MODULE 3

Which of the following is a liability of a firm?

A. an office building owned by the firm

C. money which the firm has borrowed and has not yet been paid
B. inventories for sale stored in the warehouse

D. money owed to the firm by its customers

_____ 2. Revenue from sale of goods in the normal course of business is reported as part of the
earning in the period when:
A. the sale is made

C. the products are manufactured

B. the cash is collected

D. the sale forecasts are completed

_____ 3. Identify the incorrect statement.

A. Assets – Liabilities = Equity

C. Assets = Equity + Liabilities

B. Equity – Liabilities = Assets

D. Assets – Equity = Liabilities

_____ 4. Which part of the accounting equation does a sale on account affect?
A. Accounts Receivable and Accounts Payable

B. Accounts Receivable and Owner, Capital

C. Accounts Payable and Owner, Capital

D. Accounts Payable and Cash

_____ 5. Assume that Swatch sold watches to a department store on account for P50,000. How
would this transaction affect Swatch’s accounting equation?

A. increase both liabilities and owner’s equity by P50,000

B. increase both assets and liabilities by P50,000
C. increase both assets and owners’ equity by P50,000
D. No effect on the accounting equation because the effects cancel out

_____ 6. Assume that Swatch paid expenses totaling P35,000. How does this transaction affect
Swatch’s accounting equation?
A. increases assets and decreases liabilities

C. decreases assets and increases liabilities

B. increases both assets and owner’s equity

D. decreases both assets and owner’s equity

_____ 7. Consider the overall effects of transactions 5 and 6 on Swatch. What is Swatch’s
profit or loss?
A. profit of P15,000 B. loss of P35,000

C. profit of P50,000 D. cannot be determine from the data given

_____8 The left side of an account is used to record
A. debit or credit, depending on the type of account

B. credits C. debits D. increase

9. Suppose your business has cash of P50,000; Accounts Receivable of P60,000; and

Furniture totaling P200,000. The store owes P80,000 on account and has a P100,000 note

payable. How much is your equity?

A. P20,000 B. P130,000 C. P180,000 D. P310,000

_____10. When the rent for the business is paid with check,

A. cash is decreased and accounts payable is decreased

B. cash is decreased and rent expense is decreased

C. cash is decreased and rent income is increased
D. cash is decreased and rent expense is increased

_____11. When an entity receives cash for services performed,

A. an asset is decreased C. the owner’s equity is increased

B. the owner’s equity is decreased D. total assets remain unchanged

_____12. A credit entry decreases the balance of

A. assets B. income C. liabilities D. owner’s equity

_____13. The purchase of a service vehicle on account

A. will decrease asset and decrease liability C. will decrease equity
B. will increase asset and decrease a liability D. will increase asset and increase a liability

_____14. When an owner withdraws cash or other assets from a business for personal use, these
withdrawals are termed

A. depletions B. consumptions C. drawings D. a credit line.

_____15. Capital is

A. an owner's permanent investment in the business

B. equal to liabilities minus owner's equity

C. equal to assets minus owner's equity

D. equal to liabilities plus drawings.

_____16. Revenues would not result from

A. sale of merchandise B. initial investment of cash by owner

C. performance of services D. rental of property.

_____17. Sources of increases to owner's equity are

A. additional investments by owners B. purchases of merchandise

C. withdrawals by the owner D. expenses

_____18. The basic accounting equation cannot be restated as

A. Assets – Liabilities = Owner's Equity

B. Assets – Owner's Equity = Liabilities

C. Owner's Equity + Liabilities = Assets.

D. Assets + Liabilities = Owner's Equity.

____19. Owner's equity is decreased by all of the following except

A. owner's investments B. owner's withdrawals C. expenses D. owner's drawings.

_____20. A net loss will result during a time period when

A. liabilities exceed assets B. drawings exceed investments

C. expenses exceed revenues D. revenues exceed expenses.

_____21. If total liabilities increased by 15,000 and owner’s equity increased by 5,000 during a
period of time, then total assets must change by what amount and direction during that same

period?

A. 20,000 decrease B. 20,000 increase C. 25,000 increase D. 30,000 increase

_____22. If total liabilities decreased by 15,000 and owner’s equity increased by 5,000 during a
period of time, then total assets must change by what amount and direction during that same
period?

A. 20,000 increase B. 10,000 decrease C. 10,000 increase D. 15,000 decrease

_____23. If total liabilities decreased by 25,000 and owner’s equity increased by 5,000 during

a period of time, then total assets must change by what amount and direction during that same

period?

A. 20,000 decrease B. 20,000 increase C. 25,000 increase D. 30,000 increase

____24. The accounting equation for Goodboys Enterprises is as follows: Assets Liabilities

Owner’s Equity 120,000 = 60,000 + 60,000 If Goodboys purchases office equipment on

account for 12,000, the accounting equation will change to Assets Liabilties Owner’s Equity

A. 120,000 = 60,000 + 60,000 B. 132,000 = 60,000 + 72,000

C. 132,000 = 66,000 + 66,000 D. 132,000 = 72,000 + 60,000

____25. Owner's equity is increased by

A. drawings B. revenues C. expenses D. liabilities.

MODULE 4

1. The first financial statement that is prepared from the trial balance is the

a. statement of cash flows b. statement of changes in equity

c. income statement d. balance shee

2. The amount of cash received or paid during a period is not an adequate measure of the economic
consequence of an organization’s activities because

a. many activities may not involve the use of cash

b. cash inflows may represent the result of activities completed in a previous period
c. cash outflows may precede or follow the activities
d. all of the above reasons are correct with which they are associated

3. At the end of an accounting period, the equation Assets=Liabilities + Owner’s Equity does not
necessarily balance. Which of the following actions balances the equation?

a. subtract revenues and add expenses to owner’s equity

b. subtract revenues from owner’s equity and add expenses to assets

c. add the difference between revenues and expenses to owner’s equity

d. add revenues and subtract expenses from assets

4. Which of the following steps in the accounting cycle are listed in logical order?

a. Prepare income statement, prepare the statement of financial position and then prepare a worksheet
b. Post the journal entries to the ledger accounts, prepare a worksheet, and then take a trial balance
c. Journalize the closing entries, post the closing entries, and then take a post closing trial balance

d. Post the closing entries, take a post-closing trial balance, then journalize the closing entries

5. The purpose of the ledger is to

a. record chronologically the day’s transactions

b. keep a record of documentation to support each transaction

c. maintain a separate account for each balance sheet and income statement accounts

d. make sure that all balance sheet and income statement accounts have normal balances at all times.

6. Which of the following does not directly or indirectly affect the owner’s capital account?

a. paying an accounts payable b. withdrawals by the owner

c. earning of revenues d. incurring of expenses

7. Which of the following transactions correctly maintains the equality in the accounting equation?

a. to record collections on account, cash and accounts receivable are increased by P160,000

b. to record the purchase of computer equipment, computer equipment is increased and cash is
decreased by P46,000

c. to record payment of notes, notes payable is decreased and cash is increased by P70,000

d. to record payment of rent, rent expense and cash are increased by P8,000

8. The first step in recording a transaction in a journal is to

a. record the debit b. record the date

c. record the credit d. write an explanation

9. Which of the following accounts is classified differently from the others listed?

a. Note payable b. Unearned Revenues

c. Mortgage Payable d. Art Revenues

10. 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

11. Which of the following is a business event that is not considered a recordable transaction?

a. An entity receives a product previously ordered

b. An entity pays an employee for work performed

c. A customer inquires about the availability of a service

d. A customer purchases a service

12. Which of the following is a business event that is also considered a recordable transaction?

a. an entity hires a new employee

b. a customer purchases merchandise.

c. an entity orders a product from a supplier

d. an employee sends a purchase requisition to the purchasing department

13. The term footing refers to the

a. process of obtaining the top number in an account

b. process of obtaining the bottom number in an account

c. process of posting

d. addition of a column of figures

14. What function do general ledgers serve in the accounting process?

a. summarizing b. recording c. classifying d. reporting

15. A chart of account is a (an

a. journal b. flowchart of all transactions

c. list of names of all accounts titles d. accounting procedure

16. Balance sheet accounts are

a. permanent accounts b. temporary accounts

c. accounts with debit balances only d. adjusting accounts

17. A journal entry that contains more than two accounts is called

a. a posted journal entry b. a compound entry

c. an adjusting journal entry d. an erroneous journal entry

18. When a customer buys services on credit, the contract is regarded as complete when

a. the services are rendered b. the bill is presented

c. the cash payment is received d. the date isspecified

19. Which of the following accounts is classified differently from the others listed?

a. prepaid rent b. cash c. accounts receivable d. owner’s capital

20. When owner’s equity decreases, one of the following must occur:

a. withdrawals decreases b an asset increases

c. an income increases d. a liability increases

21. What function do accounting journals serve in the accounting process?

a. classifying b. summarizing c. reporting d. recording

22. The normal balance of an account is on the

a. side represented by decrease in the account balance

b. debit side of the account

c. side represented by increases in the account balance

d. credit side of the account

23. When cash is debited, a typical credit is to

a. withdrawals b. accounts payable c. accounts receivable d. expenses

24. Payment of insurance premiums in advance gives rise to

a. prepaid expenses b. unearned income c. accrued income d. accrued expense

25. The manner in which the accounting records are organized and employed within a business is
referred to as

a. business document b. voucher system c. special journal d. accounting information system

26. If the balance of the Bisana, Withdrawals account were P120,000 and the balance of the Salaries
Expense account were P50,000, what would be the amount of B?

a. P180,000 b. P580,000 c. P370,000 d. P380,000

27. If the trial balance showed a balance of P70,000 in the Bisana, 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

28. In the trial balance, total assets equal to

a. P330,000 b. P230,000 c. P430,000 d. P410,000

29. If the trial balance showed a balance of P80,000 in the Salaries Expense account and a balance of
P350,000 in the Advertising Revenues account, what would be the amount of A?

a. P500,000 b. P550,000 c. P450,000 d. P600,000

30. If the trial balance showed a balance of P40,000 in the Salaries Expense account and a balance of
P300,000 in the Advertising Revenue account, what would be the amount of the Bisana, Withdrawals
account?

a. P250,000 b. P190,000 c. P140,000 d. P50,000