QUESTIONS ANSWERS

Which of the following statements is/are true? I. Accounting is a service

activity intended to fulfill
a useful function in
society
II. Accounting involves
the art of recording,
classifying and
summarizing transaction
and events, and
interpreting the results
thereof.
IV. Accounting provides
quantitative financial
information intended to
be useful in making
economic decisions

The branch of accounting concerned with the

presentation of financial information primarily for Financial Accounting
use of the third person outside of the business
enterprise.

Accounting is an art because: The necessity of applying

creative skill and ability

General purpose reports

Financial accounting is the branch of accounting that of financial position and
focuses on: results of operations
Not intended to satisfy
General-purpose information is: the specialized needs of
individual users.

Financial accounting
emphasizes special
purpose information
Which of the following is not true?
 based on presumption
that significant numbers
of users need similar
information.

The body of rules and principles which govern

accounting practices is referred to as Accounting theory

The layers of the structure of accounting theory Measurement and

include the following except: recognition

It refers to the assumption than an entity will exist

indefinitely in the absence of evidences that suggest Going concern
otherwise.

The indefinite life of an entity is subdivided into Time period

equal periods.

Refers to a 12-month period ending in December 31. Calendar year

Refers to a 12-month period ending in any month Fiscal year

other than December.

It means that a specific business enterprise is

considered one accounting entity, separate and Accounting entity concept
distinct from its owners.

a. Quantifiability –
transactions are recorded
What are the two characteristics of the monetary unit in terms of money
assumption? b. Stability of the currency
– purchasing power of the
dollar is stable

States that expenses are recognized in the period the

related revenues are earned. matching principle

The basic assumption or premises on which Accounting postulates

accounting principles rest are called
The normative attitudes or ideas of the accounting
profession as to what ought to represent good
accounting practice and which modify the application Accounting conventions
of accounting principles are known as:

The general guidelines used in accounting practice

that are based on substantial authoritative support Accounting principles
are called

The specific methods used by accountants in carrying

out the general guidelines provided by GAAP,
including the numerous rules specifying how Accounting procedures
financial data should be recorded, classified,
summarized, and reported are referred to as:

"The accounting entity is assumed to be separate and

distinct from other entities and from the owners,
managers, and employees which constitute the firm". Specific separate entity
This postulate is referred to as:

Income is recognized when earned regardless of when

collected; and expenses are recognized when incurred Accrual basis of
regardless of when paid. accounting

Unless there is specific evidence to the contrary, the

firm will continue to be in existence in the foreseeable Going concern
future. This postulate is referred to as

"Money is the best measuring unit of a firm's assets,

liabilities and equity, as well as changes therein; its Money-measuring unit
instability is immaterial". This postulate is referred
to as

Cost is normally the proper money measurement of a

firm's assets, liabilities, and equity, and changes in
them because it is objective, verifiable and convenient Historical cost
to obtain, approximating value at time of acquisition.
" This postulate is referred to as

The life of a business firm can be segmented into

short run time periods in order to provide timely
financial information to aid in financial decision Fiscal period
making; hence, periodic reporting implies the use of
accrual accounting and use of estimates
( approximations) and informed judgment by
accountants." This postulate is referred to as

"The point of sale when goods are delivered or

services are rendered, is the time at which revenue is Revenue recognition
to be recognized." This postulate is referred to as

Goods and services used (“expenses”) during the

fiscal period can be associated with the revenue Matching
earned during the same fiscal period”. This postulate
referred to as

Exception to the application of accounting theory are

permitted if the amount involve is not material; Materiality
financial reporting is concerned only with
information that is significant enough to affect
evaluations or decisions.” This convention is called

Exception to the application of accounting theory are

permitted if the amount involve is not material;
financial reporting is concerned only with Consistency
information that is significant enough to affect
evaluations or decisions.” This convention is called

“Financial statements of different firms should be

based on similar accounting principles and
Comparability
procedures in order to aid users of financial
statements in finding similarities and differences
among firms for purposed of financial decision
making” This convention is called

Accounting measurement should be based on

evidence that is verifiable by competent persons”. Objectivity
This convention is called

Concerned primarily with quantitative information

used by persons who must make economic decisions Accounting
among alternative actions.
“The accountant should recognize all possible losses
but anticipate no profit. Where alternative courses of
action are available, he should choose the alternative Conservatism
least favorable to owners’ equity.

The branch of accounting concerned with the

presentation of financial information to assist Managerial accounting.
management in planning and controlling operations
is called

How is the income statement affected when a No income statement

company issues stock? effect. Purely balance
sheet.

What financial statement lists assets from current to

long term? Balance Sheet

The income statement shows which of the following? Income and Expenses

Equity is shown on which financial statement? Balance Sheet

Gross profit is equal to revenue less which item? Cost of goods sold

Are inventory and accounts receivable are classified Current Assets

in the balance sheet as?

The terms operating, financing and investing as used

to categorize what type of item? Cash Flow

A double entry bookkeeping posting requires a

minimum of how many accounts? 2

A listing of the account names and account codes is

called what? Chart of Accounts

A listing of the balances on all accounts is called Trial Balance

what?

Also known as municipal or fund accounting Governmental

accounting
Associated with the carrying amounts of the business
assets cost principle

The personal assets of the owner of a company will

not appear on the company's balance sheet because Economic entity
of which principle/guideline?

Which principle/guideline is associated with the

assumption that the company will continue on long Going concern
enough to carry out its objectives and commitments?

Accountants might recognize losses but not gains in

certain situations. For example, the company might
write-down the cost of inventory, but will not write- Conservatism
up the cost of inventory. Which principle/guideline is
associated with this action?

The listing of all of the accounts available for use in a

company's accounting system is known as the Chart of accounts.

This concept means not overstating assets, owner's

equity, and revenues, and not understating liabilities Conservatism
and expenses

Reporting numbers without having to reflect the

calculation of inflation is which of the following Stable-monetary-unit
concepts?

A boundary is drawn
around each
What is the entity concept? organization. This means
personal assets and
expenses are not part of
the company

Recording assets and services, revenues, and

expenses at their actual historical cost falls under Cost
which principle?

The going-concern concept is: Assuming that a business

will continue to operate
for the foreseeable future
The __________ principle means sticking with the
same accounting principles or approach from one Consistency
period to the next.

Which principle states that one must "report enough

information for outsiders to make informed decisions Disclosure
about the company?"

The _________ principle tells you when to record

revenue, and how much to record. You record Revenue
revenue when you have provided your goods and
services, whether you collect money at that moment
or not

Accounting requires you to take note of both cash

collected and as well as accounts receivable. Accrual Accounting

Only using GAAP accounting for things that are

significant to the company's financial statements materiality concept

Which concept states that "You have to report

accounting info at regular intervals?" Time- period

Accountants identify and

measure all expenses
What is the matching principle? incurred during the
period and match the
expenses against
revenues earned

In what principle states that one must base

accounting records and statements on the most Reliability
accurate data available?

How is the income statement affected when a No income statement

company issues stock? effect. Purely balance
sheet.

What financial statement lists assets from current to

long term? Balance Sheet
The income statement shows which of the following? Income and Expenses

Equity is shown on which financial statement? Balance Sheet

Gross profit is equal to revenue less which item? Cost of goods sold

Are inventory and accounts receivable are classified

in the balance sheet as? Current Assets

The terms operating, financing and investing as used

to categorize what type of item? Cash Flow

The personal assets of the owner of a company will

not appear on the company's balance sheet because Economic entity
of which principle/guideline?

Which principle/guideline is associated with the

assumption that the company will continue on long Going concern
enough to carry out its objectives and commitments?

Accountants might recognize losses but not gains in

certain situations. For example, the company might
write-down the cost of inventory, but will not write-
Conservatism
up the cost of inventory. Which principle/guideline is
associated with this action?

The listing of all of the accounts available for use in a

company's accounting system is known as the Chart of accounts.

This concept means not overstating assets, owner's

equity, and revenues, and not understating liabilities
and expenses Conservatism

Recording assets and services, revenues, and

expenses at their actual historical cost falls under Cost
which principle?

Reporting numbers without having to reflect the

calculation of inflation is which of the following Stable-monetary-unit
concepts?
PRELIM EXAM REVIEW

Quiz 1

Red means False

1. A merchandising business is a business that acquires finished product and sell it

a higher price.
2. Partnership is considered as the simplest type of business organization and
the most easily to form.
3. A creditor is an example of internal user of financial statements and they are
interested in the financial performance of the business so that they would know
if they are to grant credit or not.
4. One of the disadvantage of a corporation is its complexity of its formation and
control from government.
5. A cooperative is a non profit business organization that operates for the
interest of its members owners.
6. One advantage of a sole proprietorship is that it has a greater source of
capitalization and ease of transfer of ownership.
7. Bookkeeping includes the phase of communicating the financial statements to
the users of financial information.
8. The focus of management accounting is the preparation of tax returns and tax
advisory.
9. Creditors are considered as users of accounting information because they are
interested to know the earning capacity of business and safety of their
investment.
10.Partnership is considered as a legal entity. It has the right to acquire assets and
dispose assets, incur and pay liabilities, to sue and be sued under its own name.
11.Corporations are entities that has limited life and unlimited liabilities.
12.Entity Concept considers that business and owners are separate individuals.
Personal transactions of the owners must not be mixed with the transactions of
the business.
13.The principle of understandability states that accounting standards and policies
should be consistently applied from one period to another.
14.Any amount (small or big) is considered material especially to a small business.
15.Revenues are considered as the cost of operations that a company incurs to
generate income.

16.A statement of changes in equity:

ANSWER: Provides a link between the income statement and the balance
sheet

17.The statement of changes in equity would not show

ANSWER: revenues and expenses

18. It refers to the process of transferring the debit and credit amounts from
journals to the ledgers.
ANSWER: Posting

19. The advantages of a partnership do not include

ANSWER: Unlimited liability

20.External user of financial information include all of the following except:

ANSWER: managers

21.This is a characteristic of a partnership

ANSWER: limited life

22.In the annual report, where would a financial statement reader find out if the
company’s financial statements give a fair depiction of its financial position
and operating results?
ANSWER: Balance Sheet

23.Which accounting assumption assumes that an enterprise will continue in

operation long enough to carry out its existing objectives and commitments?
 ANSWER: Going concern assumption

24.Johnny’s Car Repair Shop started the year with total assets of P60,000 and total
liabilities of P40,000. During the year the business recorded P100,000 in car
repair revenues, P55,000 in expenses, and dividends income from his personal
investment amounting to P10,000.
The net income reported by Johnny’s Car Repair Shop for the year was
ANSWER: P45,000

25.If beginning capital was P25,000, ending capital is P37,000, and the owner's
withdrawals were P23,000, the amount of net income or net loss for the period
was:
ANSWER: net income of P35,000

26. External user of financial information include all of the following except:
ANSWER: managers

27.A partnership
ANSWER: requires one or more owners.

28.

PART 1

1.

I. Accounting is a service activity intended to fulfill a useful

function in society

II. Accounting involves the art of recording, classifying, and

summarizing transaction and events, and interpreting the results
thereof.

III. Accounting is an art but not science

 IV. Accounting provides quantitative financial information intended
to be useful in making economic decision

ANSWER: I, II, IV

2. The branch of accounting concerned with the presentation of financial

information primarily for use of

ANSWER: Financial Accounting

3. Accounting is an art because:

ANSWER: The necessity of applying creative skill and ability

4. Financial accounting is the branch of accounting that focuses on

ANSWER: General purpose reports of financial position and results of

operation

5. General purpose information is

ANSWER: not intended to satisfy the specialized needs of individual users

6. Which following is not true?

ANSWER: Accounting is concerned primarily with quantitative information

used by persons who must make economic decisions among alternative
decisions

7. The body of rules and principles which govern accounting practices is referred
to as
ANSWER: Accounting theory

8. The normative attitudes or ideas of the accounting profession also what ought
to represent good accounting practice and which modify the application of
accounting principles are known as

ANSWER: Accounting Conventions

9. The general guidelines used in accounting practice that are based on substantial
authoritative support are called

ANSWER: Accounting Principles

10.The specific methods used by accountants in carrying out the general

guidelines provided by GAAP, including the numerous rules specifying how
financial data should be recorded, classified, summarized and reported as

ANSWER: Accounting conventions

11.The accounting entity is assumed to be separate and distinct from other entities
and from the owners, managers and employees which constitute the firm. This
postulate is referred to as

ANSWER: Specific-separate entity

12.Unless there is specific evidence to the contrary, the firm will continue to be in
existence in the foreseeable future. This postulate is referred to as

ANSWER: Going Concern

13.Money is the best measuring unit of a firm’s assets, liabilities and equity, as
well as changes therein: its instability is immaterial. This postulate is referred
to as

ANSWER: Money-measuring unit

14.Cost is normally the proper money measurement of a firm’s assets, liabilities

and equity, and changes in them because it is objective, verifiable and
convenient to obtain, approximating value at time of acquisition. This postulate
is referred to as

ANSWER: Historical Cost

15.The life of the business firm can be segmented into short run time periods in
order to provide timely financial information to aid in financial decision
making: hence, periodic reporting implies the use of accrual accounting and use
of estimates (approximations) and informed judgement by accountants. This
postulate is referred to as

ANSWER: Fiscal Period

16.The point of sale when goods are delivered or services are rendered, is the time
at which revenue is to be recognized. This postulate is referred to as

ANSWER: Revenue recognition

17.Goods and services used (expenses) during the fiscal period can be associated
with the revenue earned during the same fiscal period. This postulated referred
to as

ANSWER: Matching
18.Exceptions to the application of accounting theory are permitted if the amount
involved is not material; financial reporting is concerned only with That is
significant enough to affect evaluation or decisions. This invention is called

ANSWER: Materiality

19.The same accounting procedures for a given entity should be used from one
period to the next. Changes may however be made if it will result in more
accurate or useful information for decision-making provided it is disclosed. The
convention is called

ANSWER: Consistency

20.Financial statements of different firms should be based on similar accounting

principles and procedures in order to aid users of financial statements in finding
similarities and differences among firms for the purposes of financial decision
making.

ANSWER: Comparability

21.Accounting measurement should be based on evidence that is verifiable by

competent persons. This convention is called

ANSWER: Objectivity

22.The accountant should recognize all possible losses but anticipate no profit.
where alternative courses of action or available, he should choose the
alternative least favorable to owners’ equity

ANSWER: conservatism
23.The first step in accounting cycle is to

ANSWER: Analyze transactions from source documents

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

ANSWER: Post the journal entries to the ledger accounts, prepare a

worksheet, and then take trial balance

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

ANSWER: Accounting system

26.A simple journal entry

ANSWER: consist of one debit and one credit

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

ANSWER: a compound journal entry

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

ANSWER: Recording

29.Which of the following documents does not initiate and entry to be made in the
accounts

ANSWER: purchase order

30. In recording transactions

ANSWER: Assets, expenses, and drawing accounts are debited for increases

31.Which of the following types of accounts measure economic flows over a

period of time

ANSWER: Nominal accounts

32.The normal balance of an account is on the

ANSWER: Side represented by increases in the account balance

33.The purchase of an equipment on account

ANSWER: will increase asset and increase and liability

34.The company collected in full and account receivable. Considering this

transaction alone

ANSWER : Total assets will not be affected

35.A ledger is defined as

ANSWER: a collection of account titles

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

ANSWER: Classifying
37.Which of the following transactions does not affect the balance sheet totals?

ANSWER: partial collection of accounts receivable

38.The payment for insurance premium is initially debited to prepaid insurance

account. this approach is known as

ANSWER: Asset method

39.The receipt of rental is recorded by debiting cash and crediting rent income this
approach is known as

ANSWER: Income method

40.The phase of accounting that deals with collecting and controlling the cost of
producing a given product or service is called

ANSWER: Cost accounting

41.Which of the following is a primary goal to provide managers with a clear

understanding of the activities to be undertaken and completed to accomplish
the company's objectives.?

ANSWER: budgeting

42.The recording of financial transactions and events manually or electronically is

called

ANSWER: Bookkeeping
43.Which of the following statements is false regarding sole proprietorship

ANSWER: rights could be easily transferred to another person

44.Which of the following is a nominal account?

ANSWER: Insurance expense

45.Which of the following errors will cause and imbalance in the trial balance

ANSWER: listing the balance of an account with a debit balance in the credit
column of the trial balance?

46.Which of the following statements is associated with the accrual basis of

accounting?

ANSWER: Revenues are recognized in the period they are earned, regardless
of the time period the cash is received

47.47. An accounting time that is 1 year in length, but does not begin on January
1, is referred to as

ANSWER: Fiscal year

48.Which of the following is incorrect?

ANSWER: the income statement illustrates the accounting equation

49.A debit entry could lead to

ANSWER: A decrease in liabilities or an increase in expense

50.A credit balance on a ledger account indicates

ANSWER: a liability or revenue

PART 2

1. Which of the following types of accounts measure economic flows over a

period of time?

ANSWER: nominal accounts

2. Transactions are analyzed on the basis of the source documents

ANSWER: TRUE

3. If a payment for rent was debited to the cash in bank account and credited from
the rent expense, what is its effect on total assets, and to expenses

ANSWER: overstated, understated

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

ANSWER: a compound journal entry

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

ANSWER: accounting system

6. A ledger is defined as

ANSWER: a collection of accounts

7. Utilities payment of 7800 was recorded in both utilities expense account and
cash on hand account as 8700. what is the journal entry to correct the error?

ANSWER: debit cash on hand 900 and credit utilities expense 900

8. A simple journal entry:

ANSWER: consists of one debit and one credit

9. Choose the statement that is incorrect

ANSWER: as a general rule, the individual accounts supporting a

controlling account appear in the general ledger

10. The first step in accounting cycle is to

ANSWER: analyze transactions from source documents

11. Which of the following documents does not initiate an entry to be made in the
accounts?

ANSWER: purchase order

12.The purchase often equipment on account

ANSWER: will increase asset and increase a liability

13. In recording transactions

ANSWER: assets, expenses, and drawing accounts are debited for

increases

14.T- account is sometimes called the book operational entry

ANSWER: false

15. Normally, income accounts have debit balances

ANSWER: false

16. Which of the following steps in the accounting cycle are listed in logical
order?
ANSWER: post the journal entries to the ledger accounts, prepare a
worksheet, and then take a trial balance

17. What function do accounting journals serve in the accounting process

ANSWER: recording

18. A prepaid expense can best be described as an amount

ANSWER: paid and not currently matched with revenues

19. A credit entry to expense will increase it.

ANSWER: False

20. debit means decrease and credit means increase

ANSWER: false
21. Which of the following is a real permanent account
ANSWER: both patent and accounts receivable

22. The company collected in full and account receivable. considering this
transaction alone
ANSWER: total assets will not be affected

23. Journal entry that contains more than just two account is called
ANSWER: a compound journal entry

24. Which of the following will cause the trial balance to be out of balance?
ANSWER: posting only the debit part of the transaction, leaving the credit
part not posted

25. Which of the following is a nominal temporary account?

ANSWER: salary expense

26. Which of the following transactions does not affect the balance sheet totals?
ANSWER: Partial collection of accounts receivable

27. Bank charges ok 800 has been debited to the rent expense account. the credit
was correctly stated. what journal entry is necessary to correct the error
ANSWER: debit bank charges 800, credit rent expense 800.

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

ANSWER: classifying
29. Amount entered on the left side of an account, regardless of the account title,
are considered charges against the account
ANSWER: false

30. Every business transaction affects a minimum of two accounts

ANSWER: TRUE

31.Which of the following is recordable event or item?

ANSWER: none of the above

32. A journal entry must always have equal number of accounts

ANSWER: false

33. Account title unearned revenue is a liability account

ANSWER: Yes

34. In some transactions, the accounting equation may not be maintained

ANSWER: False

35. The normal balance of an account is on the

ANSWER: side represented by increases in the account balance

PART 3

1. Paid the bill for supplies bought last accounting period. What account is
debited?
ANSWER: Accounts Payable
2. Received cash from customers on account, P25,440
ANSWER: Increase an asset, decrease another asset

3. At the beginning of the year, Calling Station had liabilities of P100,000 and
Owner’s Equity of P96,000. If assets increased by P40,000 and liabilities
decreased by P30,000, By how much did the owner's equity increase during the
year?
ANSWER: P70, 000

4. Paid advertising expense, P5,000

ANSWER: Decrease an asset, decrease owner’s equity

5. Cash received from delivery services, P97,700

ANSWER: Increase an asset, increase in owner’s equity.

6. Company X provides consulting services to client Q in May. Company X bills

Client Q in May for the agreed upon amount of P5,000. The sales invoice
shows that the amount will be due in June.
In May Company X records the transaction by a debit to Accounts Receivable
for P5,000 and a credit to Service Revenues for P5,000. What is the effect of
this entry to assets upon the accounting equation for Company X?

ANSWER: INCREASE

7. Received cash from owners as additional investment

ANSWER: Increase an asset, increase in owner’s equity

8. What are the accounting entries to record the invoicing of a credit customer for
services provided?
ANSWER: DR Accounts Receivable/ CR Revenue
9. At the beginning of the year, the assets of Arib Services were P360,000 and it’s
Owner’s Equity was P200,000. During the year, assets increased by 120,000
and liabilities increased by P20,000. By how much what's the owner's equity
increase during the year
ANSWER: P100,000

10.Paid rent for the month, P20,000

ANSWER: Decrease an asset, decrease owner's equity

11.Purchase in equipment for P 10,000, gave 50% down payment, balance on

account.
ANSWER: Increase an asset, ncrease a liability

12. At the beginning of the year, the asset Arib services were P 360,000 and it's
owner’s equity was P 200,000. During the year, assets increase by P 120,000
and liabilities increased by P 20,000. What was the owner's equity at the end of
the year?
ANSWER: 300,000

13.Billed customers for delivery services on account, P55,200

ANSWER: increase an asset, increase in owner's equity

14. Company x provides consulting services to clients Q in May. company x bills

client Q in May for the agreed upon amount of P5,000. the sales invoice
shows that the amount will be due in June
In may, Company x records the transaction by a debit to accounts receivable
for P 5,000 and a credit to service revenues for P 5,000. what is the effect of
this entry to liabilities upon the accounting equation for Company x.
 ANSWER: no effect

15. The liabilities of LL stylist equal one-third of the total assets, and the owner's
equity is P300,000. what is the amount of the liabilities?
ANSWER: 150,000

16. At the beginning of the year, calling station head liabilities of 100,000 and
owners equity of 96,000. if assets increased by 40,000 and a liabilities
decreased by 30,000, How much is the total assets at year end?
ANSWER: 236,000

17. company x provides consulting services to client Q in May. company x bills

client Q in May for the agreed upon amount of 5,000. The sales invoice
shows that the amount will be due in june.
In May, Company X records the transaction by a debit to accounts receivable
for 5,000 and a credit to service revenues for 5,000

In June , Company X received 5,000. what is the effect on this entry to assets
upon the accounting equation for Company X.

ANSWER: No effect

18. Paid 48,000 of salaries of employees incurred last accounting. what accounts
are affected and how they are affected?
ANSWER: decrease in liabilities, decrease in cash

19. what is the credit entry if an entity bought a service vehicle from CDO
motors paying 20% in cash and the balance, on account?
ANSWER: CASH, ACCOUNTS PAYABLE
20. What is the accounting entry to record the investment of cash by the owner of
a business?
ANSWER: DR CASH/ CR CAPITAL

21.Accounting equation should remain in balance because every transaction

affects how many accounts?
ANSWER: two or more

22. Owner withdrew supplies from the entity.

ANSWER: decrease an asset, decrease owner's equity

23. What is the accounting entry to record the purchase of fixed assets on credit
from a supplier?
ANSWER: DR Fixed assets/ CR Accounts Payable

24.The accounting entry for the accrual of wages

ANSWER: DR Wages Expense/ CR Wages Payable

25.Purchased Supplies for Cash

ANSWER: Increase an asset, decrease another asset

26.Received 260,000 cash from clients for services rendered.

ANSWER: CASH, SERVICE REVENUE

27.Issued a bill to client for a service rendered. What account is credited?

ANSWER: service revenue
28. Paid creditors on account, 20,000
ANSWER: decrease an asset, decrease a liability

29. What is the accounting entry to record the receipt of cash from a credit account
customer?
ANSWER: DR Cash/ CR Accounts Receivable

30.Company X pro provides consult to client Q in May. company x bills client Q

in May for the agreed upon amount of P5,000. The sales invoice shows that the
amount will be due in June.
In May, Company X Record the transaction by a debit to accounts receivable
for P5,000 and a credit to Service revenues for P5,000. What is the effect of
this entry to owners upon the accounting equation for company X?

ANSWER: INCREASE

MIDTERMS EXAM REVIEW

1. If a business has received cash in advance of services performed and credits a

liability account, the adjusting entry needed after the services are performed
will be
ANSWER: debit Unearned Service Revenue and credit Service Revenue

2. Which of the following will be included in the adjusting entry to accrue interest
expense?
ANSWER: A Credit to Interest Payable

3.
 ANSWER: The fees Received in Advance which are not yet earned

4. The expense recognition principle matches:

ANSWER: expenses with revenues

5. Accumulated Depreciation is a:
ANSWER: contra asset account

6. The ending balance in the account Prepaid Insurance is expected to report

which of the following?
ANSWER: The Unexpired Portion of the Insurance Premiums Paid

7. The Harris Company purchased equipment for 15,000 on December 1. It is

estimated that annual depreciation on the computer will be 3,000. If financial
statements are to be prepared on December 31, the company should make the
following adjusting entry:
ANSWER: debit Depreciation Expense,250; credit Accumulated
Depreciation, 250.

8. Which of the following will be included in the adjusting entry to accrue interest
income or interest revenues?
ANSWER: A debit to Interest Receivable

9. The adjusting entry that reduces the balance in Prepaid Insurance will also
include which of the following?
ANSWER: A debit to Insurance Expense

10.The final step in the accounting cycle is to prepare:

 ANSWER: a post-closing trial balance

11.A law firm has billed their clients for services performed. They subsequently
received payments from their clients. What entry will the law firm make upon
receipt of the payments?
ANSWER: Debit cash and credit Accounts Receivable

12.On July 1 the Fisher shoe Store paid 24,000 to Acme Realty for 6months rent
beginning July 1. Prepaid Rent was debited for the full amount. If financial
statement are prepared on July 31, the adjusting entry to be made by the Fisher
Shoe Store is:
ANSWER: debit Rent Expense, 4,000; credit Prepaid Rent, 4,000

13.The adjusting entry that reduces the balance in Deferred Revenues or Unearned
Revenues will also include which of the following?
ANSWER: A credit to Fees Earned

14.Which type of adjusting entry is often reversed on the first day of the next
accounting period?
ANSWER: Deferral

15.If a company fails to adjust an Unearned Rent Revenue account for rent that
has been recognized, what effect will this have on that month’s financial
statements?
ANSWER: Liabilities will be overstated and revenues will be understated.

16.On September 1, 20x1, Entity A entered into an agreement to rent office space
for a year and paid P36,000 for a six-month rent. If the asset method is used for
 initial recognition, adjustment on December 31, 20x1 would require a debit to
_______, for ______.
ANSWER: rent expense, 24,000

17.Outstanding expenses are recorded in the balance sheet as:

ANSWER: Liabilities

18.Which of the following entries records the utility bill incurred but not paid from
the water company?

ANSWER: Debit Utilities Expense; credit Utilities Payable

19.A liability account that reports amounts received in advance of providing goods
and services?

ANSWER: Unearned Revenue

20.Accumulated Depreciation is a(n):

ANSWER: Contra asset account

21.The primary source in the preparation of the financial statements is the:

ANSWER: Adjusted Trial Balance

22.A post-closing trial balance will show:

ANSWER: Only balance sheet accounts

23.Which of the following is not an adjusting entry:

ANSWER: Debit cash; credit Unearned Revenue

 24.Expenses against which goods or services have been received but payment has
not been made are called:

ANSWER: Outstanding Expenses

25.Prepaid expenses are also called:

ANSWER: Advance expenses, Deferred expenses, Unexpired expenses

26.Expenses whose benefit has not yet been received but whose payment has been
made are called:

ANSWER: Prepaid expenses

27.What will be the book value of asset if its original cost is P50,000; accumulated
depreciation is P20,000; and depreciation expense for the year is P10,000?

ANSWER: P30,000

28. What is an expense that a business has incurred but has not ye paid?

ANSWER: Accrued expense

29.The expense recognition principle matches:

ANSWER: expenses with revenues

30.Which of the following is an example of unearned income?

ANSWER: Advanced received from a customer for a purchase order place

by him
 31.Prepaid expenses are also called:

ANSWER: Advance expenses, Deferred expenses, Unexpired expenses

32.Every adjusting entry affects?

ANSWER: Both income statement account and balance sheet account

33.If a business pays for only 11 months rent during a financial year, what
accounting term is given to the outstanding one month's rent?

ANSWER: payable

34.A balance of unearned rent at the end of period represents?

ANSWER: Liability

35.The portion of cost expires during a year is?

ANSWER: Expense

36.The record of such transactions in the book of prime entry is called?

ANSWER: Adjustments

37.Adjusting Entries?

ANSWER: Assign revenue to the period in which they are earned; Help to
properly measure the period’s Net Profit / Loss; Bring asset and liability account
to correct balances
 38.The revenue receipt is shown in income statement as a?

ANSWER: Income

FINALS EXAM REVIEW

PART 1

1. The managing partner is a partner who takes active participation in the film and
the running of the business. he carries on the daily business on behalf of all the
partners. this means he acts as an agent of all the other partners on a day-to-
day basis and with regards to all ordinary business of the firm.
ANSWER: TRUE

2. The active partner is basically different from being managing partner

ANSWER: false

3. this is a partner that does not participate in the daily functioning of the
partnership firm, he does not take an active part in the daily activities of the
firm. he is however bound by the action of all the other partners.
ANSWER: Sleeping partner

4. This is a partner that does not have any real or significant interest in the
partnership. So, in essence, he is only leading his name to the partnership. he
will not make any capital contributions to the firm, and so he will not have a
share in the profits either.
ANSWER: nominal partner

5. A person who is not a partner but he represents himself as such. either by his
words, actions or conduct
 ANSWER: partner by Estoppel

6. The possible contributions of a partner in a partnership

ANSWER: MONEY, PROPERTY, INDUSTRY

7. A partner who contributes money or property to the company

ANSWER: CAPITALIST PARTNER, CAPITALIST

8. A partner who contributes services instead of money or property

ANSWER: INDUSTRIAL PARTNER, INDUSTRIAL

9. An individual must contribute capital to become a partner

ANSWER: FALSE

10.The characteristic of unlimited liability does not apply to a limited partnership

ANSWER: FALSE

11.A partner who is not known as a partner but who participates actively in the
management of the partnership is called a managing partner
ANSWER: FALSE

12.All partners in a general partnership are general partners

ANSWER: TRUE

13.An oral agreement may still bind the partners forming the partnership
ANSWER: TRUE

14.A partnership have to comply with as many legal formalities as corporation

does.
 ANSWER: FALSE

PART 2

1. Which of the following does not result in the dissolution of a partnership?

ANSWER: Sale of Partnership assets

2. Claim to the partners personal assets by creditors if the partnership cannot pay
its debts refers to
ANSWER: Unlimited liability

3. A partner will not bind the partnership to an outside purchase contract when
the
ANSWER: item purchase is not within the normal scope of the business

4. A partnership agreement should include

ANSWER: all of these

5. When a partner invest assets other than cash into a partnership, those assets
should be listed on the balance sheet at
ANSWER: the fair market value

6. The effect of the admission of a new partner is

ANSWER: impossible to determine from the information given

7. Which of the following will not result in dissolution of a partnership?

ANSWER: negative capital balance of a partner
8. Donovan Invest 60,000 for 30 percent interest in a partnership in which the
other partners have capital totaling 100,000 before admitting Donovan. after
distribution of the bonus, what is Donovan’s capital balance
ANSWER: 48,000

9. Which of the following will not result in dissolution of a partnership?

ANSWER: Sale of partnership Assets

10.Harry invests 40,000 for a one-fourth interest in a partnership in which the

other partners have capital totaling 80,000 before admitting Harry. After
distribution of the bonus, what is Harry’s capital balance?
ANSWER: 30,000

11.A liquidation differs from a dissolution in that in a liquidation

ANSWER: the business will not continue

12.In a partnership liquidation

ANSWER: a creditors should be paid before partners

13.In a partnership liquidation, the final cash distribution to the partners should be
made in accordance with the
ANSWER: Balances of the partners’ capital accounts

14.A simple partnership liquidation requires

ANSWER: Partners’ profit and loss-sharing ratio