Mhartina Lorenzo BABA 1A
Theory Reviewer
I.
1. The main function is to establish and
improve accounting standards that will be
generally accepted in the Philippines.
A. Financial Reporting Standards Council
B. Professional Regulation Commission
C. Philippine Institute of CPAs
D. Board of Accountancy
2. Which area of public accounting means the
examination of financial statements by a CPA
for the purpose of expressing an opinion as to
the fairness of the statements?
A. Management advisory services
B. Taxation
C. Internal auditing
D. External auditing
3. Accountants do not recognize that the value
of the peso changes over time. This concept is
called the:
A. Stable monetary unit concept
B. Going concern concept
C. Cost principle
D. Entity concept
4. The principle of objectivity includes the
concept of:
A. Summarization
B. Verifiability
C. Classification
D. Conservatism
5. The principle of objectivity includes the
concept of:
A. Summarization
B. Verifiability
C. Classification
D. Conservatism
6. Another way of stating the accounting
equation is
A. Assets + Liabilities = Owner's Equity
B. Assets = Liabilities - Owner's Equity
C. Assets - Liabilities = Owner's Equity
D. Assets = Owner's Equity - Liabilities
E. Owner's Equity + Assets = Liabilities
7. In the accounting equation, an increase in
asset can be associated with *
A. an increase in a liability
B. a decrease in owner's equity
C. a decrease in a liability
D. an increase in another asset
8. Settlement of a present obligation may occur
in a number of ways, for example, by:
A. Payment of cash
B. Transfer of other assets
C. Provision of services
D. Replacement of that obligation with another
obligation
E. Conversion of the obligation to equity
F. All of the above.
9. Withdrawals by the proprietor has all of the
following effects except
A. reduction of total assets
B. reduction of owner's equity
C. reduction of profit for the period
D. reduction of cash balance
10. The expectation of a future payment from a
customer for goods sold is
A. a prepared expense
B. a notes receivable
C. an accounts receivable
D. all of the above
11. Inventories are assets which are
A. Held for sale in the ordinary course of
business
B. In the process of production for such sale
C. In the form of materials or supplies to be
consumed in the production process or in the
rendering of services
D. All of the above
12. When an entity acquired computer
equipment for cash, *
A. assets and owner's equity are increased.
B. an asset is increased, and a liability is
decreased.
C. one asset is increased, and another is also
increased
D. one asset is increased while another is
decreased
13. When an entity receives cash for services
perfomed,
A. an asset is decreased
B. the owner's equity increased
C. the owner's equity is decreased
D. total assets remain unchanged
E. none of the above
14. The issuance of a note by an entity for
services received should be recorded as *
A. an unearned revenue
B. a notes payable
C. a prepaid expense
D. an accounts receivable
Mhartina Lorenzo BABA 1A

15. All of the following affect the owner's II.

equity account except *
1. At the beginning of the year, the assets of
A. original investment
Kiara services were P180,000 and its owner's
B. payment of a liability
equity was P100,000. During the year, assets
C. additional investment
increased by P60,000 and liabilities increased
D. withdrawal by the owner
by P20,000. What was the owner's equity at the
end of the year? *
16. The accounting equation * A. P80,000
B. P100,000
A. is used to determine the amount of
C. P140,000
liabilities owed. D. P160,000
B. is used to determine the amount of income
earned during the period
C. shows the claims on the entity's assets by Given:
both the creditors and owner
A= P180,000 OE= P100,000
D. shows the claims on the owner's equity by
the creditors Find: L, and ending OE

Solution:
17. Expenses can be defined as L = A – OE
A. increased in owner's equity
B. decreases in economic benefits during the L = P180,000 – P100,000 = P80,000
accounting period in the form of outflows or
A= P180,000 + P60,000 L= P80,000 + P20,000
depletions assets or incurrences of liabilities
that result in decreases in equity A= P240,000 L= P100,000
C. decreases in owner's equity
D. inflows of assets from delivering or OE= A – L
producing goods or rendering services. OE= P240,000 – P100,000

18. The purpose of the ledger is to * OE= P140,000

A. record chronologically the day's
transactions.
B. keep a record of documentation to support
each transaction.
C. maintain a separate account for each 2. If Accounts Receivable has debit postings of
balance sheet and income statement
accounts. P580,000, credit postings of P440,000, and a
D. make sure that all balance sheet and normal ending balance of P480,000, which of
income statement accounts have normal
balances at all times. the following was its beginning balance? *
A. P620,000 Cr.
B. P340,000 Cr.
C. 620,000 Dr.
19. Which of the following is a business event D. P340,000 Dr
that is also considered a recordable
transaction? *
A. A company hires a new employee Given:
B. A customer purchases merchandise
C. A company orders a product from a supplier
Dr. P580,000 , Cr. P440,000, and NEB= P480,000
D. an employee sends a purchase requisition
Solution:
to the purchasing department
P580,000 – P440,000 = P140,000

P480,000 – P140,000 = P340,000

20. Which of the following accounting steps is
accomplished after the others listed? *
A. Post the entry
B. Prepare the trial balance
C. Apply the rules of double entry
D. Record the entry
Mhartina Lorenzo BABA 1A

For numbers 3-7, refer to this

7. If the trial balance should a balance of
P40,000 in the Salaries Expense account and a
balance of P300,000 in the Advertising
Revenues account, what would be the amount
of the Monterola, Withdrawal’s account?

A. P250,000
B. P190,000
C. P140,000
D. P50,000

8. If accounts Payable has debit posting of

P170,000, credit postings of P140,000, and a
normal ending balance of P60,000, which of the
following was its beginning balance?
A. P30,OOO Cr.
B. P30,000 Dr.
C. P90,000 Dr.
D. P90,000 Cr.

Given:
3. If the balance of the Monterola, withdrawals Dr. P170,000, Cr. P140,000, and NEB= P60,000
account were P120,000 and the balance of the
Salaries Expense account were P50,000, what Solution:
would be the amount of B?
P170,000 – P140,000 = P30,000
A. P180,000
P60,000 + P30,000 = P90,000
B. P580,000
C. P370,000
D. 380,000

4. If the trial balance showed a balance of
P70,000 in the Monterola, withdrawals account
and a balance of P50,000 in the salaries
Expense account, what would be the amount of
Advertising Revenues for the period?
A. P330,000
B. P480,000
C. P180,000
D. P430,000
9. The net profit for the period is P60,000. The
beginning owner's equity balance is P110,000.
Then ending balance of owner's equity has
increased by P20,000. How much is the
owner's withdrawal for the period?
A. P30,00
B. P40,000
C. P50,000
D. P60,000

5. In the trial balance, total assets equal

A. P330,000 Given:
B. P230,000
C. P430,000 NP = P60,000
D. P410,000
BOE bal = P110,000

Ending OE = ↑P20,000
6. If the trial balance shoed a balance of
P80,000 in the Salaries Expense account and a
Solution:

balance of P350,000 in the Advertising P60,000 + P110,000 = P170,000

Revenues account, what would be the amount P110,000 + P20,000 = P130,000
of A?
A. P500,000 P170,000 – P130,000 = P40,000
B. P550,000
C. P450,000
D. P600,000
Mhartina Lorenzo BABA 1A

10. A small accounting firm has income of 5. Paid a service station for gasoline for a
P350,000, prepaid expense P30,000, unearned business service vehicle *
A. OI
revenue P20,000, accrued expense P80,000
B. OW
and expenses of P250,000. What is the C. I
D. E
profit/loss?
E. NO
A. (P10,000) loss
B. P20,000
C. P40,000 6. Performed a service and received a promise
D. P100,000 of payment *
A. OI
B. OW
C. I
Given: D. E
E. NO
Profit = P350,000

PE P30,000, UR P20,000
7. Paid cash to acquire equipment *
AE P80,000
A. OI
E of P250,000 B. OW
C. I
Solution: D. E
E. NO
P350,000 – P80,000 – P250,000 = P20,000
8. Paid cash to an employee for services
rendered *
A. OI
B. OW
III. C. I
1. Received cash for rendering services D. E
E. NO
A. Owner's investment (OI)
B. Owner's withdrawal (OW)
C. Income (I) 9. Accrued interest expense has been
D. Expense (E) incurred *
E. Not an owner's equity transaction (NO) A. OI
B. OW
C. I
D. E
2. Withdrew cash for personal expenses * E. NO
A. OI
B. OW
C. I 10. Provision of depreciation *
D. E
E. NO A. OI
B. OW
3. Received cash from a customer who have C. I
D. E
been rendered services on account * E. NO
A. OI
B. OW
C. I
D. E
E. NO

4. Transferred personal assets to the

business *
A. OI
B. OW
C. I
D. E
E. NO