QUIZ 1

A profit is earned under financial capital maintenance concept if

The correct answer is: The financial amount of net assets at the end of the period exceeds the net assets
at the beginning of the period, after excluding distributions to and contributions from owners during period

Which is not part of the FRSC’s due process of developing an accounting standard?

The correct answer is: Vote of approval by majority of the FRSC members

The IASB’s Conceptual Framework considers a pervasive constraint on the information that can be
provided by financial reporting. What is this pervasive constraint?

The correct answer is: Cost constraint

Which of the following is not an element of relevant accounting information?

The correct answer is: Faithful representation

The currently functioning body responsible for the promulgation of the International Financial Reporting
Standards is the

The correct answer is: International Accounting Standards Board

Which financial statement provides users with information about the performance of an enterprise that is
required in order to assess potential changes in the economic resources that it is likely to control in the
future?

The correct answer is: Statement of comprehensive income

What area of public accounting is concerned with the examination of financial statements by a CPA for the
purpose of expressing an opinion as to the fairness of the financial statements?

The correct answer is: External auditing

Which of the following represents the best source of assessing the consistency of a company’s financial
statements?

The correct answer is: The “summary of significant accounting policies” section of the notes to the
financial statements

Which of the following is not an appropriate description of financial statements?

The correct answer is: They are prepared and presented at least annually and are directed toward the
specific information needs of a wide range of users.
What is the quality of financial information that makes it needed and worthy for the purpose it was
prepared?

The correct answer is: Relevance

Which statement is incorrect concerning the users and their information needs?

The correct answer is: Suppliers and trade creditors have interest in information about the continuance of
an enterprise, especially when they have a long-term involvement with or are dependent on the enterprise

In assessing the financial position of an entity, what indicates the amount of the assets financed by
creditors and owners?

The correct answer is: Financial structure

Which of the following is not within the scope of Conceptual Framework?

The correct answer is: Form of presentation of financial statements

Generally accepted accounting principles

The correct answer is: Derive their credibility and authority from general recognition and acceptance by
the accounting profession

Which underlying concept serve as the basis for preparing financial statements at regular intervals?

The correct answer is: Time period

Which of the following is not a purpose of the Conceptual Framework for Financial Reporting?

The correct answer is: To assist the Board of Accountancy in promulgating rules and regulations affecting
the practice of accountancy in the Philippines

How many members, including the chairman, compose the accounting standards setting body in the
Philippines?

The correct answer is: 15

How many CPD credit units are required for accreditation to practice the accountancy profession?

The correct answer is: 120 units

Information about financial flexibility is useful in predicting the

The correct answer is: Ability of the enterprise to use its available cash for unexpected requirements and
investment opportunities

Which of the following is not represented in the FRSC?

The correct answer is: Social Security System

The primary responsibility for the financial statements of an enterprise rests with its

The correct answer is: Management

The process of “matching of cost with revenue” involves the simultaneous or combined recognition of
revenue and expenses that result directly and jointly from the same transactions or other events. Which of
the following exemplifies this approach?

The correct answer is: Expenses are recognized in the statement of comprehensive income on the basis
of direct association between the costs incurred and the earning of specific items of income

Which statement is incorrect concerning the qualitative characteristics of relevance?

The correct answer is: The predictive and confirmatory roles of information are not interrelated.

Which of the following best describes financial accounting?

The correct answer is: It focuses on the preparation and presentation of general-purpose reports known
as financial statements

Which of the following represents the definition of accounting?

I. It is not service activity and its function is to provide quantitative information, primarily financial in nature,
about economic entities, that is intended to be useful in making economic decisions

II. The art of recording, classifying, and summarizing in a significant manner in terms of money,
transactions, and events which are in part at least of a financial character and interpreting the results
thereof

III. The process of identifying, measuring, and communicating economic information to permit informed
judgment and decision by users of information

The correct answer is: II and III

An independent private body that had been formed to make uniform the accounting principles that
companies throughout the world use for financial reporting was the

The correct answer is: International Accounting Standards Committee

Information has the quality of relevance when

The correct answer is: It influences the economic decisions of users by helping them evaluate past,
present, or future events or confirming or correcting their past evaluations

Under financial capital concept, capital is synonymous with

The correct answer is: Net assets or equity of the enterprise (money invested or invested purchasing
power)

Under a physical capital concept, a profit is earned if the physical productive capacity at the end exceeds

The physician productive capacity at the beginning, after excluding any distribution to and contribution
from owners

Financial accounting

The correct answer is: Focuses on the preparation and presentation of general-purpose reports knowns
as financial statements

Which of the following is not a theoretical basis for the recognition of an expense?

The correct answer is: Profit maximization

Which factor determines whether or not financial information should be presented?

The correct answer is: The usefulness of the information for decision-making purpose.

What is the authoritative status of the Conceptual Framework?

The correct answer is: In the absence of a standard or an interpretation that specifically applies to a
transaction, should consider the applicability of the Conceptual Framework in developing and applying an
accounting policy that results in information that is relevant and faithfully represented

Which users of the financial information require information to regulate the activities of enterprise,
determine taxation policies and as a basis for national income and similar statistics?

The correct answer is: Government and its agencies

A conceptual framework for financial reporting is

The correct answer is: A theoretical foundation that guides the Financial Reporting Standard Council,
preparers and users of financial accounting information in the preparation and presentation of financial
statements

What is the basis of measurement under the physical capital maintenance concept?

The correct answer is: Current cost

Which accounting standard setting body was created by the Professional Regulation Commission, upon
recommendation of the Board of Accountancy, to assist the BOA in carrying out its powers and functions
under RA 9298?

The correct answer is: FRSC

Which of the following is not a valid statement regarding the Conceptual Framework?

The correct answer is: It is concerned with special financial reports; for example, prospectuses and
computations prepared for taxation purposes

The IASB’s Conceptual Framework

I. Sets out the concepts that underlie the preparation and presentation of financial statements for external
users

II. Is an International Financial Reporting Standard and hence defines the various recording,
measurement, and presentation issues

III. Is concerned with specific-purposes financial reporting, including consolidated financial statements

The correct answer is: I only

QUIZ 2

Which is incorrect concerning the comparability of financial information?

The correct answer is: It is appropriate for an entity to leave its accounting policies unchanged when more
relevant and reliable alternatives exist

Which user of financial information require information to regulate the activities of the enterprises,
determine taxation policies, and as a basis for national income and similar statistics?

The correct answer is: Government and its agencies

Information about liquidity is useful in predicting the

The correct answer is: Ability of the enterprise to generate cash and cash equivalents in the future

Which of the following is not an essential characteristic of an asset?

The correct answer is: The cost of the asset can be measured reliably

Financial statements portray the financial effects of transactions and other events by grouping them into
broad classes according to their economic characteristics. These broad classes are termed as the
The correct answer is: Elements of financial statements

Net realizable value is

The correct answer is: Amount of cash or cash equivalent that could currently be obtained by selling the
asset in an orderly disposal

Under the financial capital maintenance concept, a profit is earned when

I. The financial amount of the net assets at the end of the period exceeds the financial amount of the net
asset at the beginning of the period, after excluding any distributions to and contributions from owners
during the period

II. The physical productive capacity of the entity (funds needed to achieve that capacity) at the end of the
period exceeds the physical productive capacity at the beginning of the period, after excluding any
distributions to and contributions from owners during the period.

The correct answer is: I only

What is incorrect concerning the quality or relevance?

The correct answer is: The relevance of information is not affected by its nature and materiality

This process involves the simultaneous or combined recognition of revenue and expenses that result
directly and jointly from the same transactions or other events on the basis of direct association between
the costs incurred and the earning of specific items of income

The correct answer is: Matching of costs with revenue

Which of the following is incorrect concerning the recognition of a liability?

The correct answer is: A decision by the management of an enterprise to acquire assets in the future, in
itself, give rise to a present obligation

The overriding criterion by which accounting information can be judged is that of

The correct answer is: Usefulness for decision making

It is the process of incorporating in the financial statements an item that meets the definition of an element

The correct answer is: Recognition

The accrual basis means that

The correct answer is: The effects of transaction and other events are recognized when they occur and
not as cash or its equivalent is received or paid and they are recorded in the accounting records and
reported in the financial statements of the periods to which they relate

Which statement is incorrect concerning the concept of capital?

The correct answer is: A physical capital concept is adopted by most entities in preparing their financial
statements

The elements directly related to the measurement of profit are income and expense. Which definition is
correct?

I. Income is increase in economic benefit during an accounting period in the form of inflows or increase in
asset or decrease in liability that result in increase in equity other than contribution from equity participants

II. Expense is decrease in economic benefit during an accounting period in the form of outflows or
decrease in asset or increase in liability that results in decrease in equity other than distributions to equity
participants

The correct answer is: Both I and II

When information about two different enterprises has been prepared and presented in a similar manner,
the information exhibits the characteristics of

The correct answer is: Dimensional comparability

Comparability of financial information depends on

The correct answer is: Both consistency of accounting policies and regular reporting periods

Technically, this arises in the course of the ordinary regular activities of an enterprise and is referred to by
a variety of different names including sales, interest, dividends, royalties, and rent?

The correct answer is: Revenue

A liability is

The correct answer is: A present obligation of the enterprise arising from past events the settlement of
which is expected to result in an outflow from the enterprise of resources embodying economic benefits

Which of the following is not generally used currently in measurement of financial statement elements?

The correct answer is: Inflation-adjusted cost

The going concern assumption means that

The correct answer is: The enterprise will continue in operation for the foreseeable future and the
enterprise has neither the intention nor the need to liquidate or curtail materially the scale of its operations

Which statement is correct concerning the two concepts of capital?

I. Under the financial capital concept, such as invested money or invested purchasing power, capital is
synonymous with the net assets or equity of the entity

II. Under a physical capital concept, such as operating capability, capital is regarded as the productive
capacity of the entity

The correct answer is: Both I and II

What is another term for equity?

The correct answer is: Net assets

Which financial statement elements directly relate to the measurement of performance?

The correct answer is: Income and expenses

It is the inclusion of a degree of caution in the exercise of judgement needed in making estimates required
under conditions of uncertainty so that assets and income are not overstated or liabilities and expenses
are not understated

The correct answer is: Prudence

The elements directly related to the measurement of profit are income and expense. Which definition is
correct?

I. Income is an increase in economic benefit during an accounting period in the form of inflows or increase
in asset or decrease in liability that results in an increase in equity other than the contribution from equity
participants

II. Expense is a decrease in economic benefits during an accounting period in the form of inflows or
decrease in assets or increase in liability that results in a decrease in equity other than distributions to
equity participants

The correct answer is: I only

Under the physical capital concept, a profit is earned if the physical productive capacity at the end
exceeds
The correct answer is: The physical productive capacity at the beginning, after excluding any distribution
to and contribution from owners

When an information is complete, neutral, and free from error, then such information meets the qualitative
characteristics of

The correct answer is: Faithful representation

The providers of risk capital (investors)

The correct answer is: Are concerned with the risk inherent in and return provided by their investments
and need information to help them determine whether they should buy, hold or sell the investments

Which statement is incorrect concerning the elements directly related to the measurement of
performance?

The correct answer is: The definition of revenue encompasses both income and gains

Under accrual basis,

The correct answer is: Income and expenses, assets and liabilities are measured based on the
occurrence of changes in the economic resources and obligations

To achieve faithful representation of information, transactions must be accounted for and presented in the
financial statements in accordance with the economic reality and not merely their legal form. This concept
is called

The correct answer is: Substance over form

Which of the following statements is not valid concerning materiality?

The correct answer is: Materiality is a fundamental qualitative characteristic that provides a threshold or
cut-off point to determine which information must be reported to users

Which statement is incorrect concerning capital maintenance concept?

The correct answer is: Increases in the prices of assets held over the period are conventionally referred to
as holding gains and conceptually are not profits

Which of the following refers to the relative size and magnitude of a financial statement element?

The correct answer is: Materiality

Financial information exhibits the characteristics of comparability when

The correct answer is: Accounting entities give accountable events the same accounting treatment from
period to period
An expense is recognized immediately in the financial statements

I. When the expenditure produces no economic benefits

II. When the costs incurred ceases to qualify for recognition as an asset in the statement of financial
position

The correct answer is: Either I or II

What is the basis of measurement under the physical capital maintenance concept?

The correct answer is: Current cost

It is the process of determining the monetary amounts at which the elements are to be recognized and
carried in the statement of financial position and statement of comprehensive income

The correct answer is: Measurement

Accounting information is considered to be relevant when it

The correct answer is: Is capable to making a difference in a decision

QUIZ 3

Bank overdrafts are

The correct answer is: Component of cash and cash equivalents if they are repayable on demand and the
bank balance often fluctuates from positive to negative

What is the major purpose of an Imprest petty cash fund?

The correct answer is: To effectively control cash disbursements

Cash set aside for noncurrent purposes will be shown in the balance sheet as investment under current
assets.

The correct answer is: False

The double-entry accounting system means

The correct answer is: The dual effect of each transaction is recorded with a debit and a credit

The normal balance of an account is on the

The correct answer is: Side represented by increase in the account balance

The debit and credit analysis of a transaction normally takes palce

The correct answer is: Before an entry is recorded in a journal

Which of the following statements is true regarding debits and credits?

The correct answer is: The rules for debit and credit and the normal balance of share capital are the same
for liabilities

Postage stamps on hand are classified as cash.

The correct answer is: False

Bank reconciliation

The correct answer is: Explains the difference between the bank balance and the balance shown in the
depositor’s records

Which of the following reconciling items must be added to the cash balance per ledger in preparing a bank
reconciliation using the unadjusted to adjusted balances format?

The correct answer is: Note receivable collected by the bank in favor of the depositor

Compensating balance shall be presented in the balance sheet as part of cash and cash equivalents if it
earns interest even though the bank imposes restriction as to its withdrawal.

The correct answer is: False

Bank statement provide information such as: checks cleared during the period, NSF checks, errors made
by the depositor entity and bank charges for the period.

The correct answer is: False

Window dressing could be discovered through confirmation of accounts.

The correct answers are: True, False

Because the bank has the legal right to demand notice before withdrawal, savings account usually are not
classified on an entity’s balance sheet as cash.

The correct answer is: False

The bank to book method of bank reconciliation starts from the unadjusted bank balance and ends with
the adjusted book balance.

The correct answer is: False

Both the imprest system and fluctuating fund system of recording of petty cash transactions require
adjustment at the end of accounting period for the unreplenished expenses.
The correct answer is: False

Book and bank reconciling items shall be prepared respective adjusting entries to bring their balances into
agreement.

The correct answer is: False

Kiting can be accomplished by allowing some transactions for the succeeding year to be recorded in the
current year.

The correct answers are: True, False

Cash equivalents are

All of these are features of cash equivalents

Investments with original maturities of three months or less
Readily convertible to known amounts of cash
None of the above
Treasury bills, commercial paper and money market funds purchased with excess cash

The correct answer is: All of these are features of cash equivalents

Which of the items below is deducted from the bank statement balance in preparing a bank reconciliation
using the adjusted balance format?

The correct answer is: Outstanding check

Cash fund set aside for a certain purpose shall be classified as noncurrent asset.

The correct answer is: False

The accounting equation must remain in balance

The correct answer is: Throughout each step in the accounting cycle

Which statement is incorrect concerning cash equivalents?

The correct answer is: For investment to qualify as cash equivalent, it must be readily convertible to
known amounts of cash and subject to a significant risk of changes in market value

An optional step in the accounting cycle is the preparation of

The correct answer is: Reversing entries

If the cash balance shown on a company’s accounting records is less than the correct cash balance and
neither the company nor the bank has made any errors, there must be

The correct answer is: Deposits credited by the bank but not yet recorded by the company
Notes to financial statements are used to report information that does not fit into the body of the
statements in order to enhance the reliability of the statements.

The correct answer is: False

Debit memos increase cash balance while credit memos decrease the cash balance.

The correct answer is: False

If the balance shown on a company’s bank statement is less than the correct cash balance and neither
the company nor the bank has made any errors, there must be

The correct answer is: Deposits in transit.

Which of the following transactions will result to the same journal entry under Imprest fund system and
Fluctuating fund system?

The correct answer is: Establishment of petty cash fund

What is the logical order of the following steps in the accounting cycle?

The correct answer is: Journalize the closing entries, post the closing entries, and then take a post closing
trial balance

The replenishment of the petty cash fund under an imprest system requires a debit to the Petty Cash
account for the amount of the replenishment.

The correct answer is: False

Check returned by bank due to insufficiency of fund shall be adjusted by debiting Cash and crediting
Accounts receivable.

The correct answer is: False

Bank reconciliation is usually prepared on a monthly basis upon receipt of the bank statement to identify
errors or items that need to be adjusted on the depositor’s books. The adjustment should be made for

All items except bank errors, NSF checks, outstanding checks and deposit in transit
All items except deposit in transit, outstanding checks, and bank errors
Deposit in transit
Deposit in transit, outstanding checks, and bank errors

The correct answer is: All items except deposit in transit, outstanding checks, and bank errors

Bank overdrafts occur when a check is written for less than the amount in the cash account.

The correct answer is: False

As a system of control of cash, all cash receipts, collections from receivables and sales or not, should be
deposited intact and all cash disbursements, in whatever nature, should be made by means of check.

The correct answer is: False

Which of the following statements is correct?

Outstanding checks will cause the cash balance per ledger to be greater than the balance reported by the
bank, all other things being equal.

A bank service charge will cause the cash balance per ledger to be higher than that reported by the bank,
all other things being equal.

An error made by the bank by charging an amount to the depositor’s account requires a correcting entry in
the depositor’s own records.

The cash balance to be reported on the balance sheet must be the bank statement balance.
The correct answer is: A bank service charge will cause the cash balance per ledger to be higher than
that reported by the bank, all other things being equal.

If cash proves out short in a petty cash fund, the shortage is debited to the Cash Over and Short account.

The correct answer is: True

Bank statements provide information about all of the following, except

The correct answer is: Errors made by the depositor

If the compensating balance is not legally restricted, it is part of cash and classified as current asset,
otherwise it should be classified as noncurrent asset.

The correct answer is: False

Foreign currencies should be stated at current exchange rate at balance sheet date.

The correct answer is: True