PSBA Integrated Review

Financial Accounting and Reporting – Theory and Problem Accounting Process

1. What is the first step in the accounting cycle?

a. Record transactions in a journal

b. Analyze transactions from source documents
c. Post journal entries to the ledger
d. Prepare adjusting entries

2. Which is not among the first five steps in the accounting cycle?

a. Record transactions in a journal

b. Record closing entries
c. Posting entries to the ledger
d. Prepare adjusting entries

3. Which of the following is an optional step in the accounting cycle?

a. Adjusting entries
b. Closing entries
c. Financial statements
d. Reversing entries

4. The recording process includes all of the following, except

a. Analyzing source documents

b. Preparing the financial statements
c. Recording in the journal
d. Posting journal entries to the ledger

5. Debits

a. Increase assets and decrease expense, liabilities, revenue and equity

b. Increase assets and expense and decrease liabilities, revenue and equity
c. Increase assets and equity and decrease liabilities, expense and revenue
d. Decrease assets and expenses and increase liabilities, revenue and equity

6. The normal balance of an account is on the

a. Debit side of the account

b. Credit side of the account
c. Side represented by increases in the account balance
d. Side represented by the decreases in the account balance

7. What does double entry accounting system mean?

a. Each transaction is recorded with two journal entries

b. Each item is recorded in a journal entry and then in a ledger account
c. The dual effect of each transaction is recorded with a debit and a credit
d. All of the above

8. A simple journal entry

a. Consists of one debit and one credit

b. Consists of two debits and one credit
c. Consists of two credits and one debit
d. Is a memorandum entry
9. An entry that contains more than two accounts is called

a. A posted journal entry

b. An adjusting entry
c. An erroneous journal entry
d. A compound journal entry

10. Which of the following is a nominal account?

a. Loan payable
b. Accounts receivable
c. Doubtful account expense
d. Cash and cash equivalent

11. Real accounts include all of the following, except

a. Assets
b. Liabilities
c. Income
d. Equity

12. Posting is the process of transferring information from

a. Journal to the general ledger

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

13. Which statement is true regarding the trial balance?

a. Ensures that all amounts have been posted to the correct accounts
b. It is a step in the recording process
c. Determines that total debits equal total credits
d. Determines that total debits equal total credits and that all amounts have been posted
to the correct accounts

14. An unadjusted trial balance

a. Provides information that is helpful when making adjusting entries

b. Proves that no errors have been made
c. Usually contains the account balances that should appear in the financial statements
d. Is a summary taken from the general journal

15. If an expense has been incurred but not yet recorded, the adjusting entry would involve

a. A liability and an asset

b. A liability and a revenue
c. An expense and an asset
d. An asset and revenue

16. Which of the following least resembles an adjusting entry?

a. Debit asset and credit revenue

b. Debit expense and credit liability
c. Debit revenue and credit liability
d. Debit asset and credit liability

17. Which of the following best defines an accrual?

a. Adjusting entries where cash flow precedes revenue or expense recognition

b. Adjusting entries where revenue or expense recognition precedes cash flow

c. Adjusting entries where cash flow and revenue or expense recognition are
 simultaneous
d. None of the above

18. Which of the following is false?

a. Prepaid expense can be described as an amount paid and not currently matched with
earnings.
b. Accrued expense can be described as an amount not paid and currently matched with
earnings
c. Accrued income can be described as an amount collected and currently matched with
expenses
d. Deferred income can be described as an amount collected and not currently matched
with expenses

19. After the accounts have been closed

a. All the accounts have zero balances

b. The asset, liability and shareholder’s equity accounts have zero balances
c. The revenue, expense, income summary and retained earnings account have zero
balances
d. The revenue, expense and income summary accounts have zero balances

20. The postclosing trial balance

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

21. Reversing entries

a. Are normally prepared for accruals and prepayments

b. Are necessary to achieve proper matching of revenue and expense
c. Are desirable to exercise consistency and establish standardize procedures
d. Must be made at year end

22. A reversing entry should never be made for an adjusting entry that

a. Accrues unrecorded revenue

b. Adjusts expired costs from an asset account to an expense account
c. Accrues unrecorded expense
d. Adjusts unexpired costs from an expense account to an asset account

23. An entity received cash of P240,000 on October 1, 2020. The amount represents rent for
one year, and the entity used the liability method. The adjusting entry on December 31,
2020 will include

a. A debit to deferred rent income of P180,000.

b. A debit to deferred rent income of P60,000.
c. A credit to rent income of P240,000.
d. A credit to rent receivable of P180,000.

24. An entity receives interest on a P1,000,000, 12% note receivable every September 1. The
adjusting entry on December 31, 2020 will include

a. A debit to interest receivable of P120,000.

b. A debit to cash of P40,000.
c. A credit to interest income of P40,000.
d. A credit to interest income of P120,000.
25. Using the information above, the entry to collect the annual interest on September 1,
2021 if the entity prepares reversing entry will include

a. A credit to interest receivable of P40,000.

b. A credit to interest income of P120,000.
c. A debit to interest income of P80,000.
d. A credit to interest receivable of P80,000.
26. On January 1, 2020, an entity purchased supplies costing P500,000. The entity records
the purchase by using the asset method. On December 31, 2020, supplies on hand
amounted to P150,000. The adjusting entry on December 31, 2020 will

a. Increase supplies by P150,000.

b. Decrease supplies by P150,000.
c. Increase supplies expense by P350,000.
d. Decrease supplies expense by P350,000.

27. On January 1, 2020, the supplies account had a balance of P15,000. During the year, an
entity purchased supplies for P200,000 and recorded the payment as expense. On
December 31, 2020, a physical count revealed that supplies amounted to P27,000. The
entity does not prepare reversing entries. The adjusting entry on December 31, 2020 will
include a

a. Debit to supplies expense of P200,000

b. Debit to supplies of P27,000
c. Credit to supplies expense of P12,000
d. Debit to supplies expense of P15,000

28. On January 1, 2020, an entity had royalty receivable of P35,000. During the year, the
entity collected royalties amounting to P150,000. The income statement revealed that
royalty income for the year is P200,000. What is the adjusting entry on December 31,
2020 if reversing entries are prepared by the entity?

a. Debit royalty receivable, P85,000 and credit royalty income, P85,000

b. Debit royalty receivable, P50,000 and credit royalty income, P50,000
c. Debit cash, P150,000, credit royalty receivable P35,000, credit royalty income
P115,000
d. Debit royalty receivable P200,000 and credit royalty income P200,000

END