CHAPTER 1

Exercise 1 – Identification

1. A business firm is classified as to nature that purchase raw materials, convert them into
finished products is manufacturing.
2. A corporation with a single stockholder is considered a one person corporation.
3. A fundamental principle in the Code of Professional Accountants that states that “A
professional accountant should be straightforward and honest in performing
professional service” is integrity.
4. A fundamental principle in the Code of Professional Accountants that states that “A
professional accountant should not allow bias, conflict of interest or undue influence of
others to override professional or business judgments” is objectivity.
5. A service activity the function of which is to provide quantitative information, primarily
financial in nature, about economic entities, that is intended to be useful in making
economic decision is accounting.
6. A standard setting body that replaced Accounting Standards Council (ASC) as the
accounting standard setting body is FRSC Financial Reporting Standards Council.
7. Accountants who render accounting services on a fee basis are engaged in Public
Accounting.
8. Accounting working in the government are involved in Government Accounting.
9. An activity in accounting that involves the preparation and distribution of accounting
reports to potential users of accounting information is communicating .
10. An activity in accounting that involves the recognition or non-recognition of business
activities as accountable events is identifying.
11. An artificial being created by operation of law having the right of succession and the
powers, attributes, and properties expressly authorized by law or incidental to its
existence (R.A.11232) corporation.
12. Popularly known as journalizing which involves the routine and mechanical process of
committing to writing business transactions and events on the books of accounts in a
chronological sequence in accordance with established accounting rules and procedures
is recording.
13. The analytical phase of accounting involves giving meanings to the amounts, ratios,
trends, and other information derived from financial statements is interpreting.
14. The father of accounting Luca Pacioli.
15. The field of accounting that is concerned with the design and the implementation of
procedures for the accumulation of financial data is accounting system.
16. The field of accounting that is concerned with the recording of transactions for an
economic unit and the periodic preparation of reports is general or financial
accounting.
17. The parties to whom general purpose financial reports are primarily directed to primary
users.
18. The principle that requires that assets should be recorded initially at original acquisition
cost is cost principle.
19. The principle that states that income should be recognized when earned rather than
when cash is received income recognition principle.
20. Users of accounting information that are interested about the continuance of the
enterprise, especially when they have a long-term involvement with or are dependent
on the enterprise are customers.

Exercise II – True or False

________ 1. The work of the external auditor starts when the work of the accountant ends,
________ 2. Partnerships has unlimited life and limited liability
________ 3. Manufacturing companies aside from selling finished goods also sells raw materials
and work in process at a profit
________ 4. The concept of double entry bookkeeping was developed by Luca Pacioli.
________ 5. In the Philippines, an accounting firm can either be a sole proprietorship,
partnership or a corporate firm.
________ 6. Cost accounting emphasized the determination of costs of finished goods.
________ 7. Cooperative are formed by mere agreement
________ 8. Any examinee who has an average rating of 75% has passed the CPA Board
________ 9. An auditor of Commission on Audit is engaged in public accounting.
________ 10. An accountant should maintain proper professional behavior anytime, anywhere.
________ 11. Accrual basis of accounting requires the recording of transactions every time cash
is received.
________ 12. Accounting is the same as bookkeeping.
________ 13. Accounting is a service activity.
________ 14. A partnership is formed by at least two persons.
________ 15. A corporation can be formed by less than 5 persons.

Exercise IV- Multiple Choice

1. The basic purpose of accounting is

a. To provide information needed by the management to control its employees
b. To provide information that the creditors of an economic entity can use in deciding
whether to grant loans to the entity
c. To determine the total assets of the company
d. To provide quantitative information about a business enterprise that is useful in
making rational economic decision.

2. Accounting is a service activity. This accounting definition is given by:

a. American Accounting Association
b. Accounting Standards Council
c. AICPA Committee on accounting Terminology
d. FRSC

3. It is the accounting standard setting body in the Philippines at the present

a. Accounting Standards Council
b. Financial Reporting Standards Council
c. Philippine Accounting Standards Board
d. Board of Accountancy

4.All are true except

a. Primary users include lenders
b. Employees are interested on information about the stability and
profitability of their employers.
c. The public is task to regulates the activities of the business enterprises
d. The government may use information in the preparation of certain policies.

5.The following are the characteristics of a corporation. Which is not?

a. Has the right of succession
 b. Has limited liability
c. Created by operation of law
d. Has at least 5 incorporators

6.Which statement is true?

a. Sole proprietorship has unlimited liability
b. The maximum number of partners is 15
c. A partnership has the right of succession
d. A corporation can be created by mere agreement

7.The total members of Financial Accounting Standards Council is

a. Five
b. Fifteen
c. Ten
d. Twenty

8.It is the systematic and chronological recording of business transactions and events
a. accounting
b. bookkeeping
c. auditing
d. measuring

9.Which statement is true?

a. Income is recorded when cash is received and expense is recorded
when incurred
b. Income is recorded when earned and expense is recorded when
incurred.
c. Expense is recorded when cash is paid and income is recorded when
cash is received
d. Expense is recorded when cash is decreased and income is recorded
when cash is increased.

10. An accountant is expressing his opinion as to the fairness of the presentation of the
financial statements of the enterprise. This accountant is said to be engaged in
a. public accounting
b. private accounting
c. government accounting
d. financial accounting

11. A principle stating that costs and expenses incurred in earning the revenue shall be
reported in the same period.
a. Cost
b. Income recognition principle
c. Matching principle
d. Accrual

12. What is the law regulating the practice of accountancy in the Philippines?
a. R.A. No. 9298
 b. R.A. No. 9828
c. R.A. No. 9928
d. R A. No. 9892

13. Which accounting process is the recognition or non-recognition of business activities as

accountable events
a. identifying
b. measuring
c. recording
d. communication

14. If the business is not being sold, the amounts reported in accounts for assets used in the
business operations are based on the cost of the assets. This practice is based on
a. accrual
b. going concern
c. matching principle
d. time period.

15. A specialized accounting field which focuses on the custody of public funds
a. government accounting
b. cost accounting
c. accounting system
d. tax accounting

16. Which statement is false?

a. An accountant should exercise due care in the conduct of his work
b. An accountant should be objective
c. An accountant should favor the management
d. An accountant should be straightforward and honest

17. Represents the rules, procedures, practice and standards followed in the preparation
and presentation of financial statements
a. GAAP
b. Auditing standards
c. Government polices
d. Accounting assumptions

18. The basic professional values or ethics does not include.

a. Integrity
b. Objectivity
c. Professional competence
d. Diversity

19. The communicating process of accounting includes all of the following, except
a. Recording
b. Classifying
c. Summarizing
d. Interpreting
 20. These are the users who are interested in information about the continuance of an
entity when they have a long-term involvement with or are dependent on the entity.
a. Customers
b. Management
c. Suppliers
d. Creditors

CHAPTER 2

Exercise IV – Identification

Accounts payable 1. Amounts due to a supplier for the purchase of goods or services on credit.
Expenses 2. Decreases in assets or increases in liabilities that result in decreases in equity,
other than distribution or dividend paid to owners.
liabilities 3. Debts or obligations of the business.
investments 4. Assets held by an enterprise for the accretion of wealth through capital
distribution, such as interest, royalties, dividends and rentals, for capital appreciation or for
other benefits to the investing enterprise such as those obtained through trading relationship.
production 5. The process by which resources are combined or transformed into products.
Intangible assets 6. Identifiable non-monetary assets without physical substance
income 7. Increases in assets or decreases in liabilities that result in increases in equity, other
than contribution or investment by owners.
Merchandise inventory 8. Items for sale of a trading business.
Deferred income 9. Income received in advance but not yet earned.
equity 10. Represents residual interest in the assets of the enterprise after
deducting all liabilities.
Assets 11. Resources controlled by the enterprise as a result of past
transactions or events
accrued income 12. Income earned but not received
copyright 13. The right granted to authors to publish his books.
Fixed assets 14. These are tangible assets which are held by the enterprise in production or
supply of goods or services, for rental to others, or for administrative purposes, and are
expected to be used during more than one period.
Permanent 15. Otherwise known as real accounts.

Exercise V – Multiple Choice

1. It is an increase in economic benefits during the accounting period related to an increase in

asset or a decrease in liability that results in increase in equity other than contribution from
owners
a. Asset
b. Income
c. Liability
d. Expense

2. The following are false except

a. Gain encompasses both income and revenue
b. Income encompasses both gain and revenue
 c. Income encompasses revenue only
d. Revenue encompasses both income and gain

3. Which statement is true?

a. Current assets include petty cash and cash on hand.
b. Revenue includes gain from sale of equipment.
c. Noncurrent assets excludes goodwill.
d. Current liabilities include accounts payable and mortgage payable.

4. All are income accounts except

a. Sales
b. Rent income
c. Unearned interest income
d. Gain on sale of land

5. Which is a nominal account?

a. Cash
b. Patent
c. Advertising
d. Star, Capital

6. The elements directly related to the measurement of financial position are

a. Assets and liabilities
b. Assets, liabilities and owners' equity
c. Assets, liabilities, owners' equity, income and expenses
d. Income and expenses

7. The elements directly related to the measurement of financial performance are

a. Assets and liabilities
b. Assets, liabilities and owners' equity
c. Assets, liabilities, owners' equity, income and expenses
d. Income and expenses

8. Which are intangibles?

I - Patent II - Goodwill
a. I only
b. Il only
c. Both I and II
d. Neither I nor Il
CHAPTER 3
Exercise I – True or False

_________ 1. Current assets less current liabilities equals equity.

_________ 2. A business activity is accountable once it has an effect on assets, liabilities or
capital.
_________ 3. A decrease in asset may result to a decrease in another form of asset.
_________ 4. An increase in liabilities may cause an increase in assets
_________ 5. All increases to expense and asset accounts are debits
_________ 6. The normal balance of assets, expenses, and equity accounts is credit.
_________ 7. Debits means increases while credits mean decrease
_________ 8. The simplest form of an account is a T-account
_________ 9. An increase in revenue may be accompanied by an increase in assets
_________ 10. Claims of creditors and owners should be equal to total assets

Exercise II – Matching Type

A. Income Statement
B. Statement of Financial Position
C. Statement of Cash Flows
D. Statement of Changes in Owner’s Equity

_____ 1. It shows the sources of cash

_____ 2. It is a financial stated dated as of a specific date
_____ 3. It gives an information whether the company has net income or loss for the period
_____ 4. It shows that net cash flows from operating activities and investing activities
_____ 5. It shows the balance of liabilities at the end of the accounting period
_____ 6. It shows changes in capital
_____ 7. It shows who has the claim to the assets of the company
_____ 8. It will be used to answer the question why there is an increase or decrease in cash
_____ 9. It will be used to determine if the company is capable of paying its currently maturing
obligations
_____ 10. It will show the factors that resulted to the increase or decrease in equity

Exercise III - Classification

Account Title Classification Normal balances Financial

Statement
1 Allowance for doubtful Contra-account Credit SFP
accounts
2 Inventory Asset Debit SFP
3 Sales Income Credit IS
4 Income tax Expense Debit IS
5 Investment in bonds Asset Debit SFP
6 Franchise Asset Debit SFP
7 Mortgage payable Liabilities Credit SFP
8 Unearned rent Liabilities Credit SFP
9 Accumulated depreciation Contra Account Credit SFP
10 SS, capital Equity Credit SCE

Exercise IV – Computation of Assets, Liabilities, and Equities

___________ 1. Ruby Enterprise’s assets amount to P3,465,000. The equity of the owner is
P2,150,000. How much is the equity of the creditors?
___________ 2. Len Beauty Shop has assets amounting to P455,000. Len’s capital is P125,000.
How much is the total liability?
___________ 3. Total investment of Rooby to Elm Laundry Services is P867,900. Total debt of
the business is P357,895. How much is the total assets?
___________ 4. K-Janitorial income for the month is P785,435. It spent P866,500 for operation.
How much is the net loss for the month?
___________ 5. A business has total assets of P3,345,000. If 60% represents equity of creditor,
how much is the equity of the owner?

CHAPTER 4

Exercise I – True or False

_______ 1. The simplest form of account is T-account

_______ 2. A simple entry contains one debit and two credits
_______ 3. There is no indention for the accounts debited and credited in a journal entry
_______ 4. Posting is in itself the classifying function of accounting
_______ 5. Recording is the last phase of accounting
_______ 6. The specific titles and numbers used in the chart of accounts should be uniform for
all businesses.
_______ 7. A transaction is entered in a journal before it is entered in ledger accounts
_______ 8. In recording business transactions using forms with ruled money columns, the
bookkeeper should write a double zero or a dash in the centavo column if there is
no column
_______ 9. Every business transaction affects a minimum of two accounts
_______ 10. When a journal entry is erroneous, the best thing to do is to leave it because the
owner has no knowledge about accounting.

Exercise II – Identification
journal 1. The book of original entry.
journalizing 2. The process of recording transactions in the journal.
Journal entry 3. It refers to the complete set of information written in the journal.
simple 4. A journal entry which contains one debit and one credit.
compound 5. A journal entry that has multiple debits or credits.
ledger 6. Book of final entry.
account 7. An accounting device used in summarizing the changes in assets, dues, capital,
revenue and expenses due to occurrence of a business transaction.
credit 8. The right side of an account.
ledger 9. Group of related accounts.
posting 10. The process of transferring the same information found in the journal
chart of accounts 11. List of account titles classified or arranged according to the statement
wherein they appear.
Trial balance 12. Shows the equality of the debits and credits.
transposition 13. An error in which the order of digits in a number is changed.
transplacement 14. An error in which the entire number is moved one or more spaces to right
or to the left
footing 15. A term used for adding the column of figures.
Exercise III – Multiple Choice

1. The first step in the accounting process is -

a. correcting a journal entry.
b. identifying transactions in the journal.
c. identifying transactions through source documents.
d. post journal entries to the ledger.

2. Why do accountants record transactions in the journal?

a. To ensure that all transactions are posted to the ledger.
b. To ensure that total debits equal total credits.
c. To have a chronological record of all transactions.
d. To help prepare the financial statements.

3. When services are rendered for cash

a. cash will decrease
b. no effect in cash
c. cash will increase
d. service fee will decrease

4. When an asset increases, one of the following must occur:

a. a liability decreases.
b. income increases.
c. an expense increases.
d. owner's equity decreases.

5. Payment to supplier's account may result to

a. credit to supplier's account
b. debit to payable account
c. debit to cash account
d. debit to receivable account

6. A collection from customer's account may result to a -

a. credit to accounts receivable
b. credit to cash
c. debit to accounts receivable
d. debit to accounts payable

7. A statement that summarizes the debit and credit entries of each account in a general ledger
a. income statement
b. statement of financial position
c. statement of account
d. trial balance
Accounts in the ledger are arranged in what sequence?
a. accounts with debit balances first, followed by accounts with credit balances
b. alphabetically
c. chronologically
d. financial statements order
9. Which of the following tools is used by the accountant principally for proving the quality of
debit and credit balances?
a. income statement
b. T-account
c. statement of financial position
d. trial balance

10. When an amount is placed on the left side of an account, it is said to be

a. credited.
b. decreased.
c. debited.
d. increased.

11. Which of the following errors cannot be revealed by a trial balance?

a. A journal entry that has not been posted in its entirety.
b. Erroneous computation of an account balance.
c. Omission in posting of either a debit or credit entry in the journal.
d. Posting the amount of an item to a wrong side of the account or ledger

12. Which of the following errors will not cause the debit and credit columns of the trial balance
to be unequal?
a. A debit entry was recorded in the wrong account.
b. A debit was entered an account as a credit.
c. The account balance was carried to the wrong column of the trial balance.
d. The balance of an account was incorrectly computed.

13. In a trial balance, when an error has been made that is evenly divisible by 9, then what was
the probable nature of the error?
a. A debit was recorded as a credit, or vice versa.
b. A decimal point was displaced.
c. The debit or credit column was added incorrectly.
d. Two numbers in an amount were transposed.

14. The purpose of the trial balance is to..

a. Ensure that all transactions have been recorded.
b. Increase assets and owner's equity.
c. List all the accounts with their balances.
d. Speed the collection of cash receipts from the customers.

15. An account is said to have a debit balance if -

a. Its normal balance is debit without regard to the amounts or number of entries on the
debit side.
b. The amount of the debits exceeds the amount of the credits.
c. The last entry of the accounting period was posted on the debit side.
d. There are more entries on the debit side than on the credit side.

CHAPTER 5
Exercise I – Identification

Real or permanent 1. Another term for statement of financial position accounts.

Nominal or temporary 2. Another term for income statement accounts.
depreciation 3. It is the allocation of the cost of the asset over its estimated useful life.
Net book value 4. The difference between the cost of fixed assets and the related
accumulated depreciation.
adjusting entry 5. An entry that splits the nominal and real accounts from a mixed
Mixed account 6. An account which contains both nominal and real accounts.
Prepaid expense 7. An expense that is already paid but not yet incurred.
Accrued expense 8. An expense that is already incurred but not yet paid.
Unearned revenue 9. An income that is already received but not yet earned.
Accrued revenue 10. An income that is already earned but not yet received or collected.

Exercise II – True or False

__________ 1. Adjusting journal entries are prepared at the end of the accounting period.
__________ 2. An adjusting entry is composed of at least one statement of financial position
account and at least one income statement account.
__________ 3. Failure to prepare an adjusting entry to record accrued expense will result to
have an overstated profit.
__________ 4. Failure to prepare an adjusting entry to record accrued income will result to
have overstated profit.
__________ 5. An accrual is the postponement of the recognition of an expense already paid or
of a revenue already received.
__________ 6. The term "accrued' when associated with an expense account connotes a
liability.
__________ 7. Accrued expenses pertain to unrecorded but paid expenses.
__________ 8. Accrued income is income already earned and collected.
__________ 9. The value of the property and equipment decreases due to wear and tear,
passage of time and introduction of new model and inventions.
__________ 10. All adjusting entries are reversed at the beginning of the next accounting
period.

Exercise III – Multiple Choice

1. Entries required at the end of the accounting period to bring the accounts up to date and
ensure the proper matching of revenues and expenses are called
a. adjusting entries.
b. correcting entries.
c. closing entries.
d. matching entries.

2. Adjusting entries
a. assign revenue to the period in which they are earned.
b. bring asset and liability accounts to correct balances.
c. help properly measure the period's net income or net loss.
d. All of the above.
3. The decrease in the usefulness of property and equipment as time passes is caller
a. consumption.
b. contra asset.
c. deterioration.
d. depreciation.

4. The amount of accrued but unpaid expenses at the end of the period is both an expense and
a. a liability
b. a deferral.
c. a revenue.
d. an asset.

5. From the point of view of the firm receiving the cash, an item that represents service that
have been paid for by the customer, but have not yet been provided to that
customer by the firm which received the cash, is called
a. a prepaid expense.
b. an accrued expense.
c. an accrued revenue.
d. an unearned revenue.

6. An item that represents services received by the firm for which it will pay for in the future is
called
a. a prepaid expense.
b. an accrued revenue.
c. an unearned revenue.
d. an accrued expense.

7. If a P5,000 adjustment for depreciation is omitted, which of the following financial statement
error will occur?
a. Assets will be understated.
b. Net income will be overstated.
c. Expenses will be overstated.
d. Owner's equity will be understated.

8. A business received in advance cash of P50,000 for revenue that will be earned later. The
entry was a debit to cash and a credit to unearned revenue for P50,000. At the end of the
period, P10,000 is still unearned. The adjusting entry for this situation will
a. debit unearned revenue and credit revenue for P40,000.
b. debit unearned revenue and credit revenue for P10,000.
c. debit revenue and credit unearned revenue for P10.000.
d. debit revenue and credit unearned revenue for P40,000.

9. A law firm began its March operations with office supplies of P12,000. During P15,000.
Supplies expense for the period is
the month, the firm purchased supplies of P35,000. On March 31, supplies on hand totaled
a. P12,000.
b. P32,000.
 c. P15,000.
d. P35,000.

10. A building that costs P1,500,000 has accumulated depreciation of P500,000. The carrying
value of the building is
a. P2,000,000.
b. P1,500,000.
c. P1,000,000.
d. P500,000.

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