Accounting is a service activity and The events that affect the entity

its function is to provide and in which other entities The "communicating" process of
quantitative information, primarily participate are known as accounting includes all of the
financial in nature, about following, except
economic entities, that is intended a. Internal events
to be useful in making economic b. External events a. Recording
decisions. This accounting c. Current events b. Classifying
definition is given by d. Obligating events c. Summarizing
b. d. Interpreting
a. Accounting Standards Council d.
b. AICPA Committee on Which of the following statements
Accounting Technology is incorrect in relation to What is the overall objective of
c. American Accounting accountable event? accounting?
Association
d. Board of Accountancy a. An event is accountable when it a. To provide the information that
a. has an effect on asset, liability or the managers of an economic
equity. entity need to control the
All of the following describe b. The subject matter of operations.
accounting, except accounting is the measurement of b. To provide information that the
economic resources and creditors can use in deciding
a. A service activity obligations. whether to grant loans to an
b. An information system c. Only economic activities are entity.
c. A universal language of business emphasized and recognized in c. To measure the periodic income
d. An exact science rather than an accounting. of the economic entity.
art d. Sociological and psychological d. To provide quantitative
d. matters are quantifiable. information about an entity that is
d. useful in making economic
The important points made in the decisions.
definition of accounting include all What is the "measuring" d.
of the following, except component in the definition of
accounting? It is the body authorized by law to
a. Accounting information is promulgate rules and regulations
quantitative. a. The recognition or affecting the practice of
b. Accounting information is both nonrecognition of business accountancy profession in the
quantitative and qualitative. activities as accountable events. Philippines.
c. Accounting information is b.The assigning of peso amounts
financial in nature. to the accountable events. a. Board of Accountancy
d. Accounting information is useful c. The preparation and distribution b. Philippine Institute of Certified
in decision making. of accounting reports to users of Public Accountants
b. accounting information. c. Securities and Exchange
d. The preparation of audit reports Commission
The accounting process is the by CPAs. d. Financial Reporting Standards
recognition or nonrecognition of b. Council
business activities as accountable a.
events. The most common financial
attribute used in measuring What is the law promulgating the
a. Identifying financial information is practice of accountancy profession
b. Measuring in the Philippines?
c. Communicating a. Historical cost
d. Reporting b. Current cost a. RA No. 9298
a. c. Realizable value b. RA No. 9198
d. Present value c. RA No. 9928
a. d. RA No. 9892
a. controller are said to be engaged a. A 60-year old CPA
in b. A 65-year old CPA
What are the three main areas in c. A CPA practicing for the
the practice of the accountancy a. Public accounting profession abroad during the
profession? b. Private accounting period of stay
c. Government accounting d. A CPA studying abroad during
a. Public, private, managerial d. Financial accounting the period of stay
b. Auditing, taxation, managerial b. b.
c. Financial, managerial, corporate
d. Public, private, government It is the area of accountancy It is the standard-setting body in
d. profession that encompassed the the Philippines at the present
process of analyzing, classifying, time.
Which of the following statements summarizing and communicating
is incorrect in relation to the all transactions involving the a. ASC
practice of public accountancy? receipt and disposition of b. Auditing and Assurance
government funds and property Standards Council
a. Single practitioners for the and interpreting the results c. Philippine Accounting Standards
practice of public accountancy thereof. Board
shall be registered CPAs in the d. Financial Reporting Standards
Philippines. a. Internal auditing Council
b. Partners of partnerships formed b. External auditing d.
for the practice of accountancy c. Private accounting
shall be registered CPAs in the d. Government accounting Which of the following statements
Philippines. d. is true regarding the FRSC?
c. The Securities and Exchange
Commission can register any The Continuing Professional a. The FRSC is created by PRC
corporation organized for the Development is required for upon recommendation of BOA to
practice of public accountancy. asist BOA in carrying out its
d. The PRC upon favorable a. Renewal of CPA license powers and functions under RA
recommendation of BOA shall b. Accreditation to practice No. 9298
issue certificate of of accreditation accountancy b. The FRSC shall be composed of
to CPAs in public practice provided c. Both a and b 15 with a Chairman and 14
the registrant has acquired a d. Neither a and b representatives.
minimum of 3 yrs of meaningful c. c. The Chairman and members of
experience in public practice. FRSC are appointed by PRC upon
c. How many CPD credit units or CPD recommendation of BOA and shall
credit hours are required? have a term of 3 yrs renewable for
The singularly unique function another term.
performed by independent CPAs is a. 60 credit units each year for d. All of the statements are true.
three years d.
a. Tax preparation b. 20 credit units each year for
b. Management advisory services three years All of the following are
c. The attest function c. 60 credit units for three years represented in FRSC, except
d. The preparation of financial which may be earned in any of the
statements three years a. BOA
c. (also called Auditing; auditors' d. 15 units each year for three b. SEC
opinion can be: qualified, years c. COA
nonqualified, or disclaimer) c. d. DBM
d.
Accountants employed in entities Who is permanently exempted
in various capacity as accounting from the CPD requirement for the The PFRS collectively include
staff, chief accountant or renewal of CPA license?
a. PFRS corresponding to IFRS
b. PAS corresponding to IAS b. Enables interested partners to Financial accounting can be
c. Philippine Interpretations express their views on issues broadly defined as the area of
corresponding to IFRIC and SIC under consideration accounting that prepares
Interpretations and c. Identifies the accounting issued
Interpretations developed by PIC that are the most important a. General purpose financial
d. All of these d. Requires that all CPAs must statements to be used by parties
d. receive a copy of IFRS internal to the entity
b. b. Financial statements to be used
It is a global phenomenon by investors
intended to bring about What is the due process in the c. General purpose financial
transparency and a higher degree context of standard-setting by statements to be used both by
of comparability in financial IASB? parties internal and external to
reporting in order to achieve the the entity
goal of one uniform and globally a. IASB operates in full view of the d. Financial statements to be used
accepted financial reporting public. primarily by managementt
standards. b. Public hearings are held on c.
proposed standards.
a. IFRS c. Interested parties can make Financial accounting is the area of
b. Borderless accounting their views known. accounting that emphasized
c. World trade d. All of these. reporting to
d. Information technology d.
a a. Management
IFRIC Interpretations issued by b. Regulatory bodies
The IASB was formed IASB c. Internal auditors
d. Creditors and investors
a. To enforce IFRS in foreign a. are considered authoritative d.
countries and must be followed.
b. To develop a single set of high b. cover newly identified financial Managerial accounting is the area
quality IFRS reporting issued not specifically of accounting that emphasizes
c. To establish accounting addressed.
standards for multinational c. cover issued where a. Reporting financial information
entities unsatisfactory or conflicting to external users
d. To develop accounting interpretations have developed. b. Reporting to SEC
standards for countries that do d. All of these c. Combining accounting
not have their own standard- d. knowledge with an expertise in
setting bodies. data processing
b. Financial accounting is concerned d. Developing accounting
with information for use within an
The IASB publishes standards entity
called a. General purpose reports on d.
financial position and financial
a. IAS performance A basic feature of financial
b. FRS b. Specialized reports for accounting is
c. IFRS inventory management and
d. Statement of FAS control a. Direct measurement of
c. c. Specialized reports for income economic resources and
tax computation and recognition obligations and changes in them in
The IASB employs a due process d. General purpose reports on terms of money and sociological
system which changes in share prices and future and psychological impact
estimate of market position b. Direct measurement of
a. Is an efficient system for a. economic resources and
collecting dues from members obligations and changes in them in
terms of money
c. Direct measurement of d. Professional judgement of the Framework for Financial
economic resources and accountant Reporting?
obligations and changes in them in d.
terms of money and sociological a. It is not a reporting standard
impact Once an accounting standard has and does not define standard for
d. Direct measurement of been established any particular measurement or
economic resources and disclosure issue.
obligations and changes in them in a. The standard is continually b. It is concerned with general
terms of money and psychological reviewed to see if any purpose fin statements including
impact modification is necessary. consolidated fin statements.
b. b. The standards is not reviewed c. Nothing in the framework
unless the regulatory authority overrides any specific PFRS.
Generally accepted accounting makes a complaint. d. All are true.
principles c. The task of reviewing the d.
standard to see if modification is
a. are accounting principles based necessary is given to an accredited Which is not a purpose of the
on law national organization of CPAs. Conceptual Framework?
b. derive their credibility and d. The principle of consistency
authority from legal rulings and requires that no revisions should a. to assist FRSC in developing
court precedents be made to the standard.. accounting standards that will
c. derive their credibility and a. represent Philippine GAAP
authority from the national b. to assist FRSC in the review and
government through a regulatory The singularly unique function adoption of existing international
authority performed by CPAs is the attest accounting standards
d. derive their credibility and function which means that CPAs c. to assist auditors in forming an
authority from general recognition are primarily responsible for opinion as to whether fin
and acceptance by the statements conform with Phil.
accountancy profession a. Preparing financial statements GAAP
d. in conformity of GAAP d. to assist BOA in promulgating
b. Certifying the accuracy of rules and regulations affecting the
Which of the following statements financial statements practice of public accountancy
best describes GAAP? c. Expressing an opinion as to the d.
fairness of financial statements
a. The accounting principles have d. Filing financial statements with Which is a basic purpose of the
been formulated in the public the regulatory authority Conceptual Framework?
sector. c
b. The accounting principles have a. to assist users of fin statements
been developed on the basis of The Conceptual Framework deals in interpreting the information
such factors as usage and practical with all of the following, except contained in the financial
necessity. statements
c. The accounting principles are a. The objective of financial b. to provide information to those
the same as laws within our legal reporting interested in the work of FRSC in
system. b. The qualitative characteristics the formulation of PFRS
d. The accounting principles do of useful financial information c. to assist preparers of fin
not apply to small entities. c. The definition, recognition and statements in applyng accounting
b. measurement of the elements of standards
financial statements d. All of these
Proper application of accounting d. Supplementary information d.
principles is most dependent upon d.
This is a complete, comprehensive
a. Existence of specific guidelines Which of the following statements and single document promulgated
b. Oversight of regulatory bodies is true concerning the Conceptual by IASB establishing the concepts
c. External audit function that underlie financial reporting.
 The Conceptual Framework is d.
a. Conceptual Framework for intended to establish
Financial Reporting The underlying theme of the
b. Conceptual Framework for a. GAAP Conceptual Framework is
Financial Statements b. The meaning of "present fairly
c. Conceptual Framework for in accordance with GAAP" a. Decision usefulness
Business Entities c. The objectives and concepts for b. Understandability
d. Conceptual Framework use in developing standards of c. Timeliness
a. financial accounting and reporting d. Comparability
d. The hierarchy of sources of a.
What is the authoritative status of GAAP
the Conceptual Framework? c. What is a benefit of having a
Conceptual Framework?
a. The Conceptual Framework has The Conceptual Framework should
the highest level of authority. a. To enable the accountancy
b. In the absence of a standard or a. Lead to uniformity of financial profession to more quickly solve
an interpretation that specifically statements among entities within emerging practical problems.
applies to a transaction, the the same industry b. To provide information from
Conceptual Framework shall b. Eliminate alternative accounting which to build more useful
prevail. principles standards.
c. In the absence of a standard or c. Guide MNCs in developing c. To enable standard setting body
an interpretation that specifically generally accepted auditing to issue more useful and
applies to a transaction, standards consistent pronouncements over
management shall consider the d. Define the basic objective, time.
applicability of the Conceptual terms and concepts of accounting d. All of these.
Framework in developing and d. d.
applying an accounting policy that
results in information that is Which is not a purpose of the Which of the following is not a
relevant and reliable. Conceptual Framework? benefit associated with the
d. The Conceptual Framework Conceptual Framework?
applies only when the IASB a. Provide definitions of key terms
develops new or revised and concepts a. A Conceptual Framework should
standards. b. Provide specific guidelines for increase financial statement users'
c. resolving situations not covered by understanding and confidence in
existing accounting standards financial reporting.
As regards the relationship c. Assist accountants in selecting b. Practical problems should be
between IFRS and the Conceptual among alternative accounting and more quickly solvable by reference
Framework, which of the following reporting methods to an existing Conceptual
is true? d. Assist IASB in the standard- Framework.
setting process c. A coherent set of accounting
I. The Conceptual Framework is a b. (this is a purpose of the standards and rules should result.
reporting standard. Philippine Interpretations) d. Business entities will need far
II. In case of conflict, the less assistance from accountants
requirements of the Conceptual In the Conceptual Framework for because the financial reporting
Framework prevail over those of Financial reporting, what provides process will be quite easy to apply.
the relevant IFRS. the "why" of accounting? d.

a. I only a. Measurement and recognition Which is an important

b. II only concept characteristic of the Conceptual
c. Both b. Qualitative characteristic of Framework?
d. Neither accounting information
d. c. Element of financial statement
d. Objective of financial reporting
I. To enable the accountancy d. Employees
profession to more quickly solve a. Existing and potential investors d
emerging practical problems. b. Existing and potential lenders
II. To provide a foundation from and other creditors These users are interested in
which to build more useful c. User group such as employees, information about the
financial accounting standards. customers, governments and their continuance of an entity when
agencies, and the public they have a long-term
a. I only d. Existing and potential investors, involvement with or are
b. II only lenders, and other creditors dependent on the entity.
c. Both d.
d. Neither a. Customers
c. The users of financial reports b. Employees
include c. Trade unions
Which of the following is not true d. Suppliers
concerning the Conceptual a. Creditors a
Framework? b. Creditors and government
agencies These users are interested in
I. It should be a basis for standard c. Creditors and unions information in order to regulate
setting. d. Creditors, government agencies the activities of an entity,
II. The Conceptual Framework and unions determine taxation policies and
should allow practical problems to d. provide a basis for national
be solved more quickly. statistics.
III. It should be based on Which of the following is an
fundamental truth derived from internal user of financial a. Government and their agencies
the law of nature. information? b. Major organization of users
c. BIR
a. II only a. BOD d. Department of Finance
b. III only b. Shareholder a
c. II and III only c. Bondholder
d. I and II only d. Creditor with a long-term These users need information on
b. contract trends and recent developments
a where an entity makes a
A soundly Conceptual Framework substantial contribution to the
should These users require information local economy providing
on risk and return on investment employment and using local
I. Increase financial statements suppliers.
users' understanding and a. Investors
confidence in financial reporting b. Employees a. The public
II. Enhance comparability of c. Lenders b. Government and their agencies
financial statements across d. Customers c. Finance entities
entities. a d. Private entities
III. Allow new and emerging a
practical problems to be solved These users are interested in
more quickly. information about the profitability Which of the following in relation
and stability of an entity in order to information needs is true?
a. I only to assess the ability of the entity
b. I and II only to provide remuneration, I. Information that meets the need
c. I and III only retirement benefits and of specified primary users is likely
d. I, II, III employment opportunities. to meet the needs of other users,
d. such as employees, customers,
a. Customers government and their agencies,
The primary users of financial b. The public and the public.
statements include c. Government and their agencies
II. The management is also b. About assets, liabilities and c. Over the long run, trends in
interested in financial information equity of an entity revenue and expenses are
but it need not rely on general c. About financial performance generally more meaningful than
purpose financial reports because during a period trends in cash receipts and
it can access additional d. That allows owners to assess disbursements.
information internally. management performance d. All of these.
a c
a. I only
b. II only Which is an objective of financial Which of the following best
c. Both reporting? describes "financial
d. Neither performance"?
c a. to provide information that is
useful to management in making a. The revenue, expenses and net
These users are interested in decisions income or loss for a period
information that enables them to b. to provide information that b. The assets, liabilities and equity
assess whether their loans, the clearly portrays non-financial c. The total assets minus total
related interest thereon, and transactions liabilities
other amounts owing to them will c. to provide information that is d. The total cash inflows minus
be paid when due. useful to assess the amounts, total cash outflows
timing and uncertainty of of a
a. Lenders and other creditors prospective cash receipts
b. Borrowers d. to provide information that In measuring financial
c. Trade creditors excludes claims against the performance, accrual accounting
d. Owners resources is used because
a c
a. Cash flows are considered less
What is the objective of financial One objective of financial important.
reporting? reporting is to provide b. It provides a better indication of
ability to generate cash flows than
a. To provide information about a. Information about the investors cash basis.
the financial position and financial in the entity c. It recognizes revenue when cash
performance of an entity b. Information about the is received and expenses when
b. To To provide information liquidation value of the resources cash is paid.
about an entity that is useful to held by the entity d. It is one of the implicit
existing and potential investors, c. Information that is useful in assumptions.
lenders, and other creditors in assessing cash flow prospects b
making decisions about providing d. Information that will attract
resources to the entity new investors The most useful information to
c. To prepare a statement of c existing and potential investors,
financial position, a statement of lenders and other creditors in
comprehensive income and a An objective of financial reporting predicting future cash flow is
statement of cash flows is "assessing cash flow prospects"
d. To prepare financial statements which is interpreted to mean a. Information about cash flows
in accordance with all applicable b. Current earnings based on
standards and interpretations a. Cash basis accounting is accrual accounting
b preferred over accrual basis of c. Information regarding the
accounting. accounting policies used by
The overall objective of financial b. Information about the financial management
reporting is to provide information effects of cash receipts and cash d. Information regarding the
payments is generally considered results obtained by using a wide
a. That is useful for decision the best indicator of ability to variety of accounting policies
making generate favorable cash flows. b
The accrual basis of accounting is Which of the following statements rather than to Individual business
most useful for is not a major objective of entities or industries
financial reporting? a
a. Determining the amount of
income tax liability a. It shall provide information During a period when an entity is
b. Predicting the short-term about entity resources, claims under the direction of a particular
financial performance. against those resources and management, financial reporting
c. Predicting the long-term changes in them. will directly provide information
financial performance. b. It shall provide information about
d. Determining the amount of useful in evaluating management
dividends to be declared. stewardship. a. Both entity performance and
b c. It shall provide information management performance
useful in investment, credit and b. Management performance but
The primary focus of financial similar decision. not entity performance
reporting has been on meeting the d. It shall provide information c. Entity performance but not
needs of which of the following useful in assessing cash flow management performance
groups? prospects. d. Neither entity performance nor
b management performance
a. Management c
b. Existing and potential investors, Which of the following is not an
lenders and other creditors objective of financial reporting? Which best describes the term
c. National and local taxing "going concern"?
authorities a. To provide information about
d. Independent CPAs an entity's assets and claims a. Current liabilities exceed
b against those assets current assets.
b. To provide information that is b. Ability of the entity to continue
Which of the following best useful in assessing an entity's in operation for the foreseeable
describes the term "financial sources and uses of cash future
position"? c. To provide information that is c. Potential to contribute to the
useful in lending and investing flow of cash and cash equivalents
a. The net income and expenses decisions to the entity
b. The net of financial assets less d. To provide information about b
liabilities the liquidation value of an entity
c. The potential to contribute to d What is an implication of the going
the flow of cash and cash concern assumption?
equivalents The information provided by
d. The assets, liabilities and equity financial reporting pertains to a. The historical cost principle is
d credible.
a. Individual business entities, b. Depreciation and amortization
The objectives of financial rather than to industries or an policies are justifiable and
reporting are based on economy as a whole or to appropriate.
members of society as consumers c. The current and non-current
a. The need for conservatism b. Business industries, rather than classification of assets and
b. Reporting on management to individual entities or an liabilities is justifiable and
stewardship economy as a whole or to significant.
c. Generally accepted accounting members of society as consumers d. All of these.
principles c. Individual business entities, d
d. The needs of the users of the industries and an economy as a
information whole, rather than to members of The relatively stable economic,
d society as consumers political and social environment
d. An economy as a whole or to supports
members of society as consumers,
a. Conservatism
b. Materiality present value is valid because of
c. Timeliness a. Accounting entity what accounting concept?
d. Going concern b. Going concern
d c. Periodicity a. entity
d. Stable monetary unit b. time period
Which of the following is not a c c. going concern
basic assumption underlying d. monetary unit
financial accounting? Which basic accounting c
assumption is threatened by the
a. Economic entity assumption existence of severe inflation in the What is the accounting concept
b. Going concern assumption economy? that justifies the usage of accruals
c. Periodicity assumption and deferrals?
d. Historical cost assumption a. Monetary unit
d b. Periodicity a. going concern
c. Going concern b. materiality
Which basic assumption may not d. Economic entity c. consistency
be followed when an entity in a d. stable monetary unit
bankruptcy reports financial a
results? Inflation is ignored in accounting
due to During the lifetime of an entity,
a. Economic entity accountants produce financial
b. Going concern a. economic entity statements at arbitrary points in
b. Periodicity b. going concern time in accordance with what
c. Monetary unit c. monetary unit basic accounting concept?
b d. time period
c a. accrual
The economic entity assumption b. periodicity
The concept of accounting entity is c. unit of measure
a. Is applicable to unincorporated applicable d. continuity
businesses b
b. Recognizes the legal aspects of a. Only to the legal aspect of
business organizations business organizations IDENTIFY UNDERLYING
c. Requires periodic income b. Only to the economic aspects of ASSUMPTION INVOLVED: The
measurement business organizations operations of a saving bank are
d. Is applicable to all forms of c. Only to business organizations being evaluated by the BSP.
business organizations d. Whenever accounting is During the investigation, the BSP
d involved has determined that numerous
d loans made by top management
What is being violated if an entity were unwise and have seriously
provides financial reports in When a parent and subsidiary endangered the future of the
connection with a new product relationship exists, consolidated saving bank.
introduction? financial statements are prepared Going concern
in recognition of
a. Economic entity IDENTIFY UNDERLYING
b. Periodicity a. legal entity ASSUMPTION INVOLVED: The
c. Monetary unit b. economic entity parent entity in Manila has a
d. Continuity c. stable monetary unit subsidiary in Japan. The financial
a d. time period statements of the subsidiary are
b translated to pesos for
Which underlying assumption consolidation with financial
serves as the basis for preparing The valuation of a promise to statements of the parent entity at
financial statements at regular receive cash in the future at year end.
artificial points in time? Accounting entity
 Going concern Going concern
IDENTIFY UNDERLYING
ASSUMPTION INVOLVED: A IDENTIFY ASSUMPTION CLEARLY IDENTIFY ASSUMPTION
machinery was imported from VIOLATED: An electronics entity DESCRIBED: An accounting
USA at a certain cost five years owned by a proprietor reported practitioner mixed personal
ago. Because of inflation, the the cost of the proprietor's accounting records with the
machinery has now a current swimming pool as an asset of the records of the accounting practice.
replacement cost which is very entity. Accounting entity
much higher than the historical Accounting entity
cost. Management would like to What are the objectives of
report the machinery at current IDENTIFY ASSUMPTION CLEARLY financial reporting?
replacement cost. VIOLATED: An entity prepared 1. To provide information about
Monetary unit financial statements adjusted for economic resources, the claims to
changes in purchasing power. those resources, and the changes
IDENTIFY UNDERLYING Monetary unit to them.
ASSUMPTION INVOLVED: An 2. To provide information that is
entity has experience a drastic IDENTIFY ASSUMPTION CLEARLY helpful to investors and creditors
reduction n revenue by reason of VIOLATED: A mining entity kept no and other users in assessing the
a long dry spell in the area where accounting records after starting amounts, timing, and uncertainty
the entity grows its tobacco. business. The entity is waiting until of future cash flows.
the mine is exhausted to 3. To provide information that is
The management decided to wait determine the success or failure of useful to those making
until next year and present business. investment and credit decisions.
financial statements for a two- Time period
year period rather than prepare The two primary qualities that
now the traditional 12-month IDENTIFY ASSUMPTION make accounting information
financial statements. DESCRIBED: An entity reported useful for decision making are
Time period financial statements in nominal Relevance and Faithful
pesos that have mixed rather than Representation
IDENTIFY UNDERLYING uniform amount of purchasing
ASSUMPTION INVOLVED: A power. Financial information exhibits the
subsidiary was exhibiting poor Monetary unit characteristic of consistency when
financial performance for the Accounting entities give
current year. In an effort to IDENTIFY ASSUMPTION accountable evetns the same
increase the subsidiary's reported DESCRIBED: A MNC published a accounting treatment from
income, the parent entity complete set of financial period to period.
purchased goods from the statements at least once a year,
subsidiary at twice the normal regardless of whether the financial In classsifying the elements of
markup. results were good or bad. finacial statements, the primary
Accounting entity Time period distinction between revenues and
gains is
IDENTIFY ASSUMPTION CLEARLY IDENTIFY ASSUMPTION The nature of the activities that
VIOLATED: An entity decided to DESCRIBED: The pesos of today gave rise to the transactions
publish fin statements only in the can buy as much goods and involved.
years when it had good news to services as the pesos five years
report. ago. What basic accounting
Time period Monetary unit assumptions is threatened by the
existence of severe inflation in the
IDENTIFY ASSUMPTION CLEARLY IDENTIFY ASSUMPTION economy?
VIOLATED: An entity reported DESCRIBED: An accounting entity Monetary unit assumption.
inventory, PPE and intangible is viewed as continuing in
assets at current value at year- operation in the absence of the The allowance for doubtful
end. evidence of the contrary. accounts, which appears as a
deduction from accounts Relevance: Predictive Value: Financial information cannot be
receivable on a balance sheet and Financial information has accurate in all respects. Free from
whis is based on an estimate of predictive value if it can be used to error means there are no errors or
bad debts, is an application of the predict future outcomes. omissions in the description of the
Matching principle phenomenon, and the process
Relevance: Confirmatory Value used to produce the reported
Information that is measured and Financial information has information has been selected and
reported in a similar fashion confirmatory value if it provides applied with no errors in the
across points in time is known feedback about (confirms or process.
when discussing financial changes) previous evaluations.
accounting information as Enhancing Qualitative
Consistency Relevance: Materiality Characteristics:
Financial information is material if Comparability, verifiability,
Preparaton of consolidated omitting it or misstating it could timeliness, and understandability
financial statements when a influence decisions that users are qualitative characteristics that
parent-subsidiary relationship make on the basis of the financial enhance the usefulness of
exists is an expample of the information of a specific information that is relevant and
Economic entity assumption reporting entity. faithfully represented.

A decrease in net assets arising Faithful Representation: Enhancing Qualitative

from peripheral or incidental To be reliable, investors, creditors, Characteristics: Comparability
transactions is a called and other users must be able to Comparability is the qualitative
Loss depend on accounting information characteristic that enables users
to represent the economic to identify and understand
Qualitative Characteristics conditions or events that it similarities in, and differences
Examines those characteristics purports to represent. among, items.
that are likely to make accounting
information most useful to To be a faithful representation, Unlike the other qualitative
existing and potential investors, accounting information must be characteristics, comparability does
lenders, and other creditors in complete, neutral, and free from not relate to a single item.
making decisions about the error.
reporting entity based on financial A comparison requires at least two
information. Faithful Representation: Complete items.
These characteristics guide the A complete depiction includes all
selection of accounting policies information necessary for a user Consistency, although related to
from available alternatives. to understand the phenomenon comparability, is not the same.
being depicted, including all Consistency refers to the use of
Primary qualitative characteristics necessary descriptions and the same methods for the same
relevance and faithful explanations. items, either from period to
representation. period within a reporting entity or
Faithful Representation: Neutral in a single period across entities.
Relevance A neutral depiction is without bias
To be relevant to investors, in the selection or presentation of Comparability is the goal;
creditors, and other users, financial information—not consistency helps to achieve that
accounting information must be slanted, weighted, emphasized, goal. Comparability is not
capable of making a difference in a deemphasized, or otherwise uniformity.
decision. manipulated to increase the
Financial information is capable of probability that financial For information to be comparable,
making a difference if it has information will be received like things must look alike and
predictive value, confirmatory favorably or unfavorably by users. different things must look
value, or both. different.
It must also be material. Faithful Representation: Free from
Error
Comparability of financial period within an entity or in a a. Consistency
information is not enhanced by single period across entities.
making unlike things look alike any b. Verifiability
more than it is enhanced by Verifiability
making like things look different. Implies consensus. c. Timeliness

Qualitative Characteristics Timeliness d. Comparability

Qualities or attributes that make Financial information must be consistency
the financial accounting available or communicated early
information useful to the users. enough when a decision is to be 50 (02.03.MC-Conc). According to
made. Statement of Financial Accounting
Relevance Concepts No. 8, neutrality is an
Capacity of the information to Cost ingredient of the fundamental
influence a decision. Pervasive constraint on the quality(ies) of:
information that can be provided
by financial reporting.
Materiality a. Relevance: Yes; Faithful
Practical rule in accounting which Neutrality Representation: Yes
dictates that strict adherence to The financial accounting
GAAP is not required when the information is directed toward the
items are not significant enough to common needs of users and is b. Relevance: No; Faithful
affect the evaluation, decision and independent of presumptions Representation: Yes
fairness of the financial about particular needs and desires
statements. of specific users.
c. Relevance: Yes; Faithful
Faithful Representation Decision usefulness Representation: No
Quality of information that gives The overriding qualitative
assurance that it is reasonably free characteristic of accounting
of error and bias. information. d. Relevance: No ; Faithful
Representation: No
Completeness Which of the following statements Relevance: No; Faithful
Result of the adequate disclosure about materiality is correct? Representation: Yes
standard or the principle of full -An item must make a difference
disclosure. or it need not be disclosed. 126 (02.03.MC-CPA). According to
-Materiality is a matter of relative the FASB's conceptual framework,
Conservatism size or importance. which of the following relates to
"In case of doubt, record any loss -An item is material if its inclusion both relevance and faithful
and do not record any gain." or omission would influence or representation?
change the judgment of a
Prudence reasonable person.
Desire to exercise cafe and caution a. Comparability: Yes; Neutrality:
when dealing with uncertainties in Which of the following is an Yes
the measurement process. ingredient of faithful
representation?
Comparability neutrality b. Comparability: Yes; Neutrality:
Information about two different No
entities engaged in the same 38 (02.03.MC-Conc). Changing the
industry has been prepared and method of inventory valuation
presented in similar manner. should be reported in the financial c. Comparability: No; Neutrality:
statements because of which Yes
Consistency qualitative characteristic of
Use of the same method for the accounting information?
same item, either from period to
d. Comparability: No; Neutrality: a. consistency characteristic.
No d. Business entities will need far
d. Comparability: yes; Neutrality: b. expense recognition principle. less assistance from accountants
yes because the financial reporting
c. materiality ingredient. process will be quite easy to apply.
131 (02.03.MC-CPA). According to Business entities will need far less
the FASB's conceptual framework, d. historical cost principle. assistance from accountants
what does the concept of faithful materiality ingredient because the financial reporting
representation include? process will be quite easy to apply.
56 (02.03.MC-Conc). Financial
information exhibits the 21 (02.01.MC-Conc). Generally
a. Verifiability characteristic of consistency when accepted accounting principles

a. are fundamental truths or

b. Predictive value a. expenses are reported as axioms that can be derived from
charges against revenue in the laws of nature.
period in which they are paid.
c. Materiality b. derive their authority from legal
court proceedings.
b. a company applies the same
d. Neutrality accounting treatment to similar c. derive their credibility and
neutrality events, from period to period. authority from general recognition
and acceptance by the accounting
113 (02.03.MC-Conc). What is profession.
prudence or conservatism? c. extraordinary gains and losses
are not included on the income d. have been specified in detail in
statement. the FASB conceptual framework.
a. Understating assets and net derive their credibility and
income authority from general recognition
d. accounting procedures are and acceptance by the accounting
adopted which give a consistent profession
b. When in doubt, recognizing the rate of net income.
option that is least likely to a company applies the same 22 (02.01.MC-Conc). A soundly
overstate assets and income accounting treatment to similar developed conceptual framework
events, from period to period of concepts and objectives should

c. Recognizing the option that is S25 (02.01.MC-Conc). Which of a. increase financial statement
least likely to overstate assets and the following is not a benefit users' understanding of and
income associated with the FASB confidence in financial reporting.
Conceptual Framework Project?
b. enhance comparability among
d. Recognizing revenue when a. A conceptual framework should companies' financial statements.
earned and realized increase financial statement users'
when in doubt, recognizing the understanding of and confidence c. allow new and emerging
option that is least likely to in financial reporting. practical problems to be more
overstate assets and income quickly solved.
b. Practical problems should be
117 (02.03.MC-Conc). Expensing more quickly solvable by reference d. All of these answer choices are
the cost of a wastebasket with an to an existing conceptual correct.
estimated useful life of 10 years framework. All of these answer choices are
when purchased is an example of correct.
the application of the c. A coherent set of accounting
standards and rules should result.
72 (02.05.MC-Conc). Which basic maintain that in comparison with 90 (02.06.MC-Conc). Which of the
assumption is illustrated when a all other valuation alternatives for following is commonly referred to
firm reports financial results on an general purpose financial as the matching principle?
annual basis? reporting, statements prepared
using historical costs are more a. Revenue recognition principle
a. Economic entity assumption
b. Measurement principle
b. Going concern assumption a. verifiable.
c. Expense recognition principle
c. Periodicity assumption
b. relevant. d. Full disclosure principle
d. Monetary unit assumption expense recognition principle
periodicity assumption
c. indicative of the entity's 108 (02.06.MC-Conc). A company
S75 (02.05.MC-Conc). Which of purchasing power. has a factory building that
the following basic accounting originally cost the company
assumptions is threatened by the $250,000. The current fair value of
existence of severe inflation in the d. conservative. the factory building is $3 million.
economy? verifiable The president would like to report
the difference as a gain. The write-
a. Monetary unit assumption 107 (02.06.MC-Conc). Which up would represent a violation of
assumption or principle requires which accounting assumption or
b. Periodicity assumption that all information significant principle?
enough to affect decisions of
c. Going-concern assumption reasonably informed users should
be reported in the financial a. Revenue recognition
d. Economic entity assumption statements?
monetary unit assumption
a. Matching. b. Going concern
14 (02.05). The historical cost
principle would be of limited b. Going concern.
usefulness if not for the going c. Historical cost
concern assumption. c. Historical cost.
True
d. Full disclosure. d. Monetary unit
False full disclosure historical cost
true
96 (02.06.MC-Conc). Which of the 97 (02.06.MC-Conc). When is
27 (02.02.MC-Conc). The following is an argument against revenue generally recognized?
underlying theme of the using historical cost in accounting?
conceptual framework is a. When cash is received
a. Fair values are more relevant.
a. decision usefulness. b. When the warranty expires
b. Historical costs are based on an
b. understandability. exchange transaction. c. When production is completed

c. faithful representation. c. Historical costs are reliable. d. When the company satisfies the
performance obligation
d. comparability. d. Fair values are subjective. when the company satisfies the
decision usefulness Fair values are more relevant. performance obligation

84 (02.06.MC-Conc). Proponents P64 (02.04.MC-Conc). The

of historical cost ordinarily calculation of comprehensive
income includes which of the resources and claims to resources relevance and faithful
following? at/during a: representation

a. Operating Income: Yes; 120 (02.07.MC-Conc). The cost

Distribution to Owners: Yes a. Moment in time: Yes; Period of constraint is also referred to as the
time: No
b. Operating Income: No; a. cost-benefit relationship.
Distribution to Owners: No
b. Moment in time: Yes; Period of b. materiality quality.
c.. Operating Income: No; time: Yes
Distribution to Owners: Yes c. monetary unit assumption.

d. Operating Income: Yes; c. Moment in time: No; Period of d. measurement principle.

Distribution to Owners: No time: Yes cost-benefit relationship
operating income: yes;
distribution to owners: no 115 (02.07.MC-Conc). Which of
d. Moment in time: No; Period of the following statements
62 (02.04.MC-Conc). One of the time: No concerning the cost-benefit
elements of financial statements is moment in time-yes relationship is not true?
comprehensive income. As period of time-no
described in Statement of
Financial Accounting Concepts No. 63 (02.04.MC-Conc). Which of the a. Business reporting should
6, "Elements of Financial following elements of financial exclude information outside of
Statements," comprehensive statements is not a component of management's expertise.
income is equal to comprehensive income?

a. Revenues b. Management should not be

a. revenues minus expenses plus required to report information
gains minus losses. b. Distributions to owners that would significantly harm the
company's competitive position.
c. Losses
b. revenues minus expenses plus
gains minus losses plus d. Expenses c. Management should not be
investments by owners minus distributions to owners required to provide forecasted
distributions to owners. financial information.
122 (02.07.MC-Conc). Trade-offs
between the characteristics that
c. revenues minus expenses plus make information useful may be d. If needed by financial statement
gains minus losses plus necessary or beneficial. Issuance users, management should gather
investments by owners minus of interim financial statements is information not included in the
distributions to owners plus assets an example of a trade-off between financial statements that would
minus liabilities. not otherwise be gathered for
a. relevance and faithful internal use.
representation. If needed by financial statement
d. None of these answer choices users, management should gather
are correct. b. faithful representation and information not included in the
none are correct periodicity. financial statements that would
not otherwise be gathered for
S66 (02.04.MC-Conc). According to c. timeliness and materiality. internal use.
the FASB Conceptual Framework,
the elements - assets, liabilities, d. understandability and Which of the following is not a
and equity - describe amounts of timeliness. benefit associated with the FASB
Conceptual Framework Project?
 A. to provide financial information
about the reporting entity that is A.fair value principle only.
A. A conceptual framework should useful to present and potential
increase financial statement users' equity investors, lenders, and B. historical cost principle only.
understanding of and confidence other creditors in making
in financial reporting. decisions in their capacity as C. revenue recognition principle
capital providers and expense recognition principle.
B. Practical problems should be
more quickly solvable by reference Financial information exhibits the D. historical cost principle and the
to an existing conceptual characteristic of consistency when fair value principle.
framework. D. historical cost principle and the
fair value principle.
C. A coherent set of accounting A.expenses are reported as
standards and rules should result. charges against revenue in the The accounting principle of
period in which they are paid. expense recognition is best
D. Business entities will need far demonstrated by
less assistance from accountants B. a company applies the same
because the financial reporting accounting treatment to similar
process will be quite easy to apply. events, from period to period. A. not recognizing any expense
D. Business entities will need far unless some revenue is realized.
less assistance from accountants C. extraordinary gains and losses
because the financial reporting are not included on the income B. matching effort (expense) with
process will be quite easy to apply. statement. accomplishment (revenue).

The objective of general-purpose D. accounting procedures are C. recognizing prepaid rent

financial reporting is? adopted which give a consistent received as revenue.
rate of net income.
B. a company applies the same D. establishing an Appropriation
A. to provide financial information accounting treatment to similar for Contingencies account.
about the reporting entity that is events, from period to period. B. matching effort (expense) with
useful to present and potential accomplishment (revenue).
equity investors, lenders, and Proponents of historical cost
other creditors in making ordinarily maintain that in Which of the following serves as
decisions in their capacity as comparison with all other the justification for the periodic
capital providers valuation alternatives for general recording of depreciation
purpose financial reporting, expense?
B. to provide companies with the statements prepared using
option to select information that historical costs are more
favors one set of interested A. Association of efforts (expense)
parties over another with accomplishments (revenue).
A. Verifiable.
C. to provide users with financial B. Systematic and rational
information that implies total B. relevant. allocation of cost over the periods
freedom from error benefited.
C. indicative of the entity's
D. to provide a metric for financial purchasing power. C. Immediate recognition of an
information used to determine expense.
when the boundary between two D. conservative.
or more entities should be A. Verifiable. D. Minimization of income tax
disregarded and the entities liability.
considered to be a licensing The measurement principle B. Systematic and rational
arrangement includes the allocation of cost over the periods
benefited.
 b. Recognition occurs when the a. where an amount is of relative
Application of the full disclosure performance obligation is large size and importance.
principle satisfied.
b. where it would impact the
c. Production is complete and judgment of a reasonable person.
A. is theoretically desirable but not there is an active market for the
practical because the costs of product. c. where it would not make a
complete disclosure exceed the difference in the actions of a
benefits. d. Cash is realized or realizable decision maker.
and production is complete.
B. is violated when important b. Recognition occurs when the d. where omission of the
financial information is buried in performance obligation is information would result in bias.
the notes to the financial satisfied. c. where it would not make a
statements. difference in the actions of a
Which accounting assumption or decision maker.
C. is demonstrated by the use of principle is being violated if a
supplementary information company is a party to major Allowing firms to estimate rather
explaining the effects of financing litigation that it may lose and than physically count inventory at
arrangements. decides not to include the interim (quarterly) periods is an
information in the financial example of a trade-off between
D. requires that the financial statements because it may have a
statements be consistent and negative impact on the company's
comparable. stock price? a. verifiability and faithful
C. is demonstrated by the use of representation.
supplementary information
explaining the effects of financing Full disclosure. b. faithful representation and
arrangements. Going concern. comparability.
Historical cost.
Which of the following is an Expense recognition. c. timeliness and verifiability.
argument against using historical full disclosure
cost in accounting? d. neutrality and consistency.
A company has a factory building c. timeliness and verifiability.
that originally cost the company
A. Fair values are more relevant. $250,000. The current fair value of Qualitative characteristics
the factory building is $3 million. are the qualities or attributes that
B. Historical costs are based on an The president would like to report make financial accounting
exchange transaction. the difference as a gain. The write- information USEFUL to the users
up would represent a violation of
C. Historical costs are reliable. which accounting assumption or Fundamental qualitative
principle? characteristic, enhancing
D. Fair values are subjective. qualitative characteristic
A. Fair values are more relevant. qualitative characteristics are
Revenue recognition classified into:
Which of the following is a Going concern
component of the revenue Historical cost fundamental qualitative
recognition principle? Monetary unit characteristic
Historical Cost relate to the content or substance
of financial innformation
a. Cash is received and the Materiality is used in all of the
amount is material. following situations of providing fundamental qualitative
financial information, except characteristic
are relevance and faithful
presentation. (information must
be both relevant and faithfully an item may be inherently OVERSTATEMENT of net income
represented if it is to be useful material because by its very and net assets
nature it affects economic
understandability, comparability, decision Record any loss and do not record
verifiability, timeliness any gain
the enhancing qualitative free from bias in the SIMPLEST TERMS,
characteristics are: (4) to be neutral, the information conservatism means "in case of
contained in the financial doubt, ______________"
relevance statements must be
means "the capacity of _____________ Lower figure
information to make a difference In conservatism,, if there is a
in a decision made by users" principle of fairness choice between two acceptable
Neutrality is synonymous with asset values, the ____________ is
relevance _________________. To be selected
is the capacity of the information neutral is to be fair.
to influence a decision lower of cost and net realizable
Free from error value
relevance means there are no errors or accordingly, inventories are
requires that the financial imissions in the description of the measured at the
information should be related or phenomenon and the process ___________________
pertinent to the economic used to produced the reported
decision information has been selected and Contingent Loss
applied with no errors in the is recognized as a "provision" if
earnings per share process the loss is probable and the
_________________ is more amount can be reliably measured
relevant than book value per Perfectly accurate
share in determining the free from error does not mean contingent gain
attractiveness of an investment _____________ in all respects is not recognized but disclosed
only
materiality described clearly and accurately
when all payments out of petty a representation of that estimate Conservatism
cash are debited to miscellaneous can be faithful if the amount is this concept is NOT a license to
expense, _________ is applied __________________ as an DELIBERATELY understate net
estimate income and net assets
relative size of the item, nature of
the item conservatism, prudence prudence
2 factors for consider in the conceptual framework did not conservatism is synonymous with
determining materiality include _____________ or ___________
_____________ as an aspect of
relative size of the item faithful representation because to Prudence
in relation to the total of the do so would be inconsistent with is the desire to exercise care and
group to which the item belongs neutrality. caution when dealing with the
UNCERTAINTIES in the
relative size of the item conservatism or prudence measurement process such that
the amount of advertising in an approach that is subjective and assets and income are NOT
relation to total distribution costs, may contain an element of bias OVERSTATED or liabilities and
or the amount of leasehold expenses are NOT UNDERSTATED
improvements in relation to total Conservatism
property, plant, and equipment is Managers, investors, and faithful representation
an example of?? accountants have generally under the conceptual framework
preferred that posssible errors in for financial reporting, the term
nature of the item measurement be in the direction ________ is used instead of the
of UNDERSTATEMENT rather than term RELIABILITY
 standard of adequate disclosure review and analyze the
faithful representation disclosure of any financial facts information diligently
means that financial reports significant enough to influence the
represent economic phenomena judgment of informed users Comparability (Qualitative
or transactions in words and characteristics)
numbers standard of adequate disclosure means the ability to bring together
best described by disclosure of for the purpose of noting points of
faithful representation any financial facts significant likeness and difference
means that the actual effects of enough to influence the judgment
the transactions shall be properly of informed users Comparability
accounted for and reported in the is the enhancing qualitative
financial statements notes to financial statements characteristic that enables users
to be complete, the financial to identify and understand
Faithful representation statements shall be accompanied similarities and dissimilarities
when ending inventory is by ____________ among items
misstated, either understated or
overstated, the presentation or necessary disclosures WITHIN or BETWEEN and ACROSS
reporting lacks the purpose of the notes is to entities
____________________. provide the __________________ comparability may be made:
required by Philippine Financial
Recognition of an impairment of Reporting Standards comparability within an entity,
loss comparability across entities
the ___________ on property, Notes to financial statements 2 kinds of comparability
plant and equipment is an provide narrative description or
application of faithful disaggregatiln of the items Comparability within an entity
representation presented in the financial is the quality of information that
statements and information about allows comparisons within a single
completeness, neutrality, free items that do not qualify for entity through time or from one
from error recognition accounting period to next
What are the ingredients of
faithful representation? (3) Neutrality Horizontal comparability or
means that the financial intracomparability
Completeness of financial statements should be prepared so comparability WITHIN an entity is
statements as to favor one party to the also known as
requires that relevant information detriment of another party ____________________________
should be presented in a way that __
facilitates understanding and Understandability
avoids erroneous implication requires that the financial Comparability across entities
information must be is the quality of information that
adequate disclosure standard or comprehensible or intelligible if it allows comparisons between 2 or
the principle of full disclosure is to be useful more entities engages in the same
completeness is the result of the industry
____________________________ Understandability
__________________ the information should be Intercomparability or dimensional
presented in a form and expressed comparability
Standard of adequate disclosure in the terminology that a user comparability ACROSS entities is
The _________________________ understands also known as
means that significant and
relevant information leading the reasonable knowledge of business consistency
the preparation of financial Financial reports are prepared for implicit in the qualitative
statements shall be clearly users who have a characteristics of comparability is
reported _____________________ and the principle of ____________
economic activities and who
principle of consistency means having information relevant standards and
the ________________________ available to decision makers in interpretations
requires that the accounting time to influence their decisions
methods and practices should be d.) all the choices are correct
applied on a uniform basis from Timeliness Qualitative characteristics
period to period requires that financial information a.) are considered either
must be available or fundamental or enhancing
comparability communicated early enough when b.) contribute to the decision-
consistency is not the same as a decision is to be made usefulness of financial reporting
_______________ information
Timeliness c.) distinguish better information
comparability "without knowledge of the past, from inferior information for
______________ is the goal, and the basis for prediction will usually decision making purposes
consistency helps to achieve that be lacking and without interest in d.) all of the choices are correct
goal the future, knowledge of past is
sterile" (what happen in the past relevance and faithful
consistency would become the basis of what representation
___________ is desirable and would happen in the future) the fundamental qualitative
essential to achieve comparability characteristics are
of financial statements cost
is a pervasive constraint on the b.) is capable of making a
period to period information that can be provided difference in a decision
consistency is the uniform by financial reporting accounting information is
application of accounting method considered relevant when it
from ________________ within cost constraint a.) can be depended upon to
an entity is a consideration of the cost represent the economic
incurred in generating financial conditions and events that it is
consistency information against the benefit to intended to represent
_____________ does not mean be obtained from having the b.) is capable of making a
that no change in accounting information difference in a decision
methods can be made c.) is understandable by
a.) qualitative characteristics are reasonably informed users
Verifiability the attributes that make the d.) is verifiable and neutral
means that different information provided in financial
knowledgeable and independent statements useful to users predictive value and confirmatory
observers could reach CONSENSUS What are the qualitative value
that a particular depiction is a characteristics of financial the ingredients of relevant
faithful representation statements? financial information are
a.) qualitative characteristics are
consensus the attributes that make the faithful representation
verifiability implies ___________ information provided in financial what is the quality of information
statements useful to users that gives assurance that it is
Verifiable b.) qualitative characteristics are reasonably free from error and
the information is ________ in the broad classes of financial effects of bias?
sense that it is supported by transactions and other events
evidence so that an accountant c.) qualitative characteristics are c.) freedom from material error
that would look into the same nonqualitative aspects of financial which of the following is the best
evidence would arrive at the same position and financial description of faithful
decision or conclusion performance representation in relation to
d.) qualitative characteristics information in financial
Timeliness measure the extent to which an statements?
entity has complied with all a.) influence on the economic
decision of users
b.) inclusion of a degree of caution the characteristic that is
c.) freedom from material error demonstrated when a high degree relevant
d.) comprehensibility to users of consensus can be secured which best describes information
among independent measurers that influences the economic
completeness, neutrality and free using the same measurement decisions of users?
from error method is
the ingredients of faithful relevance
representation are verifiability what is the quality of information
which concept of accounting holds that enable users to better
neutrality that to the maximum extent forecast future operations?
the financial accounting possible, financial statements shall
information is directed toward the be based on arm's length neutral
common needs of users and is transactions? which term best decribes
independent of presumptions information in financial
about particular needs and desires timeliness statements that is unbiased
of specific users an entity issuing the annual
financial reports within one month understandability
comparability, understandability, at the end of reporting period is for information to be useful, the
verifiability and timeliness an example of which enhancing linkage between the users and the
the enhancing qualitatitve quality of accounting information? decisions made is
characteristics of financial
information are (4) timeliness and verifiability c.) users need reasonable
allowing entities to estimate knowledge of business and
c.) accounting entities give similar rather than physically count financial accounting matters to
events the same accounting inventory at an interim period is understand the information
treatment each period an example of a tradeoff between contained in financial statements
financial information exhibits an enhancing quality of financial
CONSISTENCY when a.) users have a reasonable accounting information is that
a.) accounting procedures are knowledge of business and a.) information must be decision
adopted which smooth net economic activities and review the useful to all potential users of
income and make results information with reasonable financial reporting
consistent between years diligence b.) general purpose financial
b.) gains and loses are shown which statement is true in relation reporting is the primary source of
separately in the income to the enhancing qualitative information for users
statement characteristics of c.) users need reasonable
c.) accounting entities give similar understandability of financial knowledge of business and
events the same accounting information? financial accounting matters to
treatment each period a.) users have a reasonable understand the information
d.) expenditures are reported as knowledge of business and contained in financial statements
expenses and netted against economic activities and review the d.) all of the choices are correct
revenue in the period when paid information with reasonable
diligence c.) information is measured and
comparability b.) users are expected to have reported in a similar fashion
when information about TWO significant business knowledge across entities
DIFFERENT ENTITIES engaged in c.) financial statements shall What is meant by COMPARABILITY
the same industry has been exclude complex matters when discussing financial
prepared and presented in similar d.) financial statements shall be accounting information?
manner, the information exhibits free from material error a.) information has predictive and
the enhancing qualitative confirmatory value
characteristics of decision usefulness b.) information is reasonably free
the overriding qualitative from error
verifiability characteristic of accounting
information is
c.) information is measured and c.) an item is material if the will be least likely to understate
reported in a similar fashion inclusion or omission would liabilities and expenses
across entities influence or change the judgment c.) includes prudence or
d.) information is timely of a reasonable person conservatism as a desirable but
d.) all of these statements are true not required quality of accounting
a.) information is measured and about materiality information
reported in a similar fashion d.) excludes prudence or
across points in time cost conservatism because it is
what is meant by CONSISTENCY the conceptual framework consistent with neutrality
when discussing financial includes which constraints?
accounting information? verifiability
a.) information is measured and a.) the benefit of the information the ability through consensus
reported in a similar fashion must be greater than the cost of among measures to ensure that
across points in time providing it information represents what it
b.) information is timely which statement best describes purpose to represent is an
c.) information is measured the cost and benefit constraint? example of the concept of
similarly across the industry a.) the benefit of the information
d.) information is verifiable must be greater than the cost of objectivity
providing it which accounting concepts states
b.) profit-oriented b.) financial information should be that an accounting transaction
which of the following is not an free from cost to users of the shall be supported by sufficient
enhancing qualitative information evidence to allow two or more
characteristic? c.) cost of providing financial qualified individuals to arrive at
a.) understandability information is not always evident essentially similar conclusion?
b.) profit-oriented or measurable but must be
c.) timeliness considered c.) involves an arm's length
d.) comparability d.) all of the choices are correct transaction between two
independent parties
d.) the omission or misstatement b.) has the least favorable impact objectivity is assumed to be
of the amount would make a on equity achieved when an accounting
difference to the users conservatism is best described as transaction
an item would be considered selecting an accounting a.) is recorded in a fixed amount of
material when alternatives that pesos
a.) the expected benefits of a.) understates assets and net b.) involves the payment or
disclosure exceed the additional income receipt of cash
costs. b.) has the least favorable impact c.) involves an arm's length
b.) the impact on earnings is on equity transaction between two
greater than 10% c.) overstates liabilities independent parties
c.) the standard definition of d.) is least likely to mislead users d.) allocates revenue or expenses
materiality is met of financial information in a rational and systematic
d.) the omission or misstatement manner
of the amout would make a d.) excludes prudence or
difference to the users conservatism because it is objective
consistent with neutrality proponents of historical costs
d.) all of these statements are true the conceptual framework maintain statements prepared
about materiality a.) includes prudence or using historical costs are more
which statement about materiality conservatism which means when
is true? in doubt, choose the solution that a.) fair value is more relevant
a.) an item must make a difference will be least likely to overstate which statement is an argument
or it need not be disclosed assets and income against historical cost?
b.) materiality is a matter of b.) includes prudence or a.) fair value is more relevant
relative size conservatism which means when b.) historical cost is based on
in doubt, choose the solution that exchanged transaction
c.) historical cost is verifiable and A conceptual framework relation to other amounts
reliable underlying financial accounting is reported in the financial
d.) fair value is subjective necessary because future statements, that amount may be
accounting practice problems can deleted from the financial
c.) financial statements included be solved by reference to the statements.
an item of property, plant and conceptual framework and a False
equipment with carrying amount formal standardsetting body will
increased to management not be necessary. The basis for determining whether
estimate of market value False an item is material is based on
which of the following situations both quantitative and qualitative
violates the concept of faithful Use of a sound conceptual factors.
representation? framework in the development of True
a.) financial statements were accounting principles will make
issued nine months late financial statements of all entities The fact that equity represents an
b.) data on segments having the comparable because alternative ownership interest and a residual
same expected risks and growth accounting methods for similar claim against the net assets of an
rates are reported to analysts transactions will be eliminated. enterprise means that in the event
estimating future profits False of liquidation, creditors have a
c.) financial statements included priority over owners in the
an item of property, plant and Accounting theory is developed distribution of assets.
equipment with carrying amount without consideration of the True
increased to management environment within which it
estimate of market value exists. The three elements—assets,
d.) management reports refer to False liabilities, and equity—describe
new projects undertaken but the transactions, events, and
financial statements never report Relevance and reliability are the circumstances that affect an
project results two primary qualities that make enterprise during a period of time.
accounting information useful for False
conservatism decision making.
what is the underlying concept True The economic entity assumption is
governing the generally accepted useful only when the entity
accounting principles pertaining to To be relevant, accounting referred to is a profitseeking
recording gain contingencies? information must be capable of business enterprise.
making a difference in a decision. False
cost-benefit True
the usefulness of providing The goingconcern assumption is
information in financial Information that has been generally applicable in most
statements is subject to the measured and reported in a business situations unless
constraint of similar manner for different liquidation appears imminent.
enterprises is considered True
Terms in this set (24) comparable.
True The monetary unit assumption
Original means that money is the common
A conceptual framework is a Adherence to the concept of denominator of economic activity
coherent system of interrelated consistency requires that the and provides an appropriate basis
objectives and fundamentals that same accounting principles be for accounting measurement and
can lead to consistent standards applied to similar transactions for analysis.
and that prescribes the nature, a minimum of five years before True
function, and limits of financial any change in principle is adopted.
accounting and financial False The periodicity assumption is a
statements. result of the demands of various
True When an amount is determined by financial statement user groups
the accountant to be immaterial in
for timely reporting of financial False knowledge of business and
information. financial accounting matters
True The difficulty in applying the cost
constraint is that the costs and False
If Company A wishes to acquire an especially the benefits are not Entities consider only qualitative
asset owned by Company B, the always evident or measurable. factors in determining whether an
cost principle would require True item is material
Company A to record the asset at
the original cost to Company B. Terms in this set (29) False
False Neutrality and predictive value are
Original characteristic of relevant
Generally, confirmation of a sale True information
to independent interests is used to A conceptual framework is a
indicate the point at which coherent system of interrelated False
revenue is recognized. objectives and fundamentals that The tendency to recognize
True lead to consistent standards favorable events early is an
example of conservatism
Recognition of revenue when cash False
is collected is appropriate only Fundamental qualitative False
when it is impossible to establish characteristics of financial The Conceptual Framework
the revenue figure at the time of accounting information are either focuses primarily on the needs of
sale because of the uncertainty of relevant or prudent internsl users of financial
collection. information
True False
An enhancing qualitative Upgrade to remove ads
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principle, it is possible to have an True
expense reported on the income False The overall objective of financial
statement in one period and the To be a faithful representation, an reporting is to provide information
cash payment for that expense information must be predictive for making economic decisions
reported in another period. and confirmatory
True False
True Once an accounting method is
Period costs such as officer An enhancing quality of financial adopted, it should never be
salaries and administrative accounting information is changed
expenses attach to the product comparability
and are carried into future periods Relevance
if the revenue from the product is False Information that has no bearing
recognized in subsequent periods. Applying different accounting on an economic decision to be
False treatment to similar event from made is useless
period to period is violation of
The full disclosure principle states verifiability Comparability
that information should be It is the ability to bring together
provided when it is of sufficient True for the purpose of noting points of
importance to influence the The idea of consistency does not likeness and difference
judgment and decisions of an mean that entities cannot switch
informed user. from one accounting method to Understandability
True another It requires that users have some
knowledge of the complex
The notes to financial statements False economic activities of entities, the
generally summarize the items Financial statement users are accounting process and the
presented in the main body of the assumed to have no reasonable technical terminology in the
statements. statements
 This enhancing qualitative Conceptual Framework includes
Neutrality characteristic implies consesus supplementary information.
Preparers of statements should
not try to increase the usefulness Timeliness true
of the information to a few users The older the information, the less The International Accounting
to the detriment of others who useful Standards Board's (IASB's)
may have opposing interests Conceptual Framework includes
false the elements of financial
Substance over form The conceptual framework for statements.
In case of conflict between accounting has been discovered
economic substance and legal through empirical research. true
form of a transaction, the The 2nd level of the IASB's
economic substance shall prevail true conceptual framework provides
A conceptual framework is a the qualitative characteristics that
Materiality coherent system of interrelated make accounting information
Small expenditures for tools are objectives and fundamentals that useful and the elements of
expensed immediately can lead to consistent standards. financial statements.

Conservatism false false

When in doubt, recognize all The International Accounting One of the challenges in
losses and dont recognize gains Standards Board (IASB) uses a developing a common conceptual
conceptual framework based on framework will be to agree on
Completeness individual concepts developed by how the framework should be
The information should be each member of the standard- organized since the FASB and IASB
presented in a manner that setting body. conceptual frameworks are
facilitates understanding and organized in very different ways.
avoids erroneous implication true
A soundly developed conceptual false
Relevance framework enables the The first level of the conceptual
It is the capacity of the International Accounting framework identifies the
information to influence a decision Standards Board (IASB) to issue recognition and measurement
more useful and consistent concepts used in establishing
Faithful representation pronouncements over time. accounting standards.
The description and numbers or
figures must watch what really true true
existed or happened A soundly developed conceptual Decision usefulness is the
framework enables the underlying theme of the
Completeness International Accounting conceptual framework.
The financial statements shall be Standards Board (IASB) to quickly
accompanied by notes to financial solve new and emerging practical Upgrade to remove ads
statements problems by referencing basic Only $2.99/month
theory. false
Free from error Users of financial statements are
There are no errors or omissions true assumed to have no knowledge of
in the descriptions of the The IASB has issued a conceptual business and financial accounting
phenomenon framework that is broadly matters by financial statement
consistent with that of the United preparers.
Comparability States.
It is the goal achieved by false
consistency false The foundation of the
The International Accounting International Accounting
Verifiability Standards Board's (IASB's) Standards Board's (IASB's)
Conceptual Framework is found
on the third level of the true the entity after deducting all its
Framework and includes In the International Accounting liabilities."
assumptions, principles, and Standards Board's (IASB's)
constraints. Conceptual Framework, true
qualitative characteristics The historical cost principle would
false distinguish better information be of limited usefulness if not for
An implicit assumption of the from inferior information for the going concern assumption.
International Accounting decision-making purposes.
Standards Board's (IASB's) false
Conceptual Framework is that false The economic entity assumption
users need to be experts in In the International Accounting means that economic activity can
business and financial accounting Standards Board's (IASB's) be identified with a particular legal
matters to understand the Conceptual Framework, an entity.
information contained in financial enhancing qualitative
statements. characteristic is predictive value. false
Materiality is one of the basic
true false assumptions of accounting used
Relevance and reliability are the In the International Accounting by the International Accounting
two primary qualities that make Standards Board's (IASB's) Standards Board (IASB).
accounting information useful for Conceptual Framework, an
decision making. ingredient of a fundamental true
qualitative characteristic is Periodicity is one of the basic
true understandability. assumptions of accounting used
The idea of consistency does not by the International Accounting
mean that companies cannot false Standards Board (IASB).
switch from one accounting To be a faithful representation as
method to another. described by the International false
Accounting Standards Board's Timeliness is one of the basic
false (IASB's) Conceptual Framework, assumptions of accounting used
Timeliness and neutrality are two information must be confirmatory. by the International Accounting
ingredients of relevance. Standards Board (IASB).
true
false An enhancing quality as described false
Verifiability and predictive value by the International Accounting The periodicity basic assumptions
are two ingredients of reliability. Standards Board's (IASB's) of accounting (used by the
Conceptual Framework is International Accounting
true comparability. Standards Board) makes
The second level of the depreciation and amortization
International Accounting false policies justifiable and
Standards Board's (IASB's) Moon, Inc. applies different appropriate.
Conceptual Framework serves as a accounting treatments to similar
bridge between the "why" of events from period to period. true
accounting and the "how" of Moon, Inc. is violating verifiability The IASB conceptual framework
accounting. as described by the International specifically identifies accrual basis
Accounting Standards Board's accounting as one of its
false (IASB's) Conceptual Framework. fundamental assumptions.
In the International Accounting
Standards Board's (IASB's) false true
Conceptual Framework, The International Accounting One of two assumptions made by
qualitative characteristics are Standards Board's (IASB) definition the IASB conceptual framework is
considered either relevant or of retained earnings is "the that the reporting entity is a going
prudent. residual interest in the assets of concern.
false Accounting Standards Board's b. asset and liability
The expense recognition principle conceptual framework states that c. income and expense
states that debits must equal financial information should be d. asset, liability, equity, income
credits in each transaction free from cost to users of the and expense
information. a
true
Revenues are realizable when false The elements of financial position
assets received or held are readily The International Accounting describe amounts of resources
convertible into cash or claims to Standards Board's (IASB) rule for and claims against resources
cash. materiality is any item under 5%
of net income is considered a. during a period of time
true immaterial. b. at a moment in time
Supplementary information may c. both a and b
include details or amounts that false d. neither a and b
present a different perspective The International Accounting b
from that adopted in the financial Standards Board's (IASB)
statements. conceptual framework includes The elements directly related to
the concept of prudence or the measurement of financial
false conservatism which means when performance are
Companies consider only in doubt, choose the solution that
quantitative factors in determining will be least likely to overstate a. income and expense
whether an item is material. assets or income and/or b. asset, liability and equity
understate liabilities or expenses c. asset and liability
true d. income, expense and equity
The International Accounting true a
Standards Board has given Under International Financial
companies the option of using fair Reporting Standards (IFRS) It is a resource controlled by the
value to report financial liabilities. companies must consider both entity as a result of past events
quantitative and qualitative and from which future economic
false factors in determining whether an benefits are expected to flow to
Under International Financial item is material. the entity
Reporting Standards (IFRS)
product costs are charged off in false a. asset
the immediate period and period Under International Financial b. liability
costs may be carried into future Reporting Standards (IFRS) c. equity
periods. companies need not report d. income
immaterial items within the body a
false of the financial statements, but
Under International Financial must disclose them in the notes or It is a present obligation of an
Reporting Standards (IFRS) notes supplementary information that entity arising from past events the
to the financial statements must accompany the financial settlement of which is expected to
qualify as an element. statements. result in an outflow from the
entity of resources embodying
true true economic benefits
Under International Financial The conceptual framework
Reporting Standards (IFRS) underlying U.S. GAAP is similar to a. asset
supplementary information may that underlying IFRS. b. liability
be information that is high in c. equity
relevance but low in reliability. The elements directly related to d. exxpense
the measurement of financial b
false position are
The cost-benefit constraint
included in the International a. asset, liability and equity
It is the residual interest in the a. Income encompasses both c
assets of the entity after deducting revenue and gain
all of the liabilities b. Revenue encompasses both An income is recognized when
income and gain
a. income c. Gain encompasses both revenue a. it is probable that future
b. equity and income economic benefit will flow to the
c. retained earnings d. Income encompasses revenue entity and that the economic
d. all of the above only benefit can be measured reliably
b a b. it is possible that future
economic benefit will flow to the
It is an increase in economic Financial statements portray the entity and that the economic
benefit during the accounting financial effects of transactions benefit can be measured reliably
period related to an increase in and other events by grouping c. the entity obtains control of the
asset or a decrease in liability that them into broad classes according future economic benefit
results in increase in equity other to their economic characteristics. d. the future economic benefit can
than contribution from owners These broad classes are termed as be measured reliably
a
a. asset a. audit reports
b. liability b. financial reports An expense is recognized when
c. income c. notes to financial statements
d expenses d. elements of financial a. it is probable that a decrease in
c statements future economic benefit has
d occurred
It is a decrease in economic b. the decrease in future economic
benefit during the accounting An asset is recognized when benefit can be measured reliably
period related to a decrease in c. it is probable that a decrease in
asset or an increase in liability that a. it is probable that future future economic benefit has
results in decrease in equity other economic benefit will flow to the occurred and the decrease in
than distribution to owners entity future economic benefit can be
b. the cost or value of the asset measured reliably
a. asset can be measured reliably d. it is probable that an increase in
b. liability c. the entity obtains control of the future economic benefit has
c. income rights associated with the asset occurred and the increase in
d. expenses d. it is probable that future future economic benefit can be
d economic benefit will flow to the measured reliably
entity and the cost or value of the c
This arises in the course of asset can be measured reliably
ordinary regular activities of the d It is the process that involves the
entity and is referred to by a simultaneous or combined
variety of different names A liability is recognized when recognition of revenue and
including sales, fees, interest, expenses that result directly from
dividends, royalties and rent a. it is probable that an outflow of the same transactions and other
economic benefit will be required events
a. income to settle the obligation
b. revenue b. the amount of obligation can be a. matching of cost with revenue
c. profit measured reliably b. matching of revenue with cost
d. gain c. it is probable that an outflow of c. systematic and rational
b economic benefit will be required allocation
to settle the obligation and the d. immediate recognition
Which of the ff in relation to amount of obligation can be a
income is true? measured reliably
d. the entity obtains control of the When economic benefits are
obligation expected to arise over several
accounting periods and the Which of the following d. value in use
association with income can only measurement attributes is not b
be broadly or indirectly currently used in practice?
determined, expenses are Generally, revenue from sale of
recognized on the basis of a. present value goods shall be recognized at a
b. net realizable value point when
a. cause and effect association c. current replacement cost
b. systematic and rational d. inflation-adjusted cost a. management decides it is
allocation d appropriate to do so
c. immediate recognition b. the product is available for sale
d. profit maximization Which of the ff attributes is to the ultimate consumer
b generally considered to be the c. the entire amount receivable
most relevant? has been collected from the
An expense is recognized customer
immediately a. present value d. the entity has transferred to the
b. current exit value buyer the significant risks and
a. when an expenditure produces c. current cost rewards of ownership of the
no future economic benefit d. historical cost goods
b.when cost incurred ceases to a d
qualify as an asset
c. when an expenditure produces It is the amount of cash or cash Revenue from sale of goods shall
future economic benefit equivalent that would have to be be recognized when all of the ff
d. when an expenditure produces paid if the same or an equivalent conditions have been satisfied,
no future economic benefit and asset was acquired currently except
when cost incurred ceases to
qualify as an asset a. Historical cost a. the entity has transferred to the
d b. Current cost buyer the significant risks and
c. Realizable value rewards of ownership of the
It is the process of incorporating d. Present value goods
or reporting in the statement of b b. the entity retains either
financial position or statement of continuing managerial
comprehensive income an item Which of the ff best describes involvement or effective control
that meets the definition of an assets recorded at the amount over the goods sold
element of financial statements that represents the immediate c. the amount of revenue can be
purchase cost of an equivalent measured reliably
a. recognition asset? d. it is probable that economic
b. allocation benefits will flow to the entity
c. realization a. Historical cost b
d. summarization b. Realizable value
a c. Present value Which of the following criteria
d. Current cost must not be satisfied before
It is the process of determining a (according to sir D.) / d revenue from sale of goods shall
the monetary amounts at which (according to multiple sources) be recognized?
the elements of the financial
statements are recognized and Which of the following terms best a. revenue can be reliably
carried in the financial statements describes the amount of cash or measured
cash equivalents that could b. managerial control over the
a. measurement currently be obtained by selling an goods has been relinquished
b. recognition asset in an orderly disposal? c. ownership has been transferred
c. presentation to the buyer
d. recording a. fair value d. significant risks and rewards of
a b. realizable value ownership have been transferred
c. residual value from the seller to the buyer
c entity and the amount can be c. only if the transaction will
measured reliably create an account receivable
Which of the ff statements is c. production is complete and d. when the title of the goods
incorrect concerning recognition there is active market for the changes
of revenue? product d
d. cash is realized and production
a. revenue from rendering of is complete Revenue may be recognized
services shall be recognized by b
reference to the stage of a. at a point of sale
completion of the transaction at The revenue principle states that b. during production
the end of the reporting period revenue shall be recognized at a c. at the end of production
b. interest revenue shall be point when d. all of the above
recognized on a time proportion d
basis that does not take into a. an exchange transaction has
account the effective yield on the occurred and the earning process Which of the following may not be
asset is essentially complete an acceptable deviation from
c. royalty revenue shall be b. an order for shipment of recognizing revenue at the point
recognized on an accrual basis in merchandise has been received of sale?
accordance with the substance of c. a contract between buyer and
the relevant agreement seller has been signed a. upon receipt of cash
d. dividend revenue shall be d. the seller has shipped b. during production
recognized when the merchandise under terms that the c. upon receipt of order
shareholder's right to receive customer need not pay until it is d. end of production
payment is established sold c
b a
Which of the ff represents the
Which of the ff conditions does Generally, revenue is recognized least desirable choice for the
not apply to the recognition of recognition of revenue?
revenue from rendering of a. at the point of sale
services? b. when cause and effect are a. during production
associated b. when a sale occurs
a. the amount of revenue can be c. at the point of cash collection c. when cash is collected
measured reliably d. at appropriate points d. when production is completed
b. it is probable that payment for throughout the operating cycle c
the services shall be received by a
the entity Revenue from an artistic
c. the significant risks and rewards Which of the ff is not an accepted performance is recognized once
of ownership have been basis for recognition of revenue?
transferred to the buyer a. the audience register for the
d. the costs incurred for the a. passage of time event online
transaction and the costs to b. performance of service b. the tickets for the concert are
complete transaction can be c. completion of percentage of a sold
measured reliably project c. cash has been received from the
c d. upon signing of contract ticket sales
d d. the event takes place
Which of the following statements d
describes the revenue recognition Normally, revenue is recognized
principle? A wholesale bakery would
a. when the customer order is normally recognize revenue when
a. cash is received and the amount received
is material b. when the customer order is a. the product is available for sale
b. it is probable that future accompanied by a check to a customer
economic benefit will flow to the
b. cash is received from the b It is proper to recognize revenue
customer prior to the sale of merchandise
c. goods are delivered to the The term "recognized" is when the revenue is reported
customer synonymous with the term
d. management chooses to do so a. as an installment sale
c a. recorded b. under the cost recovery method
b. realized c. as an installment sale and under
Which of the following is not a c. matched cost recovery method
time when revenue may be d. allocated d. none of these
recognized? a d

a. at time of sale Under what condition is it proper When should an entity use the
b. at receipt of cash to recognize revenue prior to the installment method of revenue
c. during production sale of the merchandise? recognition?
d. all of the above are possible
times of revenue recognition a. when the concept of a. when collectibility of
d consistency is complied with installment accounts receivable is
b. when the revenue is to be reasonably predictable
The term "revenue recognition" reported as an installment sale b. when repossessions of merch
conventionally refers to c. when the ultimate sale of the on the installment plan may result
goods is at an assured sale price in a future gain or loss
a. the process of identifying d. when management has a long- c. when there is no reasonable
transactions to be recorded as established policy basis for estimating collectibility
revenue in an accounting period c d. when collection expenses are
b. the process of measuring and deemed immaterial
relating revenue and expenses Which of the ff statements c
during a period conforms to the realization
c. the earning process which gives concept? Which is not a theoretical basis for
rise to revenue realization the allocation of expense?
d. the process of identifying those a. depreciation was assigned to
transactions that result in an product unit cost a. immediate recognition
inflow of assets to the entity b. equipment was sold in b. systematic and rational
d exchange for a note receivable allocation
c. cash was collected on accounts c. cause and effect association
Which of the following in the most receivable d. profit maximization
precise sense means the process d. product unit costs were d
of converting non cash resources assigned to cost of goods sold
and rights into cash or claims to b Costs that can be reasonably
cash? associated with specific revenue
Revenue may result from but not with specific product
a. allocation should be
b. collection a. a decrease in an asset from
c. recognition primary operations a. expensed in the period incurred
d. realization b. an increase in an asset from b. allocated to the specific product
d incidental transactions based on the best estimate of the
c. an increase in a liability from product processing time
Gains on assets sold are identified, incidental transactions c. expensed in the period in which
in a precise sense, by the term d. a decrease in liability from the related revenue is recognized
primary operations d. capitalized and then amortized
a. unrecorded d over a reasonable period
b. unrealized c
c. unrecognized
d. unallocated
Which is an example of the cause c. transportation to customers b. liability
and effect association principle? d. electricity to light office building c. expense
b d. equity
a. Sales commission c
b. Allocation of insurance cost The writeoff of a worthless patent
c. Depreciation of PPE is an example of which of the ff? The primary distinction between
d. Officers' salaries revenue and gain is
a a. associating cause and effect
b. immediate recognition a. the materiality of an amount
Which is an application of the c. systematic and rational b. the likelihood that the
systematic and rational allocation allocation transaction will recur in the future
principle? d. objectivity c. the nature of the activity that
b gives rise to the transaction
a. doubtful accounts d. the method of disclosing the
b. research and development cost What is an example of cost that transaction
c. warranty cost cannot be directly related to c
d. amortization of intangible asset particular revenue but incurred to
d obtain benefits that are exhausted The term "income"
in the period when the cost is
Why are certain costs of doing incurred? a. includes change in fair value of
business capitalized when financial asset at fair value
incurred and then depreciated or a. sales commissions through other comprehensive
amortized over subsequent b. sales salaries income
accounting periods? c. freight in b. includes foreign currency
d. prepaid insurance translation adjustment
a. to reduce the income tax b c. includes gain resulting fro the
liability sale of an asset in an arm's length
b. to aid management in the Which of the following would be transaction
decision making process matched with current revenue on d. is the same as comprehensive
c. to match the cost of production a basis other than association of income
with revenue cause and effect? c
d. to adhere to the accounting
concept of conservatism a. Goodwill Which of the ff is incorrect in
c b. cost of goods sold relation to the term "expense"?
c. sales commission
Which principle best describes the d. warranty cost a. all expenses and losses are
conceptual rationale for the a expired costs but not all expired
method of matching depreciation costs are expenses
with revenue? A decrease in an asset arising from b. all expenses decrease owner's
peripheral or incidental equity but not all decreases in OE
a. associating cause and effect transaction is called are expenses
b. systematic and rational c. expense is synonymous with
allocation a. Capital expenditure expenditure
c. immediate recognition b. Cost d. entities do not incur expensed
d. partial recognition c. Loss per se but initially acquire assets
b d. Expense c
c
Which should be expensed under The matching principle is best
the principle of systematic and An outflow of asset based on an demonstrated by
rational allocation? activity that represents the major
operations a. not recognizing any expense
a. salesmen's monthly salaries unless some revenue is realized
b. insurance premiums a. loss
b. associating effort with d administrative expenses with
accomplishment revenue of the current period?
c. recognizing prepaid rent Which of the following is not an
received as revenue acceptable basis for the a. direct matching
d. establishing an appropriation recognition of expense? b. systematic and rational
for contingency allocation
b a. systematic and rational c. immediate recognition
allocation d. partial recognition
Bad debt expense is recognized b. direct matching c
according to which expense c. immediate recognition
recognition principle? d. cash disbursement Financial statements
d portray the financial effects of
a. direct matching transactions and other events by
b. immediate recognition The recognition of an allowance grouping them into broad
c. systematic and rational for doubtful accounts is an classes according to their
allocation application of economic characteristics.
d. critical event recognition
a a. going concern assumption other comprehensive income
b. revenue recognition principle Comprises items of income and
What is the general approach as to c. matching principle expenses including reclassification
when product costs are d. materiality constraint adjustments that are not
recognized as expenses? c recognized in profit or loss

a. in the period when the An example of direct matching of elements of financial statements
expenses are paid an expense with revenue would are the "building blocks from
b. in the period when the be which financial statements are
expenses are incurred constructed.
c. in the period when the vendor a. depreciation expense
invoice is received b. office salaries expense Income Statement
d. in the period when the related c. direct labor costs incurred to Showing components of profit or
revenue is recognized produce inventory sold during a loss
d period
d. advertising expense Assets, Liabilities and Equity
Which accounting principle is c elements directly related to the
being observed when an measurement of
accountant charges to expense a Which category of expenses is financial position are:
cost that contributed to revenue subject to immediate recognition
during a period? in the income statement? Statement of Comprehensive
income
a. revenue realization a. utilities expense for the Beginning with profit or loss as
b. matching production line of a manufacturer shown in the incime statement
c. monetary unit b. repairs and maintenance plus or minus the components of
d. conservatism expense incurred on production otehr comprehensive income
b equipment of a manufacturer
c. the salary of the production Income and Expense
When should an expenditure be foreman The elements directly related to
recorded as an asset rather than d. the salary of the entity the measurement of financial
an expense? president performance are:
d
a. never 1. Sales of merchandise to
b. always Which of the following principles customers
c. if the amount is material best describes the rationale for 2. Rendering of Services
d. when future benefit exists matching distribution costs and 3. Use of entity resources
4. Disposal of resources other than preventing others from obtaining the basis of shared or similar
products the economic benefits from the characteristics
Sources of Income asset
Income
Equity Statement of Retained Earnings increases in assets or decrease in
Residual interest in the assets of shows the changes in retained liabilities that result in increase in
an entity that remains after earnings of an entity over an equity, other tha. Those relating to
deducting its liabilities. accounting period contributions from equity holders

Distribution cost Liability Aggregation

Cost which are directly related to defined as a present obligation of Adding together of assets,
selling, advertising and delivery of an entity to transfer an economic liabilities, equity, incone and
good to customers resource as a result of past events expenses that have similar or
shared characteristics and are
Asset Statement of changes in equity included in the same classification
present economic resource Shows movements in the
controlled by the entity as a result elements or components of the Revenue
of past events shareholders' equity Arises in the course of the
ordinary regular activities abd is
Administrative Expenses 1. The entity has an obligatiob referred to by variety of different
Expenses incurred in the 2. The obligation is to transfer an names including sales, fees,
administration or general economic resource interest, dividends, royalties and
operations of the business. 3. The obligation is a present rent
obligation that exists as a result of
Economic Resource past event transaction approach
is a right that has the potential to Essential Characteristics of Liability Traditional preparation of an
produce economic benefits income statement
Statement of Cash Flows
Functional Presentation Financial statement that reports Regularity
Classifies expenses according to cash receipts and disbursements What is the essence of revenue?
their function as part of cogs, related to a firm's three major
distribution or administrative activities: operations, investments, Capital Maintenance approach
expense and financing. Means that the net incone occurs
onlynafter the capital used from
1. Asset is a present economic Obligation the beginning of the period is
resource Is a duty or responsibility tgat an maintained
2. The economic resource is a right entity has no physical ability to
that has the potential to produce avoid Gains
economic benefits Other items that meet the
3. The economic resource is Preseneand Disclosure definition of income and do not
controlled by the entity as a result Can be effective communication arise in the course of the ordinary
of past events tool about the information in regular activities
Essential Characteristics of Asset financial statements
Net income
Natural Expense Constructive Obligations Amount an entity can distreto its
Expenses are aggregated Arise from normal business owners and be as 'well-off' at the
according to their nature and not practice, custom, and a desire to end of the years as at the
allocated among the various maintain good business relations beginning
functions within an entity or act in an equitable manner
Gains
Control Classification Incluse the gain from disposal of
Ability to prevent others from Is sorting of assets, liabilities, noncurrent assets, unrealized gain
using such asset and therefore equity, income and expenses on
on trading investment and gain Arise in the course of the ordinary The basic principle of income
fron expropriation regular activities including cost of recognition
goods sold, wages, and
Return on capital depreciation 1. Statement of Financial position
Amount in excess of their original 2. Income Statement
investment productive assets 3. Statement of Comprehensive
Include inventories, property, income
Statement of Financial plant and equipment 4. Statement of changes in equity
Performance 5. Statement of Cash Flows
Refers to the statement of profit Lossses 6. Notes, compromising a
and loss and a statement Do not arise in the course of the summary of significant accounting
presenting other comprehensive ordinary regular activities and policies, and other explanatory
income include losses resulting from notes
disasters Components of Financial
Return of capital Statements or Complete Set of
Erosion of capital invested in the Financial statements Financial Statements
entity Are the means by which the
information accumulated and Only items that meet the
Statement of Profit or Loss processed in financial accounting definition of assets, liabilities and
Primary source of information is periodically communicated to equity
about an entity's financial the users What are the items recognized in
performance the statement of financial position
recognition
Financial capital Process of capruring for inclusion Objective of financial statements
Is the monetary amount of the net in the financial statements an item to "provide financial information
assets contributed by that meets the definition of an about the financial position,
shareholders and the amount of asset, liability, equity, income or financial performance, and cash
the increase in net assets resulting expense flow of a reporting entity that is
form earnings retained by the useful to present and potential
entity Financial Statements equity investors, lenders and
End product or main output of creditors in decisions about
Expense financial accounting process providing resources to the entity"
Decrease in assets or increase in
liabilities that result in the carrying amount Only items that meet the
decrease in equity, other than The amount at which an asset or definition of income and expense
those relating to the distributions liability or equity is recognized in What are the items recognized in
to equity holders the statement in the statement of the statement of financial
financial position and is is valued performance
Net assets according to accounting principles.
total assets - total liabilities Curent and Noncurrenr assets
General purpose financial Classification of assets
Expenses statements
Encompasses losses as well as Simole referred to as financial Expenses are recognized when
those expenses that are in the statements, are those intended to incurred
course of the ordinary regular meet the needs of users who are The basic principle of expense
activities not in a position to require an recognition
entity to prepare reports tailored
physical capital to their particular information Operating Cycle
Quantitative measure of the needs. Time between the acquisition of
physical productive capacity to assets for processing and their
produce goods and services Income shall be recognized when realization in cash or cash
earned equivalents
Expenses
Matching Principle 3. Trade and other receivables An asset held by an entity for the
requires that expenses be 4. Inventories accretion of wealth through
recorded when incurred in earning 5.Prepaid expenses capital distribution
revenue Line Items of Current Assets
Derecognition of asset
Current asset Systematic abd rational allocation Occurs when the entity losses
It is classified as Some costs are expensed by control of all or part of the asset
_______________________ when simply allocating them over the
the asset is cash or cash periods benefited intangible assets
equivalent Ex. Prepaid rent, depreciation Identifiable nonmonetary asset
without physical substance
1. Cause and effect association noncurrent assets
2. Systematic and rational An entity shall classify all other Derecognition of Liability
allocation assets not classified as current as Occurs when the entity no longer
3. Immediate Recognition ________________ has a present obligation for all or
3 applications of matching part of a liability
principle Immediate Recognition
The cost incurred is expensed Curent Liabilities
Current Asset outright because of uncertainty of It is classified as
It is classified as future economic bebefits or _______________________ when
_______________________ when difficulty of reliability associating the entity expects to settle the
the entity holds the asset fot the certain costs with future revenue liability within the entity's
purpose of trading Ex. Officers' salaries administrative operating cycle
exoenses and selling expenses,
Cause and effect association loss from disposal of a building or Measurement
Expense is recognized when the loss from sale of investments Quantifying in monetary terms the
revenue is already recognized elements in the financial
1. Property, Plant and Equipment statements
Current Asset 2. Long term investment
It is classified as 3. Intangible asset Current Liabilities
_______________________ when 4. Deferred tax assets It is classified as
the entity expects to realize the 5. Other noncurrent assets _______________________ when
asset eithin twelve months after Line items of Noncurrent Assets the entity holds the liability for the
the reporting period purpose of trading
Derecognition
Cause and effect association Removal of all part of a recognized Historical Cost of an asset
This is actually the 'strict matching asset or liability from the The cost incurred in acquiring or
concept' statement of financial position creating the asset comprising the
consideration paid plus
Current Asset Property, Plant, and Equipment transaction cost
It is classified as Are tangible assets which are held
_______________________ when by an entity for use in production Current Liabilities
the entity expects to realize the or supply of goods and services, It is classified as
asset or intends to se or consume and are expected to be used in _______________________ when
it within the entity's normal more than one period the liability is due to be settled
operating cycle within the 12 months after the
Derecognition reporting period
Cause and effect association Normally occurs when an item no
Commonly referred to as the longer meets the definition of an History cost of a liability
matching of cost and revenue asset or liability Consideration received to incur
the liability minus transaction cost
1. Cash and Cash Equivalents Investment
2. Financial assets at fair value Current Liabilities
It is classified as Covenants Asstes are shown on the left side
_______________________ when Restrictions on the borrower as to and liabilities and equity on the
the entity does not have an undertaking further borrowings, right side
unconditional right to defer the paying dividends
settlement of a liability for at least Income Statement
12 months after the reporting Fulfillment Value a financial statement that gives
period Is an exit price or exit value operating results or showing
financial performance for a
History Cost Owner's Equity specific period
Is the entry price or entry value to Term used in reporting the equity
acquire an asset or to incur a in proprietorship Results od operations
liability Financial performance is also
Currenr cost known as
1. Trade and other payables Is also based on the entry price or
2. Current Provisions entry value but reflects market Comprehensive Income
3. Short term borrowings conditions on measurement date Includes all changes in equity
4. Current portion of long term during the period, except those
debt partners' equity resulting from investments by
5. Current tax liability Term used in reporting the equity owners and distributions to
Line items of current Liabilities in partnership owners.

Fair value Stockholders' Equity Profit or Loss

The price that would be received Term used in reporting the equity the total of income less expenses,
to sell an asset or paid to transfer in corporation excluding the components of
a liability in an orderly transaction other comprehensive income
between market participants at Owners
the measurement date. holders of instruments classified Accounting Standard Council
as equity Define accounting as servuce
Line items for accounts payable, activity
notes payable, accrued interest Shareholders' Equity
Trade ans other payables total value of assets - total value American Institute of Certified
of liabilities in corporation Public Accountants
Value in Use Define accounting as an art of
The present value of the cash Notes to Financial Statements recording, classifyung,
flows that an entity expects to Provide narrative description or summarizing,
derive from the use of an asset disaggregation of items presented interpreting/communicating
and from the ultimate disposal in the financial statements and
information about items that do American Accounting Association
1. Noncurrent portion of long term not qualidy for recognition Define accounting as process of
debt identifying, measuring, and
2. Finance lease liability To provide the necessary communicating the financial
3. Deferred tax liability disclosures required by Phillipine informations to users
4. Long term obligations to Financial Reporting Standards
company officers What is the purpose of notes to To provide quantitative
5. Long term deferred revenue Financial Statements information that are financial
Line items for Noncurrent nature to be useful in making
Liabilities Report form economic decision
This formvsets forth the 3 sections Main Objective/ Purpose of
Fulfillment Value in a downward sequence of asset, Accounting
Is the present value of cash that liability, and equity
an entity expect to transfer in Analytical, Technical, Formal
paying or settling a liability Account form Three components of accounting
Identifying Assigning of peso amounts to
Analytical component accountable economic
transactions and events Accomplished by posting to the
Measuring ledger
Technical component Historical cost, current value
Two measurement bases of Ledger
Communicating accounting Group of accounts which are
Formal component systematically categorized into
Historical cost asset, liability, equity, revenue and
Identifying Original acquisition cost and most expense accounts
Process of recognition and non common measure of financial
recognition of accountable events transactions Summarizing
Preparation of financial
Accountable event Current value statements
Event has an effect on assets, Includes fair value, value in use,
liabilities, and equity fulfillment value and current cost Financial position, income
statement, comprehensive
Economic activities Fair value income, changes in owner's
Only emphasized and recognized Market value ewuity, cash flows, notes to
in accounting financial statement
Value in use Enumerate the financial
External, internal How much value na sa present statements
Economic activities or transactions
have two classification Current cost fulfillment value Information system
Liability Measures business activities,
External Transactions process formation unto reports
Economic events involving one Communicating and communicate it ti decision
entity and another entity Process of preparing and makers
distributing accounting reports to
PBSPP: Purchase of goods from potential users Financial statements
supplier, borrowing money from Key products of information
bank, sale of goods to customer, Communicating process system
payment of salaries to employees, Reason why accounting has been
payment of taxes to government called "universal of language of Financial reports
Examples of external transactions business" Tells us how well an entity is
performing in terms of profit and
Internal transactions Recording, classifying, loss and where ut stands in
Economic events invilving the summarizing financial terms
entity only Communication processes (3)
Decision-usefulness
Production, casualty loss Recording Essence of accounting
Examples of internal transactions Can be call as journalizing
Republic act no. 9298
Production Is the process of systematically Law regulating accountancy in PH
Process by which resources are maintaining record of all economic
transformed into products business transac after they have Philippine Accountancy Act of
been indentified and measure 2004
Casualty Name of republic act no. 9298
Any sudden and unanticipated loss Classifying
from fire, flood, earthquake, or Sorting or grouping of similar and Finish Degree of BSA, pass CPALE
any other act of God interrelated economic Requisites to qualify practice
transactions into their respective accountancy profession
Measuring classes
Board of Accountancy
Bodh authorized by law to Taxation Technical skills, competence of
promulgate rules and regulations Includes annual income tax CPA
affecting the practice of the returns and determination of tax Skills being enhanced by CPD
accountancy profession in PH consequences of certain proposed
business endeavors 15 CPD units
Board of Accountancy Units required for renewal of CPA
Responsible for preparing and Management Advisory services license
grading Philippine CPA exam Used to refer services to clients on
matters of accounting, finance, 120 CPD units
Noe G. Quiñanola business policies and many other Units required for accreditation
Chairman of BOA phases of business conduct
65 yrs old, newly passed, OFW
Public, Private, Governmen Management advisory services Exempted on CPD requirements
Areas to Practice Accountancy Advice on installation of vomputer
Profession (3) system, quality control, budgeting, Auditing
forward planning and forecasting Analytical. Examines financial
Board of Accountancy, Philippine etc statement to ascertain whether
Regulation Commission they are in conformity with GAAP
Accountants or passers must be Controller
registered in this two. the highest-ranking accountant in Bookkeeping
a company, responsible for Procedural, the how of accounting
3 years overseeing all accounting
Validity of certificate of functions Accounting
registration to practice public Is the conceptual. The why of
accountancy Government accounting accounting
Encompasses process of analyzing,
Public Accounting classifying, summarizing and Accountancy
Composed of individual communicating akl transac Refers to profession of accounting
practitioners, small accounting involving receipt and disposition practice
firms, large multinational of givernment funds and property
organizations that render Accounting
independent and expert financial Custody and administration of is used in reference only ti a
services to public public funds particular field of accountancy
Focus of government accounting such as public accounting and
Auditing, taxation, management government accounting
advisory services BIR, COA, DBM, SEC, BSP
kinds of services of public Government agencies Financial accounting
accounting (3) Concerned whth recording
Republict act no. 10912 business transac and eventual
Auditing Law mandating strengthening the preparation of financial
Primary servuce offered by public continuing professional statement. Intended for external
accounting practitioners development program for all and internal users
regulated profession including
External auditing accountancy profession Creditors, investors
Examination of financial statement Financial accounting is area of
by independent CPA for purpose Continuing Professional accounting that emphasizes
of expressing an opinion as to Development reporting to ____ and ____
fairness with which FS are The means by which members of a
prepared profession maintain, improve, and Managerial accounting
broaden the knowledge, skills, and Accumulation and preparation of
Attest function of independent competence required in their FS for internal users only
CPA's professional lives.
Managerial accounting Financial Reporting Standards Boa, sec, bsp, bir, coa, Finex,
Acoiunting information within the Council public practice, commerce,
entity New name of Accounting academe, government
Standards Council 14 representatives of FRSC
GAAP
Principles have developed basus Financial Reporting Standards Philippine interpretations
of experience, reason, custom, Council committee
usage, practical necessity Accounting standard setting body New name of interpretations
created by PRC committee
GAAP
Represent rules, procedures, Republic act no. 9298 Philippine Interpretations
practice, standards dollowed in Law for accountancy Committee
preparation and presentation of Prepare interpretation on PFRS
FS Main function of FRSC assist FREC in interpreting
Establish and improve acctng standards
Laws standards that will be generally
GAAP are like _____ to be accepted in PH International accounting
followed standards board
Accounting standards Uniformity of accounting principle
Political process Promulgated by FRSC constitute around the world.
The process of establishing GAAP highest hierarchy of GAAP
Objectives: formulate and phblish
Accounting standards Philippine Accounting Standards accoutning standard,
Create Common understanding PAS, Philippine Financial Reporting improvement and harmonization
between preparers and users of FS Standards PFRS of regulation
Two approved statements of
Accounting standards council Financial Reporting Standards
Formalized GAAP Council