Mindanao State University

College of Business Administration and Accountancy

DEPARTMENT OF ACCOUNTANCY
Marawi City

FRAMEWORK OF ACCOUNTING AND FINANCIAL STATEMENTS

Accounting 121

Name: _______________________________, CPA Section: _________ Score: __________

TRUE OR FALSE. Write A if the statement is correct and B if the statement is wrong.
_______1. The basic purpose of accounting is to provide qualitative financial information
about an entity that is useful in making rational economic decisions.
_______2. Financial accounting can be broadly defined as the area of accounting that
prepares special-purpose financial statements to be used by parties both internal
and external to the entity.
_______3. Managerial accounting is the area of accounting that emphasizes developing
accounting information for use within an entity.
_______4. Republic Act 9892 or the Philippine Accountancy Act of 2004 is the law regulating
the practice of Accountancy in the Philippines.
_______5. The Board of Accountancy is the body authorized by law to promulgate rules and
regulations affecting the practice of accountancy profession in the Philippines.
_______6. The Accounting Standards Council is the accounting standard setting body created
by the Professional Regulation Commission upon recommendation by the Board of
Accountancy to assist the Board of Accountancy in carrying out its powers and
functions.
_______7. Generally accepted accounting principles derive their credibility and authority from
general recognition and acceptance by the accountancy profession.
_______8. The process of establishing financial accounting standards is a social process
which incorporates political actions of various interested user groups as well as
professional research and logic.
_______9. Once an accounting standard has been established, it will not be reviewed unless
an interested party makes a formal complaint with the concerned accounting
standard setting body.
_______10. The singularly unique function performed by CPAs is the attest or audit function.
_______11. The International Accounting Standards Board was formed to develop worldwide
accounting standards which it publishes in a series of pronouncements called
International Accounting Standards.
_______12. The Philippine Interpretations Committee was created to provide timely guidance
on financial reporting issues specifically addressed in current Philippine accounting
standards.
_______13. The Financial Executives of the Philippines (FINEX) represents the major
organization of users and preparers of financial statements in the Financial
Reporting and Standards Council.
_______14. The Framework specifically mentions two underlying assumptions, namely accrual
and going concern.
_______15. Under accrual basis, the effects of transactions and events are recognized when
they are paid or received in cash or its equivalent.
_______16. Under the going concern assumption, the entity is assumed to be able to continue
in operation for the foreseeable future.
_______17. The financial statements that are prepared for the business are separate and
distinct from the owners according to the concept of accounting period.
_______18. In accordance with the unit of measure assumption, accountants normally revise
the amounts to reflect the changing purchasing power of money due to inflation or
deflation.
_______19. The Securities and Exchange Commission shall not register any corporation
organized for the practice of public accountancy unless the corporation so
organized promotes the public’s interest.
_______20. Investors require information on the risk and return on investment and hence an
entity’s ability to pay dividends.
_______21. All information needs of users can be met by financial statements.

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_______22. The Conceptual Framework is an accounting standard and defines standard for
any particular measurement or disclosure issue.
_______23. Analysis of the statement of financial position is useful in assessing an entity’s
liquidity which is the ability to satisfy long-term obligations.
_______24. Information about the financial performance of an entity is primarily provided in the
income statement.
_______25. Quantitative characteristics are the attributes that make the information provided in
financial statements useful to users.
_______26. The fundamental characteristics of financial information are relevance and faithful
representation.
_______27. Consistency is one of the enhancing characteristics of financial information.
_______28. In the event of conflict between the economic substance of a transaction and its
legal form, the economic substance shall prevail.
_______29. The concept of understandability mandates that complex matters should be
excluded from the financial statements as they can’t be fully understood by users.
_______30. Reliability is one of the fundamental characteristics of financial information.
_______31. Financial information exhibits consistency when accounting entities give similar
events the same accounting treatment each period.
_______32. Solvency refers to an entity’s sources of financing for its assets.
_______33. Revenue includes both the income that arises from the ordinary course of
operations and the gains resulting from incidental transactions.
_______34. The only accounting constraint holds that information should be timely so as to be
useful to users.
_______35. Measurement is the process of incorporating in the financial statements an item
that meets the definition of an element of financial statement.
_______36. Realization refers to the process of converting noncash resources and rights into
cash or claims to cash.
_______37. The benefit derived from the information should exceed the cost incurred in
obtaining the information.
_______38. Depreciation of property, plant and equipment is a concrete example of the
application of the cause and effect association under the matching principle.
_______39. Financial statements are the means by which the information accumulated and
processed in financial accounting is periodically communicated to the users.
_______40. A complete set of financial statements excludes the notes to financial statements
which only serve as a supplement to the other financial statements.
_______41. Financial statements shall be presented at least annually.
_______42. The elements directly related to the measurement of financial position are assets,
liabilities and equity.
_______43. Assets are resources controlled by the entity as a result of past or future
transactions and events and from which future economic benefits are expected to
flow to the entity.
_______44. Liabilities are present and future obligations of an entity arising from past
transactions or events, the settlement of which is expected to result in an outflow of
resources embodying economic benefits.
_______45. The operating cycle of an entity is the time between the acquisition of assets for
processing and their realization in cash or cash equivalents. When the operating
cycle of an entity is not clearly identifiable, it is assumed to be 6 months.
_______46. The standard prescribes the use of the report form in the presentation of statement
of financial position.
_______47. Comprehensive income includes the profit or loss for the period and other
comprehensive income of an entity.
_______48. The natural presentation of the income statement is favored for its simplicity and
understandability.
_______49. The statement of retained earnings is no longer a required basic statement.
_______50. Extraordinary items such as extraordinary gains and losses are no longer allowed
to be presented on the face of the income statement.

“It is the direction of your goals, not the struggles around you,
that will determine your success.”
Anonymous

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