FAR 1 Reviewer Without Answers

True or False: Determine whether the statement is True or False.
1. The work of the external auditor ends when the work of the accountant also ends.
2. Accounting is the same as bookkeeping.
3. An auditor of the Commission of Audit is engaged in public accounting.
4. A corporation can now be formed by a sole proprietor.
5. GAAP is an abbreviation for Generally Authorized Accounting Principle.
6. Business transactions are analyzed from the viewpoint of the owner.
7. Secondary users include creditors.
8. A deferred revenue may be classified as current or non-current liability.
9. Luca Pacioli made the double entry bookkeeping.
10. Some of the users of financial reports include creditors, government agencies and
unions.
11. Unearned Revenue is income received in advance but not yet earned.
12. Income and Expense are otherwise known as real accounts.
13. Increase in assets can be accompanied by increase in liabilities
14. .A credit entry decreases the balance of an Assets.
15. .Payment of P12,000 current liability results in a Decrease in liability, and a decrease in
asset
Identification (Identify what is being asked in the following questions)
1. It requires that assets should be recorded initially at original acquisition cost.

2. It is known as the “book of final entry”.
3. Probable future economic benefits obtained or controlled by a particular entity.
4. It is defined as increases in assets or decreases in liabilities that result in increases in
equity, other than those relating to contributions from equity holders.
5. It is known as the “book of original entry”.
Classification: Classify the normal balance of the following accounts (Debit or Credit)
1. SSS Premiums
2. Sales Discount
3. Service Income
4. Bad debts Expense
5. Investment in Bonds
6. Accrued Salaries
7. Unearned Income
8. Supplies Unused
9. Freight-out
10. Prepaid Rent
Prepared by: Romel T. Patingan

Classification of Accounts:
Row I: Classify whether the following accounts fall under Assets, liability, Equity,
Income,
Expense, Contra Account
Row II: Determine its normal balances(Debit or Credit)
Row III: Determine the type of financial statement in which the following account
appears. (SFP, SCI, SCE)
I II II
1. Deferred Income
2. Depreciation expense
3. Prepaid Expense
4. Accrued Expense
5. Professional Fee
6. Owner’s Drawing
7. Depreciation for a building
8. Allowance for Doubtful Accounts
9. ABC, Capital
10. Three-month time deposit
Multiple Choice Theory: Choose the BEST answer.
1. 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.
2. 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
3. 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. Expense
d. Liability
4. 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
5. It shows the sources of cash.

a. Income Statement
b. Statement of Financial Position
c. Statement of Cash Flows
d. Statement of Changes in Equity
6. 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
Short Problem: Solve the following problems.
1. ABC Enterprise has a total liabilities of P40,000 which is equivalent to 20% of the
owner’s equity. How much is the asset of the business?
2. ABC Enterprise has a total asset of P150,000,000 at the end of the month and the total
capital is equivalent to P88,620,255. How much is the total liability of the business at the
end of the month?
3. BTS Company pays cash for three months of rent in advance, at a rate of P30,000 per
month. The balance of the Prepaid Rent account two months later would be:
4. If, as of December 31, the rent of P5,500 for December had not been recorded or paid,
the adjusting entry would include

5. Per general ledger, Accounts Receivable has a balance of P90,000. Based on past
experience, 2% is estimated to be uncollectible. The adjusting entry would be:
6. A building that costs P1,500,000 has accumulated depreciation of P400,000. The

carrying value of the building is
7. Last November 1, 2022, Marie bought a computer with a cost of 1,000,000 with a useful
life of 10 years. Prepare the entry upon acquisition of the equipment and prepare the
entry on December 31, 2022.
8. If, as of December 31, services totaling P10,000 had been performed but not billed, the
adjusting entry to record this would include a –
9. An error was discovered upon posting the services rendered on account. The correct
entry was supposed to be debit to the Repair Revenue account of P4,500 but the
amount recorded was P5,400. What is the entry to correct the error
10. Cash received from a Sale Transaction was P20,000. It was recorded as a debit to
Accounts Receivable, P20,000, and a credit to Sales, P20,000. What entry should be
made to correct the transaction.

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True or False: Determine whether the statement is True or False.

Identification (Identify what is being asked in the following questions)

1. It requires that assets should be recorded initially at original acquisition cost.

Prepared by: Romel T. Patingan

Multiple Choice Theory: Choose the BEST answer.

1. Which statement is true?

2. What is the law regulating the practice of accountancy in the Philippines?

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

Prepared by: Romel T. Patingan

4. The following are false except

5. It shows the sources of cash.

Short Problem: Solve the following problems.

Prepared by: Romel T. Patingan

6. A building that costs P1,500,000 has accumulated depreciation of P400,000. The

Prepared by: Romel T. Patingan

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