MULTIPLE CHOICE. ENCIRCLE THE LETTER OF YOUR ANSWER.

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.
11. 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
12. 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
13. 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
14. These are events involving an entity and another external party.
a. external events
b. internal events
c. transactions
d. life events
15. 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
16. 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.
17. Accounting provides which type of information?
a. quantitative
b. financial information
c. qualitative
d. all of these
18. 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.
19. 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
20. 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
21. 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.
22. 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.
23. 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
24. 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
25. 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.
26. 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
27. What accounting concept justifies the use of accruals and deferrals?
a. Going concern assumption
b. Materiality constraint
c. Consistency characteristic
d. Monetary unit assumption
28. 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.
29. 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.
30. 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.
31. The basic sequence in the accounting process can best be described as
a. Transaction, journal entry, source document, ledger account, trial balance
b. Source document, transaction, ledger account, journal entry, trial balance
c. Transaction, source document, journal entry, trial balance, ledger account
d. Transaction, source document, journal entry, ledger account, trial balance
32. Which of the following is not optional?
a. Use of an Income Summary account
b. Preparation of the Worksheet
c. Making adjusting entries
d. Preparation of Post-Closing Trial Balance
33. Which of the following statements correctly relate to the double- and single-entry systems of
recording?
I. Profit or loss under single entry bookkeeping is computed using an approach that directly
matches income and expenses
II. Both general and special journals are used under the double-entry system, while only special
journals are used under the single-entry system
III. Double-entry system is sometimes known as the “transaction approach” of accounting for
assets, liabilities, equity, income and expense
IV. Double-entry system is the generally acceptable method of bookkeeping because it offers a
more accurate and more complete profit or loss measurement compared to the single-entry
system
a. I, III, IV
b. IV
c. III, IV
d. II, IV
34. The best interpretation of the word credit is the
a. Increase side of an account
b. decrease side of an account
c. left side of an account
d. right side of an account
35. Which of the following best expresses the primary purpose of the general journal?
a. The general journal provides an organized summary of transactions classified by type of
account
b. The general journal directly provides the data for a trial balance
c. The general journal eliminates the need for control accounts in the ledger
d. The general journal provides a continuing balance of the amount to date in each of the
temporary
accounts
e. The general journal provides a chronological listing of transactions in debit-credit form
36. The journal is not directly useful
a. For closing, in one place, the net effect of transactions
b. In preparing financial statements
c. For providing a record of transactions’
d. In locating and preventing errors
37. The trial balance
a. Is a formal financial statement
b. Is used to prove that there are no errors in the journal or ledger
c. Provides a listing of all the accounts used by the entity
d. Provides a listing of the balance of each account in active use
38. The premium on a three-year insurance policy was paid in total on January 1m 20x1. Upon
payment, Prepaid
Asset Account was debited. The appropriate journal entry has been recorded on December 31;
therefore the
balance of Prepaid Asset Account should be
a. Higher, if the original payment has been debited initially to an expense account
b. The same as the original payment
c. The same even if the original payment had been debited initially to an expense account
d. Zero
39. A prepaid expense can be best described as an amount that is
a. Paid and currently matched with revenues
b. Paid and not currently matched with revenues
c. Not paid and currently matched with revenues
d. Not paid and not currently matched with revenues
40. Which of the following may be reversed in the next financial reporting period?
a. An adjusting entry to decrease the unearned income for the eared portion of advance
collections
during the year
b. An adjusting entry to record bad debt expense on accounts receivable
c. An adjusting entry to record depreciation expense
d. An adjusting entry to take up the unexpired portion of prepayments during the year
41. 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
42. 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