BASIC ACCOUNTING

TEST I. For each of the following statements, indicate whether the statement is true or false.

______1. When a company hires a new employee, a recordable event has occured.
______2. A basic storage unit for accounting data is the account.
______3. The chart of account makes finding account in the ledger easier.
______4. The accounts in a chart of accounts are normally listed in alphabetically order.
______5. Owner's withdrawals are classified as liabilities on the balance sheet.
______6. Another word for expense is debt.
______7. The land account and the building account may be combined into one account.
______8. A credit means that an account has been increased.
______9. For a T-account, the account balance is the difference in total pesos between
total debit footings and total credit footings.
______10. An increase in an asset is recorded by a debit.
______11. A decrease in owner's equity is recorded with a credit.
______12. Transactions are recorded in chronological order in the ledger.
______13. When a withdrawal is made, the owner's withdrawals account is debited and
Cash is credited.
______14. When payment is received from services not yet rendered, no entry is recorded
until that service has been rendered.
______15. In a trial balance, all debits are listed before all credits.
______16. When the columns of the trial balance are equal, no errors have occurred in
recording and posting the transactions.
______17. The journal is a chronological record of all transactions.
______18. In a proper journal entry, credits are always indented.
______19. It is sometimes correct for a compound entrry's debit totals and credit totals to
be unequal.
______20. Debit means decrease and credit means increase.
______21. Every business transaction affecs a minimum of two accounts.
______22. The double-entry system means that transactions are recorded both in the journal
and in the ledger.
______23. Normally, income accounts have debit balances.
______24. An account titled Unearned revenues is a liability account.
______25. In some transactions, the accounting equation may not be maintained.

ANSWER
1. FALSE 6. FALSE 11. FALSE 16. FALSE 21. FALSE
2. TRUE 7. FALSE 12. FALSE 17. TRUE 22. FALSE
3. TRUE 8. FALSE 13. TRUE 18. TRUE 23. FALSE
4. FALSE 9.TRUE 14. FALSE 19. FALSE 24. TRUE
5. FALSE 10.TRUE 15. FALSE 20. FALSE 25. FALSE
TEST II. Multiple Choice Question
Choose the best answer for each of the following questions by encircling the letter of your choice.

B 1. The accrual basis of accounting recognizes

a. revenues when products are produced as part of operating activities
b. expenses when resources are consumed as part of operating activities
c. revenues when cash is received
d. expenses when cash is paid

C 2. When of the following events would not be considered an accounting

transaction?
a. payment of fees to tax consultant
b. purchase of print advertising space for a new service
c. tabulation of the results of a customer satisfaction survey
d. sales of a new product during the first month of operations

D 3. The accounting cycle is

a. the length of time it takes to complete a set of financial statement after the
books are closed
b. a process that begins with adjusting entries and ends with the preparation of
the financial statements
c. applicable only to manual system, not to computerized systems
d. the sequence of procedures used by a business to process economic
information and to produce financial statements

D 4. The primary function of an account in the accounting system is to

a. identify the type of organization
b. accumulate accounting information
c. determine at what point a transaction should be recorded
d. store accounting transactions until they are classified

B 5. The first step in the accounting cycle is to

a. record transactions in journal
b. analyze transactions from source documents
c. post journal entries to general ledger accounts
d. adjust the general ledger accounts

C 6. Which of the following steps in the accounting cycle are listed in logical order?
a. prepare the income statement, prepare the statement of financial position
and then prepare a worksheet
b. post the journal entries to the ledger accounts, prepare a worksheet, and
then take a trial balance
c. journalize the closing entries, post the closing entries, and then take a
post-closing trial balance
 d. post the closing entries, take a post-closing trial balance, then journalize the
closing entries

A 7. The manner in which the accounting records are organized and employed within a
business is referred to as
a. accounting information system
b. business document
c. voucher system
d. special journal

A 8. An account has two sides called the

a. debit and credit
b. asset and liability
c. income and expense
d. journal and ledger

A 9. Transactions are recorded chronologically in the

a. Journal c. daybook
b. T-account d. ledger

B 10. The first step in recording a transaction in a journal is to

a. write an explanation
b. record the debit
c. record the date
d. record the credit

B 11. A journal entry composed of two or more debits or two or more credits is called a
a. multiple journal enrtry
b. compound journal entry
c. complex journal entry
d. double journal entry

D 12. A simple journal entry

a. consists of two debits and one credit
b. consists of one debit and two credits
c. is a memorandum entry
d. consist of one debit and one credit

A 13. A journal entry that contains more than accounts is called

a. a compound journal entry
b. a posted journal entry
c. an adjusting journal entry
d. an erroneous journal entry
C 14. What function do accounting journals serve in the acocunting process?
a. Classifying c. recording
b. Summarizing d. reporting

B 15. The normal balance of an account is on the

a. debit side of the account
b. side represented by increases in the account balance
c. credit side of the account
d. side represented by decrease in the account balance

A 16. All of the following are assets except

a. unearned revenue
b. cash
c. equipment
d. inventory

A 17. When a customer buys services on credit, the contract is regarded as complete
when
a. the services are rendered
b. the bill is presented
c. the cash payment is received
d. the date specified in the contract is at hand

B 18. A sale of merchandise on credit represents an exchange of goods for a promise of

future payment. This promise is
a. an asset c. an increase in accounts payable
b. a liability d. a revenue

A 19. When an entity pays for goods or services before actual receipt, the payment
should be recorded as a decrease in Cash and an increase in
a. an expense c. an owner's equity account
b. an asset d. a liability

B 20. Entries recorded on the right side of any account are called
a. increases
b.credits
c. decreases
d. debits

D 21. Credits are used to record

a. decreases in liabilities
b. decreases in owner's equity
c. increases in expenses
d. increases in income
D 22. When an asset increases, one of the following must occur
a. a liability decreases
b. owner's equity decreases
c. an expense increases
d. none of the above

C 23. When owner's equity decreases, one of the following must occur
a. an asset increases
b. an income increases
c. a liability increases
d. withdrawals decreases

B 24. When cash is debited, a typical credit is to

a. accounts payable
b. accounts receivable
c. expenses
d. withdrawals

B 25. The withdrawal account of a sole proprietorship is debited when

a. the owner invests cash
b. the owner withdraws cash
c. an expense is paid
d. a liability is paid

B 26. Payment of insurance premium in advance gives rise to

a. unearned income
b. prepaid expense
c. accrued income
d. accrued expenses

B 27. Credit to csh results to

a. an increase in owner's equity
b. a decrease in assets
c. an increase in liabilities
d. an increases in income

C 28. Debits to expense accounts signify

a. increases in capital
b. increases in assets
c. decreases in capital
d. increases in liabilities

B 29. When rent is prepaid for several months in advance, the debit is to
 a. an expense account
b. an asset account
c. a capital account
d. a liability account

B 30. When an asset is purchased on account, the credit is to

a. a capital account
b. a liability account
c. an income account
d. an expense account

B 31. When payment is made to a supplier for goods previously purchased on

account, the debit is to
a. an asset account
b. a liability account
c. a capital account
d. an expense account

C 32. Posting refers to the process of transferring information from

a. general ledger accounts to journal
b. source documents to journal
c. journals to general ledger accounts
d. journals to source documents

D 33. A ledger is defined as a collection of

a. transactions
b. all statements of financial position accounts
c. all income statement
d. account titles - asset, liability, equity, income and expense accounts

B 34. What function do general ledgers serve in the accounting process?

a. Reporting
b. Summarizing
c. Recording
d. Classifying

B 35.A chart of accounts is a (an)

a. flowchart of all transactions
b. list of names of all account titles
c. accounting procedure manual
d. journal

D 36. Balance sheet accounts are

a. temporary accounts
 b. acounts with debit balances only
c. adjusting accounts
d. permanent accounts

C 37. When accounting information is accumulated in individual accounts, a chart of

accounts is
a. limited to those accounts that will appear in the balance sheet
b. changed each year by an entity depending on the results of operations
c. a listing of each account that will be used to accumulate information
d. used to determine whether a debit or credit balance will appear in each of
the accounts the end of the accounting period

A 38. Most companies use a chart of accounts prepared by the

a. company's accounting department
b. accounting standards council
c. securities and exchange commission
d. Bureau of Internal Revenue

D 39. Posting is the process of transferring information from the

a. journal to the trial balance
b. ledger to the financial statement
c. ledger to the trial balance
d. journal to the ledger

A 40. The term ooting refers to the

a. addition of a column of figures
b. process of obtaining the top number in an account
c. process of obtainig the bottom number in an account
d. process of posting

C 41. Which of the following statements regarding a trial balance is incorrect?

a. A trial balance is a test of the equality of the debit and credit balances in the l
edger
b. A trial balance is a list of all of the open accounts in the ledger with their
balances as of a given date
c. A trial balance proves that no errors of any kind have been made in the
accounts during the accounting period
d. A trial balance helps to localize errors within an identifiable time period

D 42. Which of the following transactions does not affect the balance sheet totals?
a. Purchasing P50,000 supplies on account
b. Collecting P40,000 from customers on account
c. Paying a P300,000 by the firm's owner
d. Withdrawal of P80,000 by the firm's owner
D 43. An entity's trial balance
a. shows its financial position
b. establishes whether its accounting records are correct
c. lists all of the entries in its double-entry accounting records
d. is a lists of all of the accounts with their respective debit or credit balances

A 44. The totals of a trial balance

a. Need not always agree, as there are sometimes legitimate reasons why they
should differ.
b. Should agree in all cases except when the trial balance is prepared at the
end of an accounting period
c. Need not always agree, because the trial balance is not the same as a
balance sheet
d. None of the above

A 45. An error of original entry occurs when

a. Either the debit entry or the credit entry for a particular transaction is
recorded in the wrong class of account
b. A correct figure is entered in the double-entry accounting records, once in
the correct ledger account and once in the wrong person's acount.
c. An incorrect figure is entered on the correct sides of the correct ledger
accounts.
d. None of the above.

A 46. Which of the following has the primary responsibility for the preparation and
reliability of information in the financial statement?
a. Management
b. Internal audit staff
c. External auditor
d. Internal management accountant

C 47. The equality of debits and credits in the ledger should be verified at the end of
each accounting period by preparing
a. an accounting statement
b. an account verification report
c. a trial balance
d. a balance report

D 48. of the following errors, the one that will cause an inequality in the trial balance
totals is
a. incorrectly computing an account balance
b. failure to record a transaction
c. recording the same transaction more than once
 d. posting a transaction to the wrong account

B 49. Which of the following transactions correctly maintains the equality in the
accounting equation?
a. To record collections on account, cash and accounts receivable are
increases by P160,000.
b. To record the purchase of computer equipment, computer equipment is
increased and cash is decreased by P46,000.
c. To record payment of notes, notes payable is decreased and cash is
increased by P70,000.
d. To record payment of rent, rent expense and cash are increased by P8,000.

A 50. Which of the folllowing combinations of trial balance totals suggest the
presence of either a transposition error or a number slide?
a. P65,470 debit and P66,170 credit
b. P33,220 debit and P35,420 credit
c. P25,670 dabit and P26,670 credit
d. P14,517 debit and P15,477 credit

D 51. The first financial statement that is prepared from the trial balance is the
a. balance sheet
b. statement of cash flows
c. statement of changes in equity
d. income statement

D 52. The amount of cash received or paid during a period is not an adequate
measure of the economic consequence of an organization's activities because
a. many activities may not involve the use of cash
b. cash inflows may represent the result of activities completed in previous
period
c. cash outflows may precede or follow the activities with which they are
associated
d. All of the above reasons are correct

C 53. At the end of an accounting period, the equation Assets = Liabilities + Owner's
Equity does not necessarily balance. Which of the following ations balances
the equation?
a. Add the difference between revenues and expenses to owner's equity
b. Add revenues and subtract expenses fom assets
c. Subtract revenues and add expenses to owner's equity
d. Subtract revenues from owner's equity and add expenses to assets

C 54. Which of the following is a business event that is not considered a recordable
transaction?
 a. A company receives a product previously ordered
b. A company pays an employee for work performed
c. A customer inquiries about the availability of a service
d. A customer purchases a services

B 55. Which of the following is a business event that is also considered a recordable
transaction?
a. A company hires a new employee
b. A customer purchases merchandise
c. A company orders a product from a supplier
d. An employee sends a purchased requisition to the purchsing department

A 56. Typically, the chart of accounts begins with

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

C 57. The purpose of the ledger is to

a. record chronologically the day's transaction
b. keep a record of docmentation to support each transaction
c. maintain a seperate account for each balance sheet and income statement
accounts
d. make sure that all balance sheet and income statement accoounts have
normal balances at all times

A 58. Which of the following accounts probably would be listed before the others in a
chart of accounts?
a. Accumulated Depreciation-Building
b. Insurance Expense
c. Owner's Withdrawals
d. Notes Payable

B 59. Which of the following accounts probably would be listed after the others in a
chart of account?
a. Unearned Art Fees
b. Prepaid Rent
c. Owner's Capital
d. Art Revenues

B 60. The Unearned Art Fees account is classified as a(n)

a. asset
b. liability
c. revenue
 d. expense

D 61. Which of the following accounts is an asset?

a. revenues
b. notes payable
c. supplies expense
d. prepaid rent

B 62. Which of the following accounts is not a liability account?

a. accounts payable
b. owner's withdrawal
c. unearned revenue
d. notes payable

C 63. Unearned Revenues are recorded by companies that

a. pay money in advance of the performance of a service
b. pay money at the time the performance of a service is complete
c. receive money in advance of the performance of a service
d. receive money at the time the performance of a service is complete

B 64. Which of the following is not considered a type of equipment?

a. Fax machine
b. Office suppliers
c. Cash register
d. Drill press

D 65. Office supplies are expensed

a. at no time, since they are assets
b. when they are paid for
c. when they are purchased
d. when they are consumed (used up)

D 66. A withdrawal will directly or indirectly reduce which of the following accounts?
a. Accounts Payable
b. Revenues
c. Owner's Withdrawals
d. Owner's Capital

A 67. Which of the following does not directly or indirectly affect the owner's Capital
account?
a. Paying an accounts payable
b. Withdrawals by the owner
c. Earning of revenues
d. Incurring of expenses
D 68. Which of the following accounts is classified differently from the others listed?
a. Prepaid Rent
b. Cash
c. Accounts Receivable
d. Owner's Capital

D 69. Which of the following accounts is classified differently from the others listed?
a. Notes Payable
b. Unearned revenue
c. Mortgage payable
d. Art revenues

C 70. A person who wants to determine the balance of a particular account should
refer to the
a. source documents
b. chart of accounts
c. ledger
d. book of original entry

A 71. If Accounts Payable has debit postings of P85,000 credit postings of P70,000,
and a normal ending balance of P30,000, what was its beginning balance?
a. P45,000 Cr.
b. P15,000 Cr.
c. P45,000 Dr.
d. P15,000 Dr.

A 72. If accounts receivable has debit postings of P290,000, credit postings of

P220,000, and a normal ending balance of P240,000, which of the following
was its beginning balance?
a. P170,000 Dr.
b. P310,000 Cr.
c. P310,000 Dr.
d. P170,000 Cr.

B 73. Which of the following accounting steps is accomplished after the others listed?
a. Post the entry
b. Prepare the trial balance
c. Apply the rules of double entry
d. Record the entry

D 74. All of the following are examples of source documents except

a. a check
b. an invoice
 c. a contract
d. a journal

C 75. Under the revenue recognition principle, revenue is recorded

a. at the earliest acceptable time.
b. at the latest acceptable time.
c. after it has been earned, but not before.
d. at the end of the accounting period.