NAME: ______________________

SECTION: __________________

1. Which accounting process is the recognition or nonrecognition of business activities as

accountable events?
(a) identifying (c) communicating
(b) measuring (d) summarizing

2. These are events that affect the enterprise and in which other entities participate.
Internal External Internal External
(a) Yes Yes (c) No No
(b) Yes No (d) No Yes

3. Which is an internal event?

(a) Casualty loss
(b) Exchange
(c) Nonreciprocal transfer between the enterprise and its owners.
(d) Nonreciprocal transfer between the enterprise and other entities.

4. The basic purpose of accounting is:

(a) to measure periodic income of the economic entity.
(b) to provide quantitative financial information about a business enterprise that is useful in
making rational economic decision.
(c) to provide information that the creditors of an economic entity can use in deciding
whether to make additional loans to the entity.
(d) to provide information that the managers of an economic entity need to control its
operations.

5. It focuses on general purpose reports on financial position, performance and cash flows.
(a) financial accounting (c) management advisory services
managerial accounting (d) auditing

6. Financial accounting is concerned with:

(a) general-purpose reports on financial position and results of operations
(b) specialized reports for inventory management and control
(c) specialized reports for income tax computation and recognition
(d) general purpose reports on changes in stock prices and future estimates of market
position

7. Which of the following is not an important characteristic or limitation of the financial

statements that accountants currently prepare?
(a) the information in financial statements is expressed in units of money adjusted for
changing purchasing power
(b) financial statements articulate with one another because measuring financial position is
related to measuring changes in financial position
(c) the information in financial statements is summarized and classified to held meet users’
needs
(d) financial statements can be justified only if the benefits they provide exceed the costs

8. The branch of accounting that is concerned primarily with providing information for
internal users is called:
(a) auditing (c) financial accounting
(b) managerial accounting (d) income tax accounting

9. Financial accounting can be broadly defined as the area of accounting that prepares:
(a) general purpose financial statements to be used by parties internal to the business
enterprise only
(b) financial statements to be used by investors only
(c) general purpose financial statements to be used by parties both internal and external to
the business enterprise
(d) financial statements to be used primarily by management

10. The primary focus of financial accounting has been on meeting the needs of which of
the following groups?
(a) managers of an enterprise
(b) present and potential creditors of an enterprise
(c) national, and local taxing authorities
(d) independent auditors

11. The most appropriate equation for portraying the relationship of assets, liabilities, and
owners’ equity of a corporation is:
(a) assets – liabilities = owners’ equity (c) assets = restriction of assets
(b) assets = liabilities + owners’ equity (d) liabilities = assets – owners’ equity

12. These are the basic notions or fundamental premises on which the accounting process is
based.
(a) accounting assumptions (c) generally accepted accounting principles
(b) accounting standards (d) accounting concepts

13. The ASC conceptual framework specifically mentions two underlying assumption. These
are:
(a) accrual and going concern (c) going concern and time period
(b) accrual and accounting entity (d) time period and monetary unit

14. Which of the following statements is incorrect?

(a) The accrual method, which builds directly on the revenue and matching principles,
ignores the timing of cash receipts or payments when determining when to recognize
revenue or expenses.
(b) Expenses are matched with revenue, not the reverse.
(c) In accordance with the unit of measure assumption, accountants normally revise the
amounts to reflects the changing purchasing power of money due to inflation or
deflation.
(d) In accordance with the going concern assumption, the life of a business is presumed to
be indefinite.

15. If a business is not being sold or closed, the amounts reported in the accounts for assets
used in the business operations are based on the cost of the assets. This practice is
justified by:
(a) accrual (c) continuity assumption
(b) time period (d) accounting entity

16. John Frivs is the sole owner and manager of Ace Services. John purchased a car for
personal use. He uses a van in the business. Which of the following is violated if John
recorded the cost of the car as an asset of the business?
(a) conservatism (c) full disclosure
(b) going concern assumption (d) separate entity assumption

17. What is the traditional accounting period?

(a) three months (c) two years
(b) six months (d) twelve months

18. Which underlying concept serves as the basis for preparing financial statements at
regular intervals?
(a) accounting entity (c) accounting period
(b) going concern (d) stable monetary unit

19. Revenue is expressed as the number of pesos received or the peso equivalent of the
commodities of services received. Cost is expressed as the number of pesos paid out of
the peso equivalent of the items given up. Fluctuations in value of the peso are ignored.
The above describes what accounting assumption?
(a) going concern (c) historical cost
(b) unit of measure (d) realization

20. The financial statements should be stated in terms of a common financial denominator.
(a) accrual (c) time period
(b) going concern (d) monetary unit

21. The concept of accounting entity is applicable:

(a) only to be legal aspects of business organizations.
(b) only to the economic aspects of business organizations.
(c) only to business organizations.
(d) whenever accounting is involved.

22. When a parent and subsidiary relationship exists, consolidated financial statements are
prepared in recognition of:
(a) legal entity (c) stable monetary unit
(b) economic entity (d) time period
23. The valuation of a promise to receive cash in the future at present value on the financial
statement of a business entity is valid because of the accounting concept of:
(a) entity (c) going concern
(b) time period (d) monetary unit

24. Continuation of an accounting entity in the absence of evidence to the contrary is an

example of the basic concept of:
(a) accounting entity (c) going concern
(b) time period (d) accrual

25. This accounting concept justifies the usage of accruals and deferrals.
(a) going concern (c) consistency
(b) materiality (d) stable monetary unit

26. During the lifetime of an entity, accountants produce financial statements at arbitrary
points in time in accordance with which basic accounting concepts?
(a) accrual (c) unit of measure
(b) periodicity (d) continuity

27. The relatively stable economic, political and social environment supports:
(a) conservatism (c) timeliness
(b) materiality (d) going concern

28. A conceptual framework is:

(a) a statements of financial accounting standard.
(b) an underlying accounting assumption.
(c) a theoretical foundation which guides the ASC, preparers and users of financial
accounting information.
(d) a financial statement.

29. Which is not a basic purpose of a conceptual framework?

(a) to assist ASC in developing accounting standards.
(b) to assist preparers of financial statements in applying ASC accounting standards.
(c) to assist ASC in reviewing and adopting International Accounting Standards.
(d) to assist the Board of Accountancy in promulgating rules and regulations affecting the
practice of accountancy in the Philippines.

30. The ASC conceptual framework is intended to establish:

(a) generally accepted accounting principles in financial reporting by business enterprises.
(b) the meaning of “present fairly in accordance with generally accepted accounting
principles.”
(c) the objectives and concepts for use in developing standards of financial accounting and
reporting.
(d) the hierarchy of sources of generally accepted accounting principles.