Republic of the Philippines

Laguna State Polytechnic University

Province of Laguna

FINANCIAL ACCOUNTING AND REPORTING FAR01-2021

Francis O. Mateos, CPA Overview of Accounting

1. What is the basic purpose of accounting?

a. To provide quantitative financial information about economic activities.
b. To provide all information that users need in making economic decisions.
c. To provide qualitative financial information about economic activities intended to be useful in making economic
decisions.
d. To provide quantitative financial information about economic activities intended to be useful in making
economic decisions.

2. Accounting provides which type of information?

a. quantitative
b. financial information
c. qualitative
d. all of these

3. General purpose financial statements are

a. those statements that cater to the common and specific needs of a wide range of external users.
b. those statements that cater to the common needs of a wide range of external users and internal users.
c. those statements that cater to the common needs of a limited range of external users.
d. those statements that cater to the common needs of a wide range of external users.

4. External users are those

a. who do have the authority to demand financial reports tailored to their specific needs.
b. who do not have the authority to demand financial reports tailored to their common needs.
c. who do not have the authority to demand financial reports tailored to their specific needs.
d. who belong to countries other than the domicile country of the reporting entity

5. The primary objective of financial reporting is to provide

a. information about economic resources, claims to these resources, and changes in them.
b. information useful for investment and credit decisions.
c. information useful in predicting future cash flows.
d. all of these

6. Which of the following statements is false?

a. Accountable events are those that have an effect in an entity's assets, liabilities, equity, income or expenses.
b. The term “recognition” as used in accounting refers to the process of incorporating the effects of an accountable
event in the statement of financial position or the statement of profit or loss and other comprehensive income
through a memo entry.
c. External events are those that involve the reporting entity and an external party.
d. The Board of Accountancy consists of a chairperson and six members.

7. Which of the following statements is true?

a. In current practice, accounting provides only quantitative information that is useful in making economic
decisions.
b. External users are those who do not have the authority to demand financial reports tailored to their specific
needs.
c. Under the stable monetary unit assumption, the owners of the business and the business are viewed as a single
reporting entity. Therefore, the personal transactions of the owners are recorded in the books of accounts.
d. The practice of accountancy in the Philippines is regulated under R.A. 9892.

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8. Which of the following statements correctly refer to the accounting process?
I. Measuring is the accounting process of analyzing business activities as to whether or not they will be recognized
in the books.
II. Recognition refers to the process of including the effects of an event in the totals of the statement of financial
position or the statement of profit or loss and other comprehensive income through memo entries.
III. Disclosure of events in the notes to financial statement without including their effect in the totals of the
statement of financial position or statement of profit or loss and other comprehensive income is not an
application of the recognition principle.
IV. An accountable event is an event that has an effect on the assets, liabilities or equity of an entity and its effect
can be measured reliably.
V. Sociological and psychological matters are within the scope of accounting.
a. I, II, III, IV and V
b. I, II, III and IV
c. IV
d. III and IV

9. Which of the following statements is true?

I. Loss from theft is classified as a nonreciprocal transfer.
II. Internal events are changes in economic resources by actions of other entities that do not involve transfers of
resources and obligations.
III. Nonreciprocal transfers involve the transfer of resources in only one direction, either from an entity to other
entities or from other entities to the entity.
IV. Internal events are sudden, substantial, unanticipated reductions in resources not caused by other entities.
V. Fire, earthquake and flood are examples of accountable events classified as internal events.
a. I, II, III and V
b. I, III and V
c. II, III, IV and V
d. I, III, IV and V

10. It refers to the process of incorporating the effects of an accountable event in the statement of financial position or
the statement of profit or loss and other comprehensive income through a journal entry.
a. realization
b. derecognition
c. recognition
d. posting

11. All of the following are events considered as exchange or reciprocal transfer, except
a. purchase of investment in equity securities
b. sale of equipment for non-interest bearing note
c. subscription of the entity’s own equity instrument (i.e., contributions by owners)
d. exchange of a note payable for an account payable

12. All of the following are events considered nonreciprocal transfers, except
a. declaration of cash dividends
b. declaration of stock dividends
c. payment of accounts payable
d. imposition of fines

13. These are events involving an entity and another external party.
a. external events
b. internal events
c. transactions
d. life events

14. It is the accounting process of assigning numbers, commonly in monetary terms, to the economic transactions and
events.
a. Analyzing
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 b. Classifying
c. Measuring
d. Interpreting

15. During the lifetime of an entity, accountants produce financial statements at arbitrary points in time in accordance
with which basic accounting concept?
a. Cost/benefit constraint
b. Periodicity assumption
c. Conservatism constraint
d. Matching principle

16. What accounting concept justifies the use of accruals and deferrals?
a. Going concern assumption
b. Materiality constraint
c. Consistency characteristic
d. Monetary unit assumption

17. The assumption that a business enterprise will not be sold or liquidated in the near future is known as the
a. economic entity assumption.
b. monetary unit assumption.
c. conservatism assumption.
d. going concern.

18. Valuing assets at their liquidation values rather than their cost is inconsistent with the
a. periodicity assumption.
b. matching principle.
c. materiality constraint.
d. historical cost principle.

19. When products or other assets are exchanged for cash or claims for cash, they are said to be
a. allocated.
b. realized.
c. recognized.
d. earned.

****END****

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