Module 4 & 5

Accounting Concepts and Principles

NAME: Date:
Professor: Section: Score:

QUIZ 1: MULTIPLE CHOICE

1. Under this concept, the business is assumed to continue to exist for an indefinite period of time.
a. Separate entity concept
b. Historical cost concept
c. Going concern
d. Matching principle

2. Businesses are required by to law to file tax returns with this government agency.
a. Security and Exchange Commission
b. Bureau of Internal Revenue
c. Cooperative Development Authority
d. Bangko Sentral ng Pilipinas

3. Under this concept, assets are initially recorded at their acquisition cost.
a. Single entity concept
b. Historical cost concept
c. Going concern concept
d. Matching principle

4. This qualitative characteristic means that financial statements are neither materially misstated
nor important information is omitted.
a. Completeness
b. Neutrality
c. Free from Error
d. None of the above

5. This qualitative characteristic enables users to make comparisons to identify and understand the
similarities in, and the differences among, reported information.
a. Comparability
b. Timeliness
c. Verifiability
d. Understandability

6. The accounting standards used in the Philippines are specifically referred to as the
a. Generally Acceptance Accounting Principles
b. Philippine Financial Reporting Standards
c. International Accounting Standards
d. Philippine Accounting Standardizations

1
7. The business owner inappropriately included his personal expenses with the expenses of the
business. Which of the following concepts is violated?
a. Historical cost
b. Separate entity concept
c. Accrual concept
d. Time period

8. The income of the business during the current year is low. To report profit, the owner
deliberately did not recognize depreciation expense. Which of the following qualitative
characteristics is violated?
a. Materiality
b. Relevance
c. Faithful representation
d. Predictive value

9. Inventories acquired for ₱100,000 are deliberately valued at a selling price of ₱300,000.
Which of the following principles is most likely not violated?
a. Historical cost
b. Materiality
c. Faithful representation
d. Free from error

10. A business sells goods to a customer who promises to pay for the purchase price next year.
The business records the sale this year, when the transaction has occurred, rather than
waiting until next year when the sale price is collected. This is an application of which of the
following accounting principles?
a. Accrual basis
b. Stable monetary unit
c. Credit principle
d. Utang concept

11. Right now, the business owner does not expect that its business will end in the foreseeable
future. This accounting assumption is called
a. Prudence.
b. Cost-benefit.
c. Going concern.
d. Liquidating concern.

12. A business purchased a small stapler. The stapler is expected to be used for a long period of
time. However, the business immediately expensed the cost of the stapler rather than
recognizing it as an asset to be depreciated over the stapler’s useful life. The business is
invoking which of the following accounting concepts?
a. Cost-benefit
b. Accrual basis
c. Full disclosure
d. Matching

13. Big companies often round-off peso amounts when presenting financial statements. This
practice is acceptable because of which of the following concepts?

2
a. Historical cost
b. Materiality
c. Faithful representation
d. Rounding principle

14. Which of the following is not a correct variation of the basic accounting equation?
a. Assets = Liability + Equity
b. Assets – Liabilities = Equity
c. Assets – Equity = Liability
d. Assets = Liability - Equity

15. Which of the following is not an essential element of a liability?

a. A present obligation
b. Arising from past event
c. Expected to cause an outflow of economic benefits
d. Arising from a future event

16. Equity is
a. Assets plus liabilities
b. Assets less liabilities
c. Liabilities less assets
d. Assets times liabilities

17. Which of the following statements is correct?

a. Income increases equity
b. Expense increases equity
c. Income decreases equity
d. Income and expense do not affect equity

18. Which of the following is not a correct expanded accounting equation?

a. Assets = Liabilities + Equity + Income - Expenses
b. Assets + Expenses = Liabilities + Equity + Income
c. Assets – Liabilities = Equity + Income - Expenses
d. Assets = Liabilities + Equity + Income + Expenses

19. The start-up capital of a business consisted of ₱1,000,000 cash provided by the business
owner and an additional ₱250,000 from a bank loan. The total start-up assets of the business
therefore is
a. ₱1,250,000
b. ₱1,000,000
c. ₱750,000
d. ₱250,000

20. Which of the following statements is incorrect?

a. If expense is greater than income, the difference is profit.
b. If income is greater than expenses, the difference is profit.
c. If income is less than expenses, the difference is loss.
d. Profit increases equity.

3
1. A business has total liabilities of ₱100,000 and total equity of ₱80,000. How much is the total
assets?
a. 180,000
b. 100,000
c. 80,000
d. 20,000

2. A business has total assets of ₱100,000 and total equity of ₱80,000. How much is the total
liabilities?
a. 180,000
b. 100,000
c. 80,000
d. 20,000

3. A business has total assets of ₱100,000 and total liabilities of ₱40,000. How much is the total
equity?
a. 140,000
b. 100,000
c. 60,000
d. 20,000

4. A business earns total income of ₱100,000 and incurs total expenses of ₱70,000. How much is the
profit (loss)?
a. 30,000
b. (30,000)
c. 100,000
d. 70,000

5. A business earns total income of ₱230,000 and incurs total expenses of ₱300,000. How much is
the profit (loss)?
a. 30,000
b. (30,000)
c. (70,000)
d. 70,000

6. A business earns total income of ₱630,000 and reports profit of ₱270,000. How much is the total
expenses?
a. 280,000
b. 320,000
c. 360,000
d. 380,000

4
7. A business incurs total expenses of ₱630,000 and reports loss of ₱270,000. How much is the total
income?
a. 900,000
b. 320,000
c. 360,000
d. 380,000

8. Which of the following would result to income of ₱320,000?

a. Total expenses of ₱280,000 and loss of ₱40,000
b. Total expenses of ₱360,000 and profit of ₱40,000
c. Total expenses of ₱220,000 and loss of ₱100,000
d. Total expenses of ₱360,000 and loss of ₱40,000

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

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

10. At the start of the period, a business has total assets of ₱500,000 and total liabilities of ₱300,000.
During the period, the business earned total income of ₱1,000,000 and incurred total expenses of
₱640,000. No additional investments or withdrawals were made by the owner. How much is the
total equity at the end of the period?
a. 480,000
b. 520,000
c. 560,000
d. 640,000

SOLUTIONS TO QUIZ 2:
1. 100,000 + 80,000 = 180,000
2. 100,000 – 80,000 = 20,000
3. 100,000 – 40,000 = 60,000
4. 100,000 – 70,000 = 30,000 profit
5. 230,000 – 300,000 = (70,000) loss
6. 630,000 – 270,000 = 360,000
7. 630,000 – 270,000 = 360,000 income (checking: 360,000 income – 630,000 expenses = -270,000 loss)
8. 360,000 – 40,000 = 320,000 income (checking: 320,000 income – 360,000 expenses = -40,000 loss)
9. 630,000 – 150,000 = 480,000 expense (checking: 630,000 income – 480,000 expenses = 150,000 profit)
10. 500,000 – 300,000 = 200,000 beg. capital + 1,000,000 income – 640,000 expenses = 560,000 ending
capital.

5
“Gold there is, and rubies in abundance, but lips that speak knowledge are a rare jewel.” (Proverbs 20:15)

- END -