreased.

Answer: C.
When the business paid for its monthly rental, the entry would be:
Rent Expense xxx
Cash xxx
Therefore, Rent Expense INCREASED (but the effect on Capital is DECRASED, because expenses
decrease the capital) , and Cash DECREASED.

3. When an owner deposits cash in an account in the name of the business, it is an increase to
a. Cash and Accounts Receivable.
b. Cash and Withdrawals.
c. Cash and Capital.
d. Cash and Accounts Payable.
e. Cash and Rent Expense.

Answer: C.
This transaction pertains to INVESTMENT. The entry for cash investment would be:
Cash xxx
Owner, Capital xxx
Both Cash and Capital increased.

4. If an owner invests her laptop computer and printer in the business, there is an increase to
a. Cash and Capital.
b. Computer Equipment and Withdrawals.
c. Cash and Withdrawals.
d. Computer Equipment and Capital.
e. Computer Equipment and Cash.

Answer: D.
This transaction pertains also to INVESTMENT. The entry for property investment would be:
Computer Equipment xxx
Owner, Capital xxx
Both Computer Equipment and Capital increased.

5. The purchase of an asset on account will

a. increase total liabilities and decrease total assets.
b. have no effect on total assets or total liabilities.
c. increase total assets and increase total liabilities.
d. increase total assets and increase owner's equity
e. increase total assets and decrease owner's equity

Answer: C.
Assume that the asset purchased ON ACCOUNT is an equipment. The entry would be:
Equipment (Asset) xxx
Accounts Payable (Liability) xxx
Both Asset and Liability accounts increased.

6. Which of the following is a form of Revenue?

a. A check paying a mortgage.
b. A credit purchase invoice.
c. Credit sales to charge customers.
d. A cash purchase invoice.
e. A check paying utilities.

Answer: C.

A. Payment (settlement) of a liability.

B. Purchase on account.
D. Cash purchase.
E. Payment of an expense.

7. The purchase of an asset for cash will

a. increase total assets and decrease total liabilities.
b. have no effect on total assets or total liabilities.
c. increase total assets and increase total liabilities.
d. increase total assets and increase total owner's equity.
e. increase total assets and decrease total owner's equity.

Answer: B.
Assume that the purchased asset is an equipment. The enty would be:
Equipment xxx
Cash xxx
This transaction increased one asset account (Equipment) and decreased another asset account (Cash),
therefore, there is no effect in total assets, most especially there is no effect in total liabilities
because the terms of purchase is in the form of cash and not on account.

8. Which of the following is not considered an account?

a. Equipment
b. Revenues
c. Accounts Payable
d. Cash
e. Accounts Receivable

Answer: B. All other mentioned in the choices are accounts, and REVENUE is a MAJOR ACCOUNT.

9. When business entity receives payment before delivering goods, the unearned revenue account is
a. debited.
b. debited and credited.
c. credited.
d. not affected.

Answer: C.
The entry for this kind of transaction (pertains also to Advances from Customers) would be:
Cash xxx
Unearned Revenue xxx

Unearned Revenue (Liability account) is recognized (increased, credited) because adhering to Accrual
Basis Assumption, revenue and expenses must be recognized on the time it was earned or
incurred. In this transaction, the business haven't delivered the goods yet but they already received
IN ADVANCE the payment from their customer/s, therefore, a liability to customer/s arises. When
the goods have been delivered, that is the only time the business will recognize their income, thus
decreasing their liability (unearned revenue account).
 Unearned Revenue xxx
Sales xxx

10. When an entity pays employees for their services, the effect is an increase in
a. expenses.
b. assets.
c. income.
d. liabilities.

Answer: A.
The entry for payment of salaries would be:
Salaries Expense xxx
Cash xxx
Therefore, the effect is an increase to EXPENSES (Salaries Expense) and a DECREASE to CAPITAL
(because expenses and withdrawals decrease the CAPITAL.)

11. The issuance of a note by an entity for services received should be recorded as
a. unearned revenue.
b. notes payable.
c. prepaid expense.
d. accounts receivable.

Answer: B.
In this transaction, the business is the one who received the service and the one who issued the note,
making a promise to pay for their expenses (ex: Repairs Expense) in a certain period of time.
Therefore the entry would be:

Repair Expense xxx

Notes Payable xxx

12. Debits
a. increase assets and decrease expenses, liabilities, revenue, and owner's equity.
b. increase assets and owner's equity and decrease liabilities, expenses, and revenue.
c. increase assets and expenses and decrease liabilities, revenue and owner's equity.
d. decrease assets and expenses and increase liabilities, revenue, and owner's equity.

Answer: C.
DEBIT side (left side):
Increases ASSETS (except contra-asset accounts) and EXPENSES;
Deceases LIABILITIES, REVENUE, AND OWNER'S EQUITY.

13. The company collected in full an account receivable. considering this transaction alone,
a. total assets will remain the same.
b. total assets will increase.
c. total assets will decrease.
d. equity will increase.

Answer: A.
If the entity collected an account receivable, the entry would be:
Cash xxx
Accounts Receivable xxx
Cash is debited because collection (receipt of cash) increases the cash account. Accounts
Receivable is credited to decrease the amount of collectible from the business' charge
customers.
Therefore, TOTAL ASSETS REMAIN the same, because while there is an increase to ASSET (Cash
Account), there is also a decrease in another ASSET account (Accounts Receivable).

14. Which of the following statements is correct?

a. To record an increase in any given asset account, that account must be debited.
b. To record a decrease in capital, the capital account must be credited.
c. To record an increase in any given liability account, that account must be debited.
d. To record a decrease in any given liability account, that account must be credited.
 Answer: A. The statement indicating that an increase in asset is a DEBIT to asset account is CORRECT.
B. A decrease in capital is a DEBIT to capital account.
C. An increase in liability is a CREDIT to liability account.
D. A decrease in liability is a DEBIT to liability account.

15. Recording a single transaction in the double-entry accounting records may

a. increase the balance on an asset account by a given amount and decrease the balance on a liability account by the
same amount.
b. decrease the balance on a liability account by a given amount and decrease the balance on an asset account by the
same amount.
c. increase the balance on one asset account by a given amount and increase the balance on another asset account by
the same amount.

Answer: B.
An example transaction for Statement B is PAYMENT OF LIABILITY (say, Accounts Payable) on a
previously purchase of an asset (say, equipment) on account. The entry would be,

Accounts Payable xxx

Cash xxx
The effect is a decrease in liability account (Accounts Payable, a debit is a decrease in liability) and a
decrease in an asset account (Cash, a credit is a decrese in asset).

Assets Liabilities Capita

l
A. Assets = Liab +Capital xxx (xxx)
B. Assets = Liab + Capital (xxx) (xxx)
C. Assets = Liab +Capital xxx
xxx

1st Quiz in FABM1 (Part II)

Read and analyze each transaction carefully. Use the accounting equation to answer the questions/requirements that
follow.

A. Nelson Daganta formed the Liceo Sign Company on October 1, 2017. He deposited Php 250,000.00 in GE Money
Bank under the name of the new business entity. During the month of October 2017, the following transactions occured:

October 2017 Chart of Accounts

02 Acquired a service vehicle in the amount of Php 195,000. 00 on account. Assets
03 Acquired supplies for cash, Php 57,000.00. Cash
Accounts Receivable
09 Received Php 87,500.00 cash for signs painted.
Supplies
10 Paid the month's rent, Php 25,000.00.
Service Vehicle
11 Painted signs for Cagayan Company on account, Php 170,000. 00 Liabilities
12 Paid Php 55,000.00 on account from October 2. Accounts Payable
16 Withdrew Php 25,000.00 for personal use. Notes Payable
23 Collected 75% of receivable from Cagayan Company. Owner's Equity
N. Daganta, Capital
Present the movements on accounts as you analyze the transactions applying the N.Daganta, Drawing
accounting equation using the financial transaction worksheet. Revenue
Service Revenue
Compute for the total amount of assets, liabilities and owner's equity
Expenses
at the end of October 2017. (Nos. 1-7)
Rent Expense

Date Assets Liabilities Owner's Equity

October 2017 Account Title Amount Account Title Amount Account Title Amount
01 Cash P 250,000.00 ND, Capital P 250,000.00
02 Service Vehicle 195,000.00 Accounts Pay. P 195,000.00
03 Supplies 57,000.00
Cash (57,000.00)
09 Cash 87,500.00 Service Rev. 87,500.00
10 Cash (25,000.00) Rent Expense (25,000.00)
11 Accounts Rec. 170,000.00 Service Rev. 170,000.00
12 Cash (55,000.00) Accounts Pay. (55,000.00)
 16 Cash (25,000.00) ND, Drawing (25,000.00)
23 Cash 127,500.00
Accounts Rec. (127,500.00)

TOTAL P 597,500.00 P 140,000.00 P 457,500.00