Overview of Accounting

Multiple Choice:
1. It is the first process used in accounting. It refers to the identification of events as to whether they
are recognized or not in the financial statements.
A. Identifying
B. Measuring
C. Communicating
D. Auditing
2. Events involving an entity and an external party.
A. External events
B. Non-reciprocal transfers
C. External events other than transfers
D. Internal events
3. Financial accounting applies to which of the following:
A. Businesses
B. Non-profit organizations
C. Government
D. All of these
4. The function of measuring and reporting information to absentee investors is called the:
A. Accounting function
B. Stewardship function
C. Auditing function
D. Management function
5. The primary objective of financial reporting is to provide information:
A. About a firm’s financing and investing activities
B. About a firm’s economic resources and obligations
C. About a firm’s products and services
D. Useful in predicting cash flows
6. In the conceptual framework for financial reporting, what provides "the why"--the purpose of
accounting?
A. Recognition, measurement, and disclosure concepts such as assumptions, principles, and
constraints
B. Qualitative characteristics of accounting information
C. Elements of financial statements
D. Objective of financial reporting
7. The underlying theme of the conceptual framework is
A. Decision usefulness.
B. Understandability.
C. Faithful representation.
D. Comparability.
8. The objective of general-purpose financial reporting is to provide financial information about a
reporting entity to each of the following except
A. Potential equity investors.
B. Potential lenders.
C. Present investors.
D. All of these answers are correct.
9. The objective of general-purpose financial reporting is?
A. To provide financial information about the reporting entity that is useful to present and potential
equity investors, lenders, and other creditors in making decisions in their capacity as capital
providers
B. To provide companies with the option to select information that favours one set of interested
parties over another
C. To provide users with financial information that implies total freedom from error.
D. To provide a metric for financial information used to determine when the boundary between two
or more entities should be disregarded and the entities considered to be a licensing arrangement.
10. Which of the following is a characteristic describing the fundamental quality of relevance?
A. Predictive value.
B. Neutrality.
C. Verifiability.
D. Understandability.

Skill-building Activities
MODIFIED TRUE OR FALSE:
False1. Accounting is “the process of identifying, measuring, and converting economic information to
permit informed judgment and decisions by users of information.”
FALSE2. Identifying - the process of analyzing events and transactions to determine whether or not they
will be recognized. All events are recognized
FALSE3. The most commonly used bases of measurement is fair value.
TRUE 4. When measurement is affected by estimates, the items measured are said to be valued by
opinion.
TRUE 5. When measurement is unaffected by estimates, the items measured are said to be valued by
fact.
FALSE6. The basic purpose of accounting is to provide information about economic activities intended to
be useful in making management decisions.
FALSE7. General purpose and Special purpose accounting information are governed by the Philippine
Financial Reporting Standards (PFRSs).
FALSE8. Changes in purchasing power are in considered in preparing the financial statements.
TRUE 9. Under the concept of Articulation, all of the components of a complete set of financial
statements are interrelated.
False 10. Sale the process of converting non-cash assets into cash or claims for cash.
TRUE 11. Under fund theory, the accounting objective is the custody and
administration of funds.
FALSE12. Employment or appointment to a position in an accounting professional group in the
government or in a government–owned and/or controlled corporation where decision making requires
professional knowledge in the science of accounting, or where civil service eligibility as a CPA is a
prerequisite falls under the practice of Public Accountancy.
FALSE13. Practice in Education/Academe refers to employment in the private sector in a position which
involves decision making requiring professional knowledge in the science of accounting and such
position requires that the holder thereof must be a CPA.
FALSE14. Philippine Financial Reporting Standards (PFRSs) are Standards and
Interpretations adopted by the Financial Accounting Standards Board (FASB)
TRUE 15. Entities should follow a uniform set of generally acceptable reporting standards when
preparing and presenting financial statements

Check for Understanding (Graded Quiz)

MULTIPLE CHOICE.
1. 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
2. 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
e. borrowing of money from a bank
3. 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
e. theft
4. These are events involving an entity and another external party.
a. external events
b. internal events
c. transactions
d. life events
5. It is the accounting process of assigning numbers, commonly in monetary terms, to the economic
transactions and events.
a. analyzing c. classifying
b. measuring d. interpreting
6. 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.
7. Accounting provides which type of information?
a. quantitative
b. financial information
c. qualitative
d. all of these
8. 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.
9. 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
10. 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
11. 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.
12. 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.
13. 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
14. 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
15. Asset measurements in conventional financial statements
a. are confined to historical cost.
b. are confined to historical cost and current cost.
c. reflect several financial attributes.
d. do not reflect output values.
16. 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
17. What accounting concept justifies the use of accruals and deferrals?
a. Going concern assumption
b. Materiality constraint
c. Consistency characteristic
d. Monetary unit assumption
18. 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.
19. 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.
20. 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.