Name: ______________________________

Chapter 1: Accounting and its Environment

1. Assets are usually valued under which basis?

a. Market Value
b. Fair Value
c. Historical Cost
d. Materiality
2. The ________ concept assumes that the business has an indefinite economic life.
a. Objectivity
b. Going concern
c. Accounting entity
d. Periodicity Concept
3. Which of the following is not one of the three types of business activities?
a. Operating
b. Marketing
c. Investing
d. Financing
4. Which of the following statements is false?
a. A sole proprietorship is easy to set up.
b. A sole proprietorship has only one owner
c. A sole proprietor is personally liable for the debts of its business.
d. A sole proprietorship can easily obtain loans.
5. A business which prepares financial statements every year is following the _________ concept.
a. Going concern
b. Accounting entity
c. Periodicity
d. Consistency
6. Which of the following best explains the feature of consistency of presentation?
a. Firms in the same industry must account for similar items in the same way.
b. Firms should normally account for similar items in the same way from one accounting
period to the next.
c. Firms must comply with accounting standards and regulations.
d. None of the above.
7. Which of the following statements about accounting concepts and the characteristics of financial
reporting information is not correct?
(i) The stable monetary concept means that only items capable of being measured in monetary
terms can be recognized in the financial statements.
(ii) The entity concept states that the transactions of different entities should not be accounted
for together.
 (iii) For reporting purposes, the personal assets and debts of a business owner should be
combined with the assets and debts of the business.
a. (i) and (ii)
b. (ii) and (iii)
c. (i) and (iii)
d. None of the above
8. Which Accounting concept should be considered if the owner of a business takes goods from the
inventory for his personal use?
a. Accrual concept
b. Expense recognition concept
c. Materiality concept
d. The business entity concept
9. Which of the following accounting concepts means that similar items should receive a similar
accounting treatment?
a. Going concern
b. Consistency
c. Substance over form
d. Objectivity
10. Which accounting concept states that omitting or misstating this information could influence users of
the financial statements?
a. The adequate disclosure concept
b. The consistency concept
c. The accrual concept
d. The materiality concept
11. During the lifetime of an entity, accountants produce financial statements at arbitrary points in time
in accordance with which basic accounting concepts?
a. Matching
b. Objectivity
c. Periodicity
d. Conservatism
12. The financial statements should be stated in terms of a common financial denominator.
a. Time period
b. Stable monetary unit
c. Accrual
d. Going concern
13. Which of the following accounting concepts states that an accounting transaction should be
supported by sufficient evidence to allow two of more qualified individuals to arrive at essentially similar
conclusion?
a. Periodicity
b. Objectivity
c. Matching
d. Stable monetary unit
14. The measurement phase of accounting is accomplished by
a. Reporting to decision makers
b. Processing data
c. Recording data
d. Storing data
15. The entity concept means that
a. Firm owners cannot have access to its assets unless the firm ceases to trade.
b. Accounts must be prepared for every firm
c. The financial affairs of a firm and its owner are always kept separate for the purpose of
preparing accounts.
d. All of the above.
16. The consistency concept means that
a. Firms may never change the way in which they prepare their accounts.
b. Firms should account for similar items in the same way from one accounting period to
another.
c. Firms in the same industry must account for similar items in the same way.
d. All of the above.
17. The main function is to establish and improve accounting standards that will be generally accepted in
the Philippines.
a. Professional Regulation Commission
b. Board of Accountancy
c. Financial Reporting Standards Council
d. Philippine Institute of CPAs
18. They encompass the conventions, rules, and procedures necessary to define what is accepted
accounting practice.
a. Accounting frameworks
b. Generally accepted accounting principles
c. Conceptual frameworks
d. Accounting concepts and principles
19. Proponents of historical costs maintain that in comparison with all other valuation alternatives for
general purpose financial reporting, statements prepared using historical costs are more
a. Relevant
b. Objective
c. Conservative
d. Indicative of the entity’s purchasing power
20. The principle of objectivity includes the concept of
a. Classification
b. Summarization
c. Verifiability
d. Conservatism
21. The records of properties acquired and services availed of by a business are maintained in accordance
with the
 a. Cost principle
b. Business entity concept
c. Consistency principle
d. Matching principle
22. The concept of matching principle is best demonstrated by
a. Recognizing prepaid rent received as revenue
b. Not recognizing any expense unless some revenue is realized
c. Associating effort with accomplishment
d. Establishing an allowance for possible market decline in inventory account.
23. The basic purpose of accounting is
a. To provide quantitative financial information about a business enterprise that is useful in
making rational economic decision.
b. To provide the information that the managers of an economic entity need to control its
operations.
c. To provide information that the creditors of an economic entity can use in deciding
whether to make additional loans to the entity.
d. To measure the periodic income of the economic entity.

Chapter 2: Accounting Equation and Double Entry System

NORMAL BALANCES
1. Accounts Receivable 11. Unearned Revenue
2. Owner’s Equity 12. Dividends
3. Supplies 13. Accumulated Depreciation
4. Allowance for Bad Debts 14. Building
5. Accounts Payable 15. Legal Expense
6. Salaries Expense 16. Prepaid Insurance
7. Loans Payable 17. Merchandise inventory
8. Service Revenue 18. Purchases
9. Retained Earnings 19. Prepaid Rent
10. Common Stock 20. Withdrawal

1. One asset account increases and another asset account decreases.

a. Sources of Assets
b. Exchange of Assets
c. Use of Assets
d. Exchange of Claims
2. One asset account decreases and a corresponding claims account decreases.
a. Sources of Assets
b. Exchange of Assets
c. Use of Assets
 d. Exchange of Claims
3. An asset account increases and a corresponding claims account decreases.
a. Sources of Assets
b. Exchange of Assets
c. Use of Assets
d. Exchange of Claims
4. One claims account increases and another claims account decreases.
a. Sources of Assets
b. Exchange of Assets
c. Use of Assets
d. Exchange of Claims

Chapter 3: Recording Business Transactions

1. The first financial statement that is prepared from the trial balance is the
a. Statement of Cash Flows
b. Statement of Comprehensive Income
c. Statement of Changes in Equity
d. Balance sheet
2. The first step in recording a transaction in a journal is to
a. Record the date
b. Record the credit
c. Record the debit
d. Write an explanation
3. Which of the following accounts is classified differently from the others listed?
a. Loans Payable
b. Mortgage Payable
c. Unearned Revenue
d. Prepaid Rent
4. Which of the following accounting steps is accomplished after the others listed?
a. Apply the rules of double entry
b. Post the entry
c. Record the entry
d. Prepare the trial balance
5. The accounting equation does not balance at the end of an accounting period. Which of the following
actions balances the equation?
a. Subtract revenues from owner’s equity and ass expenses to assets
b. Add revenues and subtract expenses from assets
c. Add the difference between revenues and expenses to assets
d. Subtract revenues and add expenses to owner’s equity
6. Which of the following does not directly or indirectly affect the owner’s capital account?
 a. Incurring of expenses
b. Paying an accounts payable
c. Withdrawals by the owner
d. Earning of revenues
7. Which of the following transactions maintain the equality in the accounting equation?
a. To record payment of notes, notes payable is decreased and cash is increased by P90,000.
b. To record collections on account, accounts receivable and cash are increased by P100,000.
c. To record purchase of Inventory, Inventory is increased and cash is decreased by
P280,000
d. To record payment of rent, rent expense and cash are increased by P13,000
8. Which of the following combinations of trial balance totals suggest the presence of either a
transposition error or a number slide?
a. 14,517 debit and 15,477 credit
b. 36,780 debit and 37,780 credit
c. 76,540 debit and 78,970 credit
d. 33,220 debit and 35,420 credit
9. The term footing refers to the
a. Process of obtaining the bottom number in an account
b. Process of obtaining the top number in an account
c. Process of posting
d. Addition of a column of figures
10. Balance sheet accounts are
a. Temporary accounts
b. Accounts with debit balances only
c. Permanent accounts
d. Adjusting accounts
11. Which of the following business activities is also considered as a recordable transaction?
a. An employee sends a purchase requisition to the purchasing department
b. An entity hires a new employee
c. A customer purchases merchandise
d. An entity orders a product from a supplier
12. Which of the following business activities is not considered as a recordable transaction?
a. An entity received a product previously ordered
b. An entity pays an employee for work performed
c. A customer purchases a service
d. A customer inquires about the availability of service
13. The accrual basis of accounting recognizes
a. Expenses when cash is paid
b. Expenses when resources are consumed as part of operating activities
c. Revenues when cash is received
d. Revenues when products are produced as part of operating activities
14. Which of the following transactions does not affect the balance sheet totals?
 a. Purchase of P71,000 supplies on account
b. Collection of P40,200 from customers on account
c. Withdrawal of P39,000 by the owner
d. Paying P90,000 accounts payable
15. When an entity pays for goods or services before actual receipt, the payment should be recorded as a
decrease in Cash and increase in what account?
a. Asset
b. Expense
c. Owner’s equity
d. Liability
16. When a customer buys services on credit, the contract is regarded as complete when
a. The Cash payment is received
b. The services are rendered
c. The bill is presented
d. The date specified in the contract is at hand
17. When owner’s equity decreases, one of the following must occur:
a. Asset increases
b. Withdrawals increases
c. Income increases
d. Liability increases
18. When cash is debited, a typical credit is to
a. Withdrawals
b. Accounts payable
c. Accounts receivable
d. Expenses
19. Payment of insurance premiums in advance gives rise to
a. Prepaid expense
b. Unearned income
c. Accrued income
d. Accrued expense
20. Unearned revenues are recorded by companies that
a. Pay money at the time the performance of a service is complete
b. Pay money in advance of the performance of the service
c. Receive money in advance of the performance of a service
d. Receive money at the time the performance of a service is complete

Problem Solving
1. Under the double-entry system, what is the value of x if current assets, non-current assets,
current liabilities, non-current liabilities, and capital are 50,000, x, 450,000, 275,000, and
680,000 respectively?
1. 1,405,000
2. 1,455,000
 3. 1,355,000
4. 1,095,000
2. At the beginning of the year, Bebe Boy Furniture store had liabilities of 650,000, and owner’s equity of
450,000. If assets increased by 80,000 and liabilities decreased by 60,000, what was the owner’s equity at
the end of the year?
1. 590,000
2. 430,000
3. 570,000
4. 470,000
3. The liabilities of Sweetheart Salon equal two-fifth of the total assets. If the owner’s equity is 948,000,
what is the amount of the liabilities?
1. 568,800
2. 632,000
3. 227,520
4. 580,000
4. During June 2023, Babe Secret Potion was formed and completed the following transactions:
• Invested cash in the business, 40,000.
• Invested inventory of 125,000 with a fair market value of 110,000.
• Paid cash for utilities, 25,000.
• Babe withdrew cash for personal use, 15,000.
What is the total amount of investment during the formation?
1. 165,000
2. 150,000
3. 40,000
4. 125,000
5. Using the same transaction in no. 4, what is the amount of the total assets at the end of the month?
1. 110,000
2. 150,000
3. 125,000
4. 140,000
6. Journalize the transaction. Mahal Jewelry store paid the salaries of their 5 employees in cash. Each
employee’s salary is based on an hourly rate of 125 per hour. Two of the employees worked 200 hours for
the month of June and the remaining three worked for only 160 hours.
1. Dr Salaries Payable 110,000
Cr Salaries Expense 110,000
2. Dr Cash 45,000
Cr Salaries Payable 45,000
3. Dr Cash 110,000
Cr Salaries Expense 110,000
4. Dr Cash 45,000
Cr Salaries Expense 45,000
Use the following information to answer the questions below. The following is the trial balance for Love
is an Open Door Company.
Love is an Open Door
Trial Balance
June 30, 2023
Cash 30,000
Accounts receivable 20,000
Inventory 25,000
Furnitures and fixtures 45,000
Accounts payable 60,000
Love, capital 125,000
Love, drawings 45,000
Door revenue ?
Utilities expense ?
Salaries expense ?
A B
7. What is the value of A if the Door Revenue is 200,000?
1. 385,000
2. 165,000
3. 365,000
4. 200,000
8. If the balance of the utilities expense and salaries expense are 12,000 and 8,000 respectively, what is the
balance of door revenue?
1. 5,000
2. 10,000
3. 20,000
4. 0
9. If the door revenue has a balance of 125,000 and the salaries expense has a balance of 80,000, what is the
value of B?
1. 0
2. 310,000
3. 65,000
4. 245,000
10. A business compiling its financial statements for the year to July 31 each pays rent quarterly in
advance on January 1, April 1, July 1, and October 1 each year. The annual rent was increased from
600,000 per year to 720,000 per year starting October 1, 2022. What figure should appear for rent expense
in the entity’s income statement for the year ended July 31, 2023?
1. 700,000
2. 620,000
3. 690,000
4. 710,000