REVIEWER

Basic Accounting

Name: ___________________________________________ Section________________ Score: ______________

Time Started: ______________
Time Finished: _____________

MULTIPLE CHOICE. Read and understand each sentence carefully. Write on a separate sheet (1 whole) the letter
corresponding your answer.
1. Accounting is a service activity. Its function is to provide______________.
a. quantitative information
b. qualitative information
c. quantitative and qualitative information
d. none of the above
2. The basic purpose of accounting is _____________.
a. to provide the information that the managers of an economic entity need to control its operations
b. to provide information that the creditors of an economic entity can use in deciding whether to make
additional loans to the entity
c. to measure the periodic income of the economic entity
d. to provide quantitative financial information about a business enterprise that is useful in making rational
economic decision
3. The following are the functions of accounting in business, EXCEPT:
a. To fulfil the stewardship function of the management.
b. To help interested users come up with informed decision.
c. To support daily operations of the business.
d. None of the above
4. Which between the two statements is correct?
Statement 1: Accounting facilitates the smooth flow of information in and out of the business.
Statement 2: Accounting supports daily operations of the business.
a. Only Statement 1 is correct.
b. Only Statement 2 is correct.
c. Both statements are correct.
d. Neither statement is correct.
5. Who is the father of double entry accounting system?
a. Henry Fayol
b. Newton
c. Fra Luca Bartolomeo de Pacioli
d. Albert Einstein
6. This is the period where the father of modern accounting wrote his book, “Summa de Arithmetica, Geometria,
Proportioni et Proportionalita” (Summary of Arithmetic, Geometry, Proportions and Proportionality) that
introduced the double entry accounting system.
a. 1700
b. 1494
c. 1973
d. 1913
7. Which area of public accounting is the examination of financial statements by a CPA for the purpose of
expressing an opinion as to the fairness of the statements?
a. Management Advisory Services
b. Taxation
c. Internal Auditing
d. External Auditing

8. Management accounting is the area of accounting that emphasises______________.

a. combining accounting knowledge with an expertise in data processing
b. developing accounting information for use within a company

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 c. reporting to the Securities and Exchange Commission (SEC)
d. reporting financial information to external users
9. Financial Accounting is the area of accounting that emphasises reporting to__________.
a. creditors and investors
b. regulatory bodies
c. internal auditors
d. management
10. This business organization owned and operated by two or more persons who bind themselves to contribute
money, property, or industry to a common fund, with the intention of dividing the profits among themselves.
a. Sole Proprietorship
b. Partnership
c. Corporation
d. Cooperative
11. All of the following statements describe a corporation, EXCEPT:
a. A corporation is subject to greater government regulation.
b. Changes in ownership do not terminate the corporation.
c. Shareholders are owners of a stock corporation.
d. Owners have unlimited liability.
12. Which of the following is NOT a characteristic of a cooperative?
a. Names of directors who shall manage the cooperative must be included in the articles of cooperation.
b. Members can become a part of the cooperative by purchasing shares.
c. It can be either incorporated or unincorporated.
d. Organized by at least five (5) members.
13. Which of the following best describes the attributes of a partnership?
a. Limited ability to raise capital; unlimited personal liability of owners.
b. Limited ability to raise capital; limited personal liability of owners.
c. Ability to raise a large capital; unlimited personal liability of owners.
d. Ability to raise large amounts of capital; limited personal liability of owners.
14. Which of the following is TRUE?
a. Stockholders are personally liable for the liabilities of the corporation if the company is unable to pay.
b. Normally, stockholders can only sell their ownership interests when the corporation terminates.
c. Partners are personally liable for the liabilities of the partnership if the partnership is unable to pay.
d. Partners can normally transfer their partnership interests with ease.
15. Which of the following is TRUE?
a. Manufacturing companies buy raw material, convert them into products and then sell the products to other
companies or to final consumers.
b. A trading or merchandising business is engaged in selling services to customers for a fee.
c. The three types of business activities are sole proprietorship, partnership, and corporation.
d. A fashion boutique is an example of manufacturing business.
16. The following are the advantages of service business, EXCEPT:
a. No need for inventory.
b. Less demand during economic downturns.
c. Able to adapt the changing needs of their customers.
d. Skills can be improved.
17. Which of the following statements is NOT TRUE?
a. The four qualitative characteristics of accounting information are relevance, reliability, comparability and
consistency.
b. Accounting information is considered reliable if it is free from bias and error.
c. GAAP is a widely accepted set of rules, concepts and principles that govern the application of the accounting
procedures.
d. Materiality principle states that the requirements of any accounting principles may be ignored when there is
an effect to the users of financial information.
18. The records of properties acquired and services availed by a business are maintained in accordance with the
_________.
a. business entity concept
b. cost principle
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 c. proprietorship principle
d. matching principle
19. Financial statements combining the operations of the business and its owner would violate the___________.
a. monetary unit assumption
b. cost principle
c. economic entity assumption
d. ownership assumption

20. The General Journal includes the following information, EXCEPT

a. the title General Journal
b. page number
c. invoice number
d. reference column
21. The Sales Journal typically includes the following information, EXCEPT
a. Invoice number
b. Name of the customer
c. Name of the supplier
d. A special money column for Accounts Receivable/Sales
22. Which between the two statements is correct?
Statement 1: The General Ledger is used to accumulate and classify individual transactions from the Unadjusted
Trial Balance.
Statement 2: Debit information is listed on the left side, while credit information is listed on the right side.
a. Only Statement 1 is correct.
b. Only Statement 2 is correct.
c. Both statements are correct.
d. Neither statement is correct.
23. A typical subsidiary ledger includes the following information, EXCEPT
a. the related control account
b. name of the customer/ supplier
c. items column
d. name of the financial statement
24. The following are example of business transactions, EXCPECT
a. Hiring of office staff
b. Purchase of office supplies.
c. Rendition of service
d. Payment of liabilities
25. Which of the following events would NOT be considered an accounting transactions?
a. Payment of fees to a tax consultant.
b. Purchase of print advertising space for a new service.
c. Tabulation of the results of a customer satisfaction survey.
d. Sales of a new product during the first month of operations.
26. The common business documents are the following, EXCEPT
a. School Matriculation Form
b. Official Receipts
c. Billing Statements
d. Deposit Slips
27. Which between the two statements is correct?
Statement 1: Business and non-business transactions should be recorded in the journal.
Statement 2: In transaction analysis, determining the amount to be credited or debited is needed.
a. Only Statement 1 is correct.
b. Only Statement 2 is correct.
c. Both statements are correct.
d. Neither statement is correct.
28. Which is FALSE concerning the rules of debit and credit?
a. The left side of an account is always the debit side and the right side is always the credit side.
b. The word “debit” means to increase and the word “credit” means to decrease.
c. Increases in assets and expenses are debit entries, and increases in liabilities, equity, and revenue are credit

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 entries.
d. The normal balance of any account appears on the side for recording increases.
29. Debits ___________________.
a. increase assets and decrease expenses, liabilities, revenue, and owner’s equity.
b. increase assets and owner’s equity and decrease liabilities, expenses, and revenue.
c. increase assets and expenses and decrease liabilities, revenue, and owner’s equity.
d. decrease assets and expenses and increase liabilities, revenue, and owner’s equity.
30. The purchase of a service vehicle on account_______________.
a. will increase asset and increase a liability
b. will increase asset and decrease liability
c. will decrease equity
d. will decrease asset and decrease liability
31. When cash is debited, a typical credit is to_________________.
a. Accounts payable
b. Accounts receivable
c. Expenses
d. Withdrawals
32. When rent is prepaid for several months in advance, the debit is to_______________.
a. an income account
b. an asset account
c. a capital account
d. a liability account
33. When payment is made to a supplier for goods previously purchased on account, the debit is to____________.
a. an asset account
b. a liability account
c. a capital account
d. an expense account
34. Which of the following transactions correctly maintains the equality in the accounting equation?
a. To record collections on account, cash and account receivable are increased by ₱ 160, 000.
b. To record the purchase of computer equipment, computer equipment is increased and cash is decreased by
₱ 46, 000.
c. To record payment of notes, notes payable is decreased and cash is increased by ₱ 70, 000.
d. To record payment of rent, rent expense and cash are increased by ₱ 8, 000.
35. Debits to expense accounts signify____________.
a. increases in capital
b. increases in assets
c. decreases in capital
d. increases in liabilities
36. The following are service business transactions, EXCEPT
a. Billed customers for cleaning services rendered.
b. Paid for accounting and tax books for use in the practice.
c. Purchased merchandise on account.
d. Owner withdrew from the business.
37. Which of the following is a business event that is NOT considered a recordable transaction?
a. A company receives a product previously ordered.
b. A company pays an employee for work performed.
c. A customer inquires about the availability of a service.
d. A customer purchases a service.
38. A journal entry that contains more than two accounts is called____________.
a. a compound journal entry
b. a posted journal entry
c. an adjusting journal entry
d. an erroneous journal entry
39. Mr. Cruz commenced business investing his furniture worth ₱ 21,000, a car valued at ₱ 530,000 and ₱148,000 in
cash. The journal entry for recording this would require:
a. No journal entries
b. Debit in the three asset accounts, including cash and a credit in the Capital Account
c. Debit in the two asset accounts other than cash and a credit in the Capital Account
d. Debit in the cash Account and credit in the Capital Account
40. Which of the following statements about the general journal is true?
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 a. Provides a chronological record of the company’s transactions.
b. Involves the transferring of journal entries to the ledger accounts.
c. Displays the transactions’ date, account title and explanations, and outstanding balance of each accounts.
d. None of the above
41. What function do accounting journals serve in the accounting process?
a. classifying
b. summarizing
c. recording
d. reporting
42. The receipt of cash from customers to whom the service have already been delivered on credit would be
recorded by a:
a. debit to cash account and credit to accounts payable account
b. debit to cash account and credit to accounts receivable account
c. debit to accounts payable account and credit to cash account
d. debit to accounts receivable account and credit to cash account
43. Decrease in asset may
a. Decrease another asset.
b. Decrease liabilities.
c. Increase capital.
d. Increase liabilities.
44. When the proprietor withdraws cash or other assets, the withdrawal account is
a. debited.
b. credited.
c. debited and credited.
d. not affected
45. When an entity pays employees for their services, the effect is an increase in
a. expenses.
b. assets.
c. income.
d. liabilities.
46. When an entity receives cash for services performed,
a. an asset is decreased.
b. the owner’s equity is increased.
c. the owner’s equity is decreased.
d. total assets remain unchanged.
47. This account records long-term debt of the business entity for which it has pledged certain assets as security.
a. Mortgage payable
b. Bonds payable
c. Notes payable
d. Accounts payable
48. A credit entry decreases the balance of
a. owner’s equity.
b. assets.
c. income.
d. liabilities.
49. Which of the following is not subject to depreciation?
a. building
b. land
c. equipment
d. machinery
50. The expectation of a future payment from a customer for goods sold is
a. a prepaid expense.
b. a notes receivable.
c. an accounts receivable.
d. All of the above

IDENTIFICATION
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 A. The following are users of financial statements. Identify if the users mentioned below is EXTERNAL or INTERNAL.
1. Customers
2. Labor unions
3. Factory Manager
4. Investors
5. Suppliers
B. Identify what kind of stakeholder is being referred to. Choose from the items below.
A. Owners F. Management
B. Creditors G. suppliers
C. Potential inventors H. Bureau of internal Revenue
D. Employees I. Public
E. Regulatory bodies J. Customers
1. They need information to help them decide whether they should invest or not in the business.
2. They assess the capability of the business to pay its obligation including the related interest on maturity
date.
3. They are interested to know whether the business will continue to honor its product warranties.
4. They use the financial statements of their customers to determine whether the debts owed to them will be
paid when due.
5. They need to determine the correctness of the tax returns filed by the company.
6. They are ensuring that the company’s disclosure of accounting information is in accordance with rules and
regulations.
7. They use the financial information to know how the business affects the economy possible, prospects for
employment, and/or for educational and research purposes.
8. They plan, organize and run a business.
9. They assess the company’s profitability and stability, and their consequence on the future salary and job
security.
10. They need accounting information to help them decide whether they should withdraw or increase their
investment.

C. Classify the words in the box by writing them under assets, liabilities, owner’s equity, revenues, and expenses.

Cash Advances to employees Prepaid Expenses

Interest Income Sales Accumulated Depreciation
Unused supplies Cost of Sales Utilities Expense
Advances from customers Building Accounts Payable

Assets Liabilities Owner’s Equity Revenues Expenses

PROBLEM SOLVING.
A. Compute the amount of the missing element of financial position.
1. A pest control company has assets of P 600, 000 and owner’s equity of P 450, 000.
2. A real estate agency has liabilities of P 530, 000 and owner’s equity of P 410, 000.
3. A plumbing contractor has assets of P 473, 000 and liabilities of P 153, 700.
4. An aerobics company has liabilities of P 147, 000 and owner’s equity of P 236, 000.
5. A movie theatre has assets of P 624, 000 and liabilities of P 237, 000.
B. Use the accounting equation to answer each of the questions below. Show your solution. 2 points each.
1. At the beginning of the year, the assets of Solis Services was P 360, 000 and its owner’s equity was P 200,
000. During the year, assets increased by P 120, 000 and liabilities increased by P 20, 000. What was the
owner’s equity at the end of the year?

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 2. The liabilities of Pagal Company equal one-third of the total assets, and the owner’s equity is P 240, 000.
What is the amount of the liabilities?
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