FINANCIAL ACCOUNTING AND REPORTING

Which of the following appears in the balance sheet debit column of a worksheet? *
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c. Owner withdrawals
b. Income summary
d. Accounts payable
a. Service revenue

Which of the following credit terms allow for a cash discount?*

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b. n/eom
c. n/60
d. 1/10, n/30
a. n/30

Which of the following is most likely not considered an adjusting entry?*

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b. The recognition of depreciation expense for the period
d. The entry to record the collection of interest receivable
a. The accrual of an electricity bill for electricity used but not yet paid
c. The recognition of the used and unused portions of a prepaid rent

Transactions and other events are recorded in the periods in which they occur, not when they
affect cash.*
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c. Reporting period
a. Going concern
b. Accrual basis
d. Consistency

A business purchased equipment for ₱10,000 but deliberately reported it as ₱100,000. Which
of the following principles is most likely not violated?*
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b. Free from error
a. Faithful representation
c. Historical cost
d. Materiality

Accrued revenues*
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a. Decrease assets
c. Decrease liabilities
d. Increase assets
b. Increase liability

With special journal, summary postings of column totals are made to appropriate accounts*
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d. On a periodic basis
a. Monthly
c. Yearly
b. Daily
 FINANCIAL ACCOUNTING AND REPORTING

Which of the following is not a special journal?*

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b. Cash receipts journal
d. Subsidiary ledger
a. Sales journal
c. Purchases journal

Which of the following credit terms allow for a cash discount?*

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c. n/60
b. n/eom
d. 1/10, n/30
a. n/30

The business pays its employees compensation for the services they have rendered during
the period.*
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c. Freight-out
b. Cost of sales or Cost of goods sold
a. Rent expense
d. Salaries expense

A business owner’s contribution to the business results in*

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b. a decrease in assets and an increase in owner’s equity.
a. an increase in assets and an increase in income.
d. an increase in assets and an increase in owner’s equity.
c. an increase in assets and an increase in liabilities.

The term ‘present obligation’ connotes*

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liability
asset
income
equity

The most common form of business organization is *

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c. partnership.
a. corporation.
d. cell phone stand
b. sole proprietorship.

Assets should be recognized initially at original acquisition costs. *

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a. Objectivity
d. Materiality
c. Time-period assumption
b. Cost principle
 FINANCIAL ACCOUNTING AND REPORTING

A business incurs total expenses of ₱630,000 and reports loss of ₱270,000. How much is th e
total income?*
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a. 900,000
d. 360,000
c. 380,000
b. 320,000

Accrued revenues*
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d. Increase assets
a. Decrease assets
b. Increase liability
c. Decrease liabilities

You purchased goods to be held for sale in the ordinary course of business activities, on cash
basis. Which of the following accounts is increased and therefore debited?*
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d. Inventory
b. Owner’s equity
a. Cash
c. Accounts payable

These users need accounting information in evaluating the stability of the business in so far
as their job security, future remuneration, and career growth and opportunities are
concerned.*
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d. Regulatory authorities
c. Auditors
b. Creditors
a. Employees

A decrease in the economic benefits of a resource would be treated as*

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assets
income
liability
expense

Which of the following is the correct flow of manufacturing cost?*

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c. Work in process, finished goods, raw materials, cost of goods sold
d. Cost of goods sold, raw materials, work in process, finished goods
b. Raw materials, finished goods, cost of goods sold, work in process
a. Raw materials, work in process, finished goods, cost goods sold
 FINANCIAL ACCOUNTING AND REPORTING

Entity A’s accounts receivable has a balance of ₱10,000. If the related allowance for bad debts
account has a balance of ₱4,000, the carrying amount of accounts receivable in Entity A’s
financial statements is*
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a. ₱14,000.
d. 0.
b. ₱6,000.
c. ₱4,000.

Which of the following is one of the fundamental qualitative characteristics?*

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a. Comparability
c. Timeliness
d. Verifiability
b. Relevance

Which of the following statements is correct?*

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b. The internal users of accounting information include management, owners and creditors.
a. Financial accounting is the branch of accounting that deals with the specific needs of an
entity’s management.
d. Government accounting is the branch of accounting that deals with the analysis of the costs
of products and services.
c. The external users of accounting information include potential and existing investors and
lenders and other creditors.

Which of the following is incorrect regarding profit?*

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c. Profit increases equity.
a. Profit is measured only indirectly as an arithmetical difference.
d. Profit is earned if total income is less than total expenses.
b. Profit is the excess of total income over total expenses.

It is the process of objectively evaluating evidence and expressing an opinion regarding the
correspondence between management’s assertions and established criteria. *
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b. Auditing
c. Accounting research
d. Tax accounting
a. Accounting education

Which of the following is most likely considered an adjusting entry?*

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d. The entry to record bad debts expense for the period
b. The entry to record the collection of accounts receivable
a. The entry to record the payment of interest payable
c. The entry to record the purchase of equipment
 FINANCIAL ACCOUNTING AND REPORTING

Which of the following is correct concerning the qualitative characteristics?*

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a. Free from error means the information contained in the financial statements is perfectly
accurate in all respects.
c. Information that is not capable of affecting the decisions of users is considered irrelevant.
d. The enhancing qualitative characteristics can convert non-useful information to useful
information.
b. Neutrality means information is selected or presented with bias to increase the probability
that the information will be received favorably by the users.

Which of the following users of financial information is not considered a creditor of the
business?*
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c. A customer that buys goods from the entity on credit
d. A financing company that provides the entity with machineries on a “rent-to-own” basis
a. A loan provider, such as a bank
b. A supplier that sells goods to the entity on credit

The measure of how quickly an item can be converted into cash is referred to as*
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a. Leverage
b. Solvency
c. Liquidity
d. Profitability

This represents the value of inventories that have been sold during the accounting period.*
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iv. Cost of sales
iii. Rent expense
i. Interest Expense
ii. Travel expense

A controlling account can be found in the*

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a. General ledger
b. Source documents
d. Income statement
c. Accounts receivable ledger

When two debits get together, the result is*

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b. deduction.
c. multiplication.
d. love and happiness.
a. addition.
 FINANCIAL ACCOUNTING AND REPORTING

Entity A had total assets, liabilities, and equity of ₱150M, ₱90M and ₱60M, respectively, at
the beginning of the period. During the period, Entity A’s total liabilities decreased to ₱40M,
while its profit was ₱25M. There were no other transactions or events that affected equity
during the period. How much is Entity A’s ending total assets?*
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b. ₱115M
c. ₱95M
d. ₱125M
a. ₱75M

You purchased a computer for ₱50,000 cash. To record this transaction, which of the
following accounts will you credit?*
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d. Inventory
c. Owner’s capital
a. Cash
b. Computer equipment

Real accounts are presented in what formal report?*

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b. Balance sheet
d. Worksheet
a. Income statement
c. Unadjusted trial balance

Prepaid insurance is a(n)*

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b. Liability
c. Revenue
a. Asset
d. Expense

Your business obtained a ₱1M loan from a financing company. The financing company made
you sign a contract promising to repay the loan after a year. Which of the following accounts
is increased and therefore credited?*
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d. Notes receivable
c. Notes payable
a. Accounts payable
b. Accounts receivable

It is a present obligation that has resulted from past events and has the potential to cause a
transfer of an economic resource in its settlement.*
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liability
equity
asset
income
 FINANCIAL ACCOUNTING AND REPORTING

All of the following describe accounting describe accounting, except*

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a. A service activity
c. A universal language of business
b. An information system
d. An exact science rather than an art.

The business sells goods to a customer who orally promises to pay for the purchase price
after 30 days.*
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c. Cash
b. Accounts payable
a. Accounts receivable
d. Cost of sales

These accounts are closed at the end of the accounting period. *

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c. Nominal accounts
d. Door accounts
a. Real accounts
b. Mixed accounts

In accounting, it means the allocation of the cost of an asset over the periods in which the
asset is used.*
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b. Depreciation
d. Cost spreading
a. Allocationing
c. Bad debts

A customer bought goods from your business, on credit. The customer orally promised to pay
the sale price next week. Which of the following accounts is increased and therefore
debited?*
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a. Cash
b. Accounts receivable
d. Sales
c. Notes receivable

The business borrowed ₱1M from the bank. At maturity date, the business pays the bank
₱1.4M to settle the loan. The ₱.4M difference between the settlement amount and the
principal (i.e., 1.4M – 1M = .4M difference) is recorded as*
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a. Prepaid rent.
b. Notes payable.
d. Utilities expense.
c. Interest expense.
 FINANCIAL ACCOUNTING AND REPORTING

Which of the following is not one of the necessary processes performed in accounting in
order to provide information that is useful to interested users?*
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a. Identifying
b. Summarizing
d. Counting
c. Recording

The usefulness of information is assessed in terms of its*

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d. size.
a. qualitative characteristics.
c. timeliness.
b. verifiability.

This accounting process is the recognition or nonrecognition of activities as accountable

events.*
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h. Reporting
e. Identifying
f. Measuring
g. Communicating

Ben deposited p50,000 in a bank account in the name of the business. Which of the following
is true in regards to the fundamental accounting equation?*
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b. Liabilities increase by P50,000
a. Assets increase by P50,000
c. Assets decrease by P50,000
d. Owner’s equity decreases by P50,000

What is the normal balance of the sales returns account?*

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d. none of these
b. credit
c. zero
a. debit

In accounting, recording a transaction in a debit-credit form is called*

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d. journalizing.
a. journalinging.
b. posting.
c. identifying and analyzing.

Recording assets at their acquisition cost (entry value), rather than at their net selling price
(exit value), is in line with the concept of*
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b. Historical cost concept.
d. Matching principle.
c. Going concern concept.
a. Single entity concept.
 FINANCIAL ACCOUNTING AND REPORTING

This account is used to record the temporary withdrawals of the owner during the period.*
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b. Owner’s capital
c. Owner’s equity
a. Owner’s drawing
d. Interest expense

Costs that are treated as assets until the product is sold are called*
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c. Conversion costs
d. None of these
a. Product costs
b. Period costs

The business receives billing for electricity used during the period. Before the bill is paid, it is
initially recorded in this account.*
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c. Accounts payable
a. Utilities payable
d. Salaries payable
b. Interest payable

When the seller is liable for shipping costs, the payment is recorded with a debit to: *
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b. Freight-in
c. Inventory
d. cash
a. Delivery expense

The business sells goods to a customer who orally promises to pay for the purchase price
after 30 days.*
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a. Building
d. Owner’s capital
b. Inventory
c. Accounts receivable

You own a business. Your business is engaged in buying goods at a wholesale price and
reselling them at retail prices on Facebook. Your business is a*
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d. monkey business
a. service business.
c. merchandising business.
b. manufacturing business.

The term “accrual” as used in accounting means*

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d. a and b
b. to record an expense that is already incurred but not yet paid.
a. to record an income that is already earned but not yet collected.
c. to record the collection of income or the payment of expense.
 FINANCIAL ACCOUNTING AND REPORTING

The term liability refers to*

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d. The equity of a debtor.
b. The equity of the creditors only
c. The equity of an owner and/or creditors
a. The equity of an owner only

The minimum balance of an account is zero. In accounting, a negative balance in an account is

referred to as*
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a. abnormal balance.
b. crazy balance.
c. psychotic balance.
d. LOL balance.

Entity A had total assets of ₱120M and total liabilities of ₱80M at the beginning of the period.
If at the end of the period, total assets increased by ₱30M, while total liabilities remained the
same, Entity A’s total equity at the end of the period would be *
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d. ₱80M
a. ₱70M
b. ₱90M
c. ₱60M

In accounting, the term “recording” is also called*

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d. videoing.
c. debiting.
a. journalizing.
b. communicating.

In conjunction with the transaction in #9 above, which of the following accounts is also
increased and therefore credited?*
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d. Accounts receivable
b. Owner’s equity
c. Accounts payable
a. Cash

An increase to an account is recorded*

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c. in the side of that account that represents its normal balance.
b. in the credit side of that account.
d. beside the account.
a. in the debit side of that account.

He paid monthly rent of the office, P9,500*

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c. Debit J. Ilagan capital, credit cash
d. Debit cash, credit rent expense
b. Debit rent expense, credit cash
a. Debit cash, Credit J. Ilagan capital
 FINANCIAL ACCOUNTING AND REPORTING

Revenues, expenses, and withdrawals would not appear on a(n):*

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g. Unadjusted trial balance
f. Adjusted trial balance
e. Post-closing trial balance
h. Worksheet

Which of the following statements is incorrect?*

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d. Accounting education is the branch of accounting that deals with the teaching of
accounting and related subjects in order to produce competent and responsible business
professionals.
a. Erroneous financial statements can lead to bad financial decisions.
c. Tax accounting refers to the branch of accounting that deals with tax computations, filing of
tax returns, and tax planning.
b. Internal users of financial information refer to the entity’s management personnel.

Under this concept, a business is not expected to end its operations in the near term.*
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b. Going concern
a. Separate entity concept
c. Stable monetary unit
d. Materiality

You opened up a business and invested ₱5M cash as the business’ initial capital. Which of the
following accounts is increased and therefore debited?*
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c. Accounts payable
a. Cash
d. Accounts receivable
b. Owner’s equity

Your business sells goods to a credit customer. Which of the following accounts is increased? *
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b. Cost of sales
c. Sales
a. Accounts receivable
d. All of these

The claim of the owner(s) on the total assets of an entity is also called*
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asset
equity
liability
income

A form of business that buys raw materials and transforms them into finished products.*
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d. Outsourcing
c. Manufacturing
a. Service-oriented business
b. Merchandising
 FINANCIAL ACCOUNTING AND REPORTING

This process refers to the reporting of the information processed in the accounting system to
interested users.*
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b. communicating.
d. videoing.
a. journalizing.
c. debiting.

Cash is increased through*

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b. a credit.
a. a debit.
c. ask Mama to make padala.
d. a and c

Accounting is described in various ways. Which of the following is not one of those
descriptions?*
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c. Accounting is the “language of business” because it is fundamental to the communication of
financial information.
a. Accounting is a process and a service activity.
d. Accounting is the art of professionally stealing money and other evil purposes.
b. Accounting is a social science and a practical art.

The business purchases inventory on account (on credit).*

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a. Cash
b. Accounts receivable
c. Accounts payable
d. Prepaid supplies

The business renders services to clients.*

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b. Service fees
d. Gain
a. Sales
c. Interest income

The following are decisions made by external users except*

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a. whether to hold or sell investments in stocks.
d. whether to obtain additional capital from outside creditors or to generate it internally.
b. whether or not to extend a loan to the business.
c. whether to sell goods on credit to the business.

What is the law regulating the practice of accountancy in the Philippines?*

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d. R.A. 9892
a. R.A. 9298
b. R.A. 9118
c. R.A. 9928
 FINANCIAL ACCOUNTING AND REPORTING

Revenues earned from sales of goods are recorded in this account. *

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c. Interest income
a. Sales
b. Service fees

This branch of accounting focuses on catering to the information needs of external users*
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a. Management accounting
c. Auditing
d. External accounting
b. Financial accounting

ABC Company reports the following cost information for December:Cost of goods
manufactured P135,800; Finished goods inventory, December 1 P30,200; Finished goods
inventory, December 31 P35,300; Work-in-process inventory December 1 P22,500; Work-in-
process inventory December 31, PP18,500; Raw materials used P25, 300; Period Costs
P50,500. Direct labor incurred in December amount to 150 percent of manufacturing
overhead in December. What is the amount of direct labor incurred by ABC Company in
December?*
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a. P75,200
b. P39,700
c. P63,900
d. P49,250

This qualitative characteristic requires at least two items.*

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c. Verifiability
a. Comparability
b. Timeliness
d. Understandability

At the beginning of the period, a business has a cash balance of ₱20,000. During the period,
total cash collections and total cash payments amounted to ₱100,000 and ₱70,000,
respectively. How much is the ending balance of cash?*
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d. 70,000
a. 10,000
c. 50,000
b. 30,000

These users need accounting information in order to regulate businesses that are within the
scope of their legal authority.*
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c. Auditors
d. Government regulatory bodies or agencies
b. Creditors
a. Employees
 FINANCIAL ACCOUNTING AND REPORTING

Which of the following relates to the concept of consistency?*

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a. Treating the business as a separate entity from its owner.
c. Measuring assets at their acquisition cost.
d. Using the same accounting treatment for similar items from period to period.
b. Recording sales revenue when a sale occurs rather than when the sale price is collected.

The “Allowance for bad debts” account is a contra account of*

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b. Building.
d. Equipment
c. Accounts receivable.
a. Cash.

Which of the following statements regarding accounting is incorrect?*

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d. A transaction or event is recorded in the accounting records only if it has an effect on the
assets, liabilities, equity, income or expenses of the business.
c. The purpose of accounting is to provide information that is useful in making economic
decisions.
a. All business transactions and events are recorded in the accounting books.
b. Although bookkeeping and accounting are interrelated, they are not the same.

Which of the following is not an asset?*

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c. Equipment
b. Furniture
a. Cash
d. Salaries

Which of the following would result to total expenses of ₱480,000?*

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c. Total income of ₱630,000 and profit of ₱150,000
a. Total income of ₱360,000 and profit ₱120,000
d. Total income of ₱630,000 and loss of ₱150,000
b. Total income of ₱580,000 and loss of ₱100,000

The term ‘economic resource’ connotes*

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asset
liability
income
equity

Under this concept, some costs are initially recognized as assets and recognized only as
expenses when the related revenue is recognized.*
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c. Going concern
d. Matching principle
a. Separate entity concept
b. Historical cost concept
 FINANCIAL ACCOUNTING AND REPORTING

Revenues earned from rendering services are recorded in this account.*

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b. Service fees
a. Sales
c. Interest income
d. Gains

The accounting standards that are currently used in the Philippines are referred to as the*
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b. Philippine GAAP.
d. Juan’s GAAP.
c. Filipino Accounting Standards (FAS).
a. Philippine Financial Reporting Standards (PFRS).

Decreases the proprietorship*

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b. Service income
a. Additional investment
d. Initial investment
c. Rent expense

It is an economic resource controlled by the entity that has resulted from past events and has
a potential to produce economic benefits.*
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liability
equity
income
asset

The document authorizing the issuance of materials from the storeroom is the: *
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c. Receiving report
b. Purchase requisition
a. Materials requisition
d. Purchase order

Sales revenue minus sales returns and allowances and sales discounts equals: *
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a. Gross margin
b. Income from operations
d. Net sales
c. Cost of goods sold

A journal designed for entering only sales on account is called the *

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h. General journal
g. Sales journal
f. Cash payments journal
e. Cash receipts journal
 FINANCIAL ACCOUNTING AND REPORTING

This includes money or its equivalent that is readily available for unrestricted use. *
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b. Cash expense
d. Cash payable
c. Cash
a. Money expense