Fundamentals of Accountancy, Business and Management 1

Complete Accounting Process

Pre-Test

Directions: Choose the letter of the best answer

1. Identify which of the processes of selecting economic events is relevant to a particular

business transaction?
a. Identifying b. Recording c. Classifying d. Interpreting
2. Based on the following statements formulate which conclusion you will draw?
Statement 1: Cash Paid for expenses still to be incurred is recognized as expense
under the accrual under the accrual method of accounting
Statement 2: Going concern assumes that financial statements are prepared only
once at the end of the economic life of the entity.
a. Statement 1 is incorrect because expenses paid should be recognized upon
payment
b. Statement 1 is correct since it explains the recognition of expense using the
accrual method of accounting
c. Statement 2 is incorrect because financial statements is to be prepared twice
during the economic life of the entity
d. Statement 1 is incorrect because expenses are only recognized when it is
incurred under accrual method of accounting.
3. Based on the following statements formulate the conclusion you can make?
Statement 1: The owner of Linis Bango Laundry Shop bought a residential dwelling
for his parents. The cost of the house is recorded as property of the
business
Statement 2: Accountants must use their judgment to record transactions that
require estimation. Conservatism principle should be applied by the
accountants in exercising judgment.
a. Statement 1 and Statement 2 is correct
b. Statement 1 is incorrect because it violates the matching principle
c. Statement 1 is correct because the asset bought is recorded at cost.
d. Statement 2 is correct since it applies the conservatism principle correctly
4. Identify which of the following derivations is least consistent with the basic accounting
equation?
a. Liabilities equal owner’s equity less assets
b. Assets less liabilities equal owner’s equity
c. Owner’s equity equal assets less liabilities
d. Liabilities equal assets less owner’s equity
5. Applying the concept of double-entry accounting system, choose which of the following best
refers to the term “debit”?
a. Decrease c. Increase
b. Left side of the entry d. Right side of the entry
6. Assess which of the following will cause owner’s equity to increase?
a. Purchase of additional asserts from existing cash of the business
b. Revenues are more that expenses
c. Revenues are less than expenses
d. Withdrawal made by the owner
7. Interpret the result of debiting an assets account with a normal debit balance?
a. Neither an increase nor decrease in the liability account
b. Either an increase or decrease in the liability account
c. An increase in liability account
d. A decrease in the liability account
8. Interpret which of the combination below will decrease owner’s equity?
 a. Additional contributions made by the owner and expenses incurred
b. Withdrawals made by the owner and revenue earned
c. Expenses incurred and withdrawals made by the owner
d. Revenues earned and expenses incurred
9. The company purchased equipment on account. What can you generate about the effect of
this transaction to the accounting equation?
a. There is a decrease in assets and increase in liabilities
b. There is an increase in liabilities only.
c. There is an increase in assets only
d. There is an increase in both assets and liabilities.
10. Using the accounting equation, generate the value of asset if total liabilities is 55,000.00,
Beginning Capital is 45,000.00 and Net Income is 25,000.00.
a. 100,000.00 b. 70,000.00 c. 80,000.00 d. 125,000.00
11. Infer which of the following account do not have debit normal balances?
a. Allowance for doubtful accounts c. Salaries Expense
b. Prepaid Expenses d. Building
12. Upon initial investment of cash by owner, choose which major account will be affected?
a. Assets and liabilities c. Owner’s equity only
b. Assets and owner’s equity d. Assets only
13. Point out what do withdrawals made by the owners are always affected?
a. Liabilities and owner’s equity accounts c. Only Owner’s equity account
b. Both assets and Owner’s equity accounts d. Only the asset Account
14. Appraise what will be the result of pre-payment of rent expense?
a. An increase in total expense c. no change in total assets
b. An increase in total assets d. a decrease in total assets
15. Judge what will be the effect of payment made by the owner to his present obligation?
a. An increase in asset account and decrease in owner’s equity account
b. An increase in liability account and decrease in assets account
c. A decrease in asset account and decrease in a liability account
d. A decrease in asset and decrease in owner’s equity account
16. Express the effect of the purchase of office equipment on account?
a. Increase in assets = Decrease in other assets
b. Increase in assets = Decrease in Capital
c. Decrease in Assets = Decrease in Liabilities
d. Increase in assets=Increase in accounts payable
17. Generate the entry when the business owner withdrew 15,500.00 from his business?
a. Debit to cash, credit to withdrawals
b. Debit to capital, credit to cash
c. Debit to capital and cash
d. Debit to withdrawals, credit to cash
18. Identify which of the following is the most liquid assets and is the medium of exchange for
business transactions?
a. Cash c. Trading Securities
b. Inventories d. Capital
19. Infer what is the obligation of the company that is payable in money, goods, or services.
a. Liabilities b. Borrowings c. Payables d. Loans
20. Select Which of the following is not a revenue account?
a. Professional fees b. Cost of Sales c. Interest Income d. Sales
21. Choose which of the following is least likely an expense account?
a. Taxes and licenses c. Supplies expense
b. Prepaid utilities expense d. Wages expense
22. Point out which of the following is a non-business transaction?
a. Payment of advance salary to an employee just hired.
b. Setting up of chart of account
c. Payment of rent advance
 d. Receipt of electricity bill
23. Choose which account is to be credited in expired insurance?
a. Insurance Payable b. Insurance Expense c. Prepaid Insurance d. Cash
24. Assess which account to be credited and debited in payment of utilities expense?
a. Debit cash and credit to utilities expenses
b. Debit to Accounts Payable and credit to utilities expense
c. Debit to Utilities Expense and credit to cash
d. None of the above
25. Assess what accounts are affected in billing a customer for services rendered.
a. An increase in accounts payable and increase in revenue
b. An increase in cash and increase in revenue
c. An increase in accounts receivable and increase in revenue
d. An increase in cash and decrease in revenue
26. Judge what accounts are to be credited and debited when the owner received cash from
customers on account.
a. Debit accounts receivable and credit to cash
b. Debit to cash and credit to accounts payable
c. Debit to cash and credit to accounts receivable
d. Debit to asset and credit to liabilities
27. Assess which among the set has a correct combination of accounts
A b c d
Accumulated Unearned Revenue Prepaid Utilities Prepaid Utilities
Depreciation
Unearned Revenue Prepaid Utilities Inventories Unearned Revenue
Prepaid Utilities Doubtful Accounts Unused Supplies Accumulated
Expense Depreciation

28. Happy Selling Company’s total liabilities amounted Php 10,000. Total equity had an ending
balance of Php 20,000. Generate how much is to be appraised as total assets?
a. 0 b. 10,000.00 c. 20,000.00 d. 30,000.00
29. The Company’s Total Liabilities and Equity amounted to Php 285,000. Total noncurrent
assets ended at Php 85,000. Cash totaled Php50,000. Inventory amounted to Php100,000.
Assuming the company had no other assets, generate how much is the Accounts
Receivables?
a. 35,000.00 b. 53,000.00 c. 68,000.00 d. 50,000.00

30. Mr. Buke Keeper is asked to prepare a Statement of Financial Position using the following
accounts (one in report form and one in account form): Cash – 5,000 Loans Payable –
77,500 Accounts Receivable – 2,600 Supplies – 2,300 Equipment – 17,000 Owner’s equity –
40,000 Accounts Payable – 22,400 Building – 113,000. Generate how much is the Total
Assets, Total Liabilities and Equity?
a. Total Assets = 193,900.00, Total Liabilities = 77,500.00, Total Owner’s Equity =
40,000.00
b. Total Assets = 199,900.00, Total Liabilities = 99,900.00, Total Owner’s Equity =
40,000.00
c. Total Assets = 139,900.00, Total Liabilities = 99,900.00, Total Owner’s Equity =
40,000.00
d. Total Assets = 139,900.00, Total Liabilities = 77,500.00, Total Owner’s Equity =
40,000.00
31. If a resource has been consumed but the invoice has not yet been received so that the
account is unpaid at the end of the accounting period, then
a. It is optional whether to record the expense before or after the invoice is receive.
b. An expense should be recorded when the invoice is received
 c. An expense should be recorded when the cash is paid out.
d. An adjusting entry should be made to recognize the expense.
32. What is the effect if a law office received 200,000 cash for legal services to be rendered in
the future? The full amount was credited to the liability account Unearned Legal Fees. If
the legal services have been performed at the end of the accounting period and no adjusting
entry is made.
a. Liabilities to be understated
b. Expense to be overstated.
c. Revenue to be understated.
d. Income to be overstated
33. What happened if no adjustment is made for unearned revenue?
a. Liability is overstated and the related revenue account is understated.
b. Liability is understated and related revenue account is overstated.
c. Liability and related revenue accounts are both understated.
d. Liability and related revenue accounts are both overstated.
34. Which of this reflects the situation if a prepayment account is not adjusted for the expense
consumed?
a. The prepayment account is understated and net income is understated.
b. The prepayment account is overstated and net income is overstated.
c. The prepayment account is understated, and net income is overstated.
d. The prepayment account is overstated and net income is understated.
35. Which of the following is true about depreciation?
a. Depreciation is the process of allocating the cost of an asset to expense over its
useful life in a systematic manner.
b. Depreciation is the process of increasing the value of an asset over its useful life
in a systematic manner.
c. Writing down an asset to its real value each accounting period.
d. Valuing an asset at its fair market value.
36. Which of the following is not an example of an error?
a. A transaction is completely omitted
b. A correct journal entry is not posted
c. Incorrect account titles are used in journalizing
d. None of the above
37. What is the revenue that have been earned but not yet collected?
a. Accrued Revenues c. Earned Revenue
b. b. Service Revenue d. All of the above
38. What is the expense that already incurred but not yet paid?
a. Accrued Expenses c. Interest Expenses
b. b. Prepaid Rent d. None of the above
39. Which account is to be debited in adjusting consumed supplies?
a. Supplies c. Cash
b. Supplies Expense d. Accounts Payable
40. Which account is to be credited in adjusting consumed supplies?
a. Supplies c. Cash
b. Supplies Expense d. Accounts Payable

Test II. On April 1, 2016, Mar Cruz, a lawyer, opened his own legal practice. The business
adjusts and closes its accounts at the end of each month. The following trial balance was
prepared after one month of operations.

Unadjusted Trial Balance

Account Title and Explanation Debit Credit
Cash 10,060.00
Accounts Receivable 0
 Supplies 1,460.00
Office Equipment 26,400.00
Accumulated Depreciation - Office Equipment 0
Notes Payable 16,000.00
Interest Payable 0.00
Unearned Service Revenue 15,020.00
Cruz, Capital 20,000.00
Cruz, Withdrawal 3,000.00
Service Revenue 1,580.00
Supplies Expense 2,680.00
Salaries Expense 1,200.00
Total 52,600.00 52,600.00

More information:
• No interest has yet been paid on the note payable. Accrued interest at April 30 amounts
to 200.00.
• Salaries earned by the office staff but not yet recorded or paid amounted to 970.00 by
April 30.
• Many clients are asked to make advance payment for legal services to be rendered in
future months. These advances are credited to the Unearned Service Revenue account
once received. During April, 5,020 of these advances were earned by
the business.
• Office supplies on hand by April 30 amounted to 400.00. • The office equipment was
purchased on April 1 and is being depreciated over an estimated useful life of 10 years
with no residual value.

Instructions:
a. Prepare the adjusting entries for April 30.
b. Prepare the 10-column Work Sheet
c. Prepare the Financial Statements
d. Prepare closing entries
e. Prepare Post-Closing Trial Balance

Rubrics for Scoring:

SCORE(per 1 point each (for debit, credit, 0 point

transaction) explanation)

The student recorded correctly The student recorded

the appropriate account title erroneously the appropriate
Debit and account title and/or its
its corresponding amount in the corresponding amount in the
debit account. debit account.

The student recorded correctly The student recorded

the appropriate account title erroneously the appropriate
Credit and account title and/or its
its corresponding amount in the corresponding amount in the
credit account. credit account.

Explanation The student wrote an The student wrote an

explanation explanation which did not
which really describe the describe the transaction, or no
transaction clearly explanation at all.