FUNDAMENTALS OF ABM 1 – Summative test Accounting concepts & Principles

1. The concept of the accounting entity is applicable

a. only to the legal aspect of business organization
b. only to the economic aspects of business organizations
c. only to business organization
d. whenever accounting is involved
2. Which of the following statements best describe the term “going concern”?
a. When the liabilities of an entity exceed assets
b. The ability of the entity to continue in operation for the foreseeable future
c. The potential to contribute to the flow of cash and cash equivalents to the entity
d. The expenses of the entity exceeds its income.
3. Which of the following accounting concepts states that an accounting transaction should be supported by
sufficient evidence to allow two or more qualified individuals to arrive at essentially similar conclusion?
a. matching b. objectivity c. periodicity d. stable monetary unit
4. Objectivity is assumed to be achieved when the accounting transaction
a. is recorded in a fixed amount in pesos. C. involves an arm-length transaction between two independent
bodies
b. involves the payment or receipt of cash D. allocates revenue or expenses in a rational and systematics manner
5. The principle of objectivity includes the concept of
a. summarization b. classification c. conservatism d. verifiability
6. The consistency standard of reporting requires that
a. expenses be reported as charges against the period in which they are incurred.
b. the effect of changes in accounting upon income be properly disclosed.
c. extraordinary gains and losses should not appear on the income statement
d. accounting procedures be adopted which give a consistent rate of return.
7. This principle requires relevant information to form part of financial statements for decision-making purposes.
a. objectivity b. accounting entity c. materiality d. adequate disclosure
8. Accounting changes are often made and the monetary impact is reflected in the financial statements of a
company even more though, in theory, this a violation of the accounting concept of
a. a. materiality b. consistency c. conservatism d. objectivity
9. The financial accounting process provides information about economic activities of an enterprise for a specified
accounting period that is shorter than the life of the enterprise.
a. going concern b. measurement of economic resources and obligations
c. time period d. measurement in terms of money
10. Continuation of an accounting entity in the absence of evidence to the contrary is an example of the basic concept of
a. accounting entity b. consistency c. going concern d. substance over form
11. During the lifetime of an entity, accountant produces financial statements at arbitrary points in time in
accordance with which basic accounting concept?
a. objectivity b. periodicity c. conservatism d. matching
12. The periodicity concepts
a. requires that all companies prepare monthly, quarterly and annual financial statements
b. involves dividing the life of a business entity into accounting periods of equal length thus enabling the
financial users to periodicity evaluate the results of business operation.
c. requires all companies to use fiscal year ending in December 31
d. results from Bureau of Internal Revenue requirement that taxable income be reported on an annual basis
 13. The matching principle implies that expenses
a. should be deducted from revenue in the period in which suppliers of the goods or services are paid
b. for a period should be equal to the amount of revenue recognized during the period.
c. should be offset against the revenue produced by these expenditure
d. should be equal to the cash payments made during the period
14. Financial reports communicated after an accounting decision has been made defeat the primary purpose of
which principle?
a. conservatism b. materiality c. adequate disclosure d. timeliness
15. What is the underlying concept that support the immediate recognition of loss?
a. matching b. consistency d. judgement d. conservatism

Test II- The Entity Concept

The business enterprise subject to accounting is Marky Flower Shop owned and operated by Mark Naag.
Indicate whether the following transactions are business transaction (recordable) or personal transactions (non-
recordable) by the business: Write recordable or non-recordable in your answer sheets

16. Sales of flowers to flower shop customers

17. Gift of flowers by Mark to his girlfriend
18. Tuition fee of Mark’s Brother.
19. Gasoline of the L300 delivery truck of the flower shop
20. Cellphone load of Mark
21. Payment of salaries of Flower shop employees.
22. Payment for rental of the flower shop premises.
23. Salary of Mark’s household helper.
24. Mark invested additional working fund to the flower shop.
25. Insurance of Mark’s Toyota Hilux car

Test III – Periodicity Concept

For each of the following, compute the income or expense to be reported in the indicated accounting period.
Show your solutions.

26. The business hired employee with P30,000 monthly salaries. The employees reported for duty on December 12,
2016. The business pays salaries every 3rd and 18th day of the month. Assume a 26 working day per month.
Compute the following:
December salaries expense _____________________
Accrued salaries expense as of December 31, 2016 ___________________

27. The business received an advanced rental income from a lessee amounting to P36,000 covering 6 months on
October 31, 2016. Compute the following.

2016 rental income _________________________

Deferred income as of December 31, 2016 _________________________________
2017 rental Income ___________________________________________________