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1. When a customer’s account is collected in full –

a. total assets increases c. total assets remained the same
b. total assets decreases d. none of these

2. Sales returns & allowances and sales discounts are both reduction from sales account. What is the normal
balance of Sales account?
a. debit balance c. debit and credit balance
b. credit balance d. none of these

3. Purchase returns & allowances and Purchase discounts are both reduction from purchase account. What is
the normal balance of the account “Purchases”?
a. debit balance c. debit and credit balance
b. credit balance d. none of these

4. Freight out is recorded in the book of the business-seller-

a. as an expense c. as a liability
b. as an asset d. as cost of sale

5. Freight in is recorded in the business as forming part of –

a. cost of sale c. expense
b. asset d. none of these

6. Purchase discounts and Sales discounts are termed both for –

a. trade discount c. discount term
b. cash discounts d. none of these

7. A physical inventory count is usually conducted –

a. at the end of the year c. at the middle of the year
b. at the beginning of the year d. none of the above

8. A merchandising business which has started its operation, most likely does not have –
a. license to operate c. books of account
b. merchandise inventory, beg d. purchase

9. The following discounts are usually recorded in the journal and posted to the ledger, except:
a. trade discount c. purchase discount
b. cash discount d. discount due to defect of products

10. All descriptions reveal the characteristics the characteristics of a periodic inventory system, except:
a. cost of goods sold is determined at the end of the period
b. purchases are recorded at cost
c. Inventory record is always up-to-date
d. Merchandise inventory account is set-up at the beginning and ending of accounting period
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11. Which of the following will increase the gross profit of the merchandising business?
a. Increase in purchase discount
b. Increase in freight-in
c. Decrease in freight-in
d. Decrease in purchase return

12. Which of the following is to be included in the inventory of the seller?

a. Goods in transit sold under FOB destination
b. Goods in transit sold under FOB shipping point
c. Both a & b
d. None of the choices

13. Which of the following statements is/are false?

I. The income summary account will appear on the post-closing trial balance.
II. All nominal accounts must be closed before the Income Summary account can be closed.
III. To simplify the recording of regular transactions in the next accounting period, all adjusting
journal entries are reversed.
IV. The adjusting entries involving Rent receivable and Salaries Payable could be reversed.
V. An expense account is closed with a debit to the expense account and a credit to income summary.

a. I and II only c. II,III and V only d. none of these

b. I,III and V only d. III, IV and V only

14. Which of the following statements is/are true?

I. Temporary accounts are also known as real accounts
II. Permanent account balances are reduced to zero by closing entries.
III. A reversing entry will include either a debit to a revenue account or a credit to an expense account
IV. Reversing entries are made to correct errors in the accounts.
V. After all closing entries have been entered and posted, the balance of the Income Summary account
will be zero.

a. III, IV and V only c. IV and V only e. II and III only

b. V only d. III and V only

15. Which of the following statements is/are not false?

I. The adjusting entries involving Depreciation Expense-Building and Supplies Expense could be
reversed
II. The post-closing trial balance contains asset, liability, withdrawal and capital accounts.
III. The final trial balance is called a post-closing trial balance.
IV. Reversing entries are all dated as at the first day of the new accounting period.
V. A revenue account is closed with a credit to the revenue account and a debit to Income summary.

a. III, IV & V only c. II, IV and V only e. III only

b. II and III only d. III and IV only
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16. Each of the following companies is a merchandising entity except a

a. Candy Store b. Car wash c. Furniture Store d. wholesale parts entity

17. Under the perpetual inventory system, in addition to making the entry to record a sale, an entity would
a. debit to Cost of Sale and credit Merchandise Inventory
b. debit to Cost of Sale and credit Purchases
c. debit to Merchandise Inventory and credit Cost of Sale
d. make no additional entry until the end of the period

18. Under the perpetual inventory system, in addition to making the entry to record a sale return, an entity
would
a. debit to Cost of Sale and credit Merchandise Inventory
b. debit to Cost of Sale and credit Purchases
c. debit to Merchandise Inventory and credit Cost of Sale
d. make no additional entry until the end of the period

19. All are methods used in recognizing doubtful accounts expense, except;
a. Aging of Accounts Receivable Method
b. Percentage of Accounts receivable method
c. Percentage of sales method
d. Aging of Sales method

20. When the allowance method of recognizing uncollectible accounts is used, the entry to record the writeoff
of a specific account would
a. Decrease both accounts receivable and the allowance for doubtful accounts
b. Decrease accounts receivable and increase the allowance for doubtful accounts
c. Increase the allowance for doubtful accounts and decrease net income
d. Decrease both accounts receivable and net income
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1. The accounting concept states that for every change in financial transaction, there would always be two-
sided effect to the extent of the same amount recorded in the books of accounts.
a. Debits and credit sides c. Double-entry system
b. Dual aspect concept d. T-account
2. Which of the following is not a correct accounting equation?
a. A – L = OE b. A = L + OE c. L = A –OE d. L – OE = A
3. Which of the following is correct?
Debit Credit
a. Increase in asset Yes
b. Decrease in Liabilities Yes
c. Increase in revenue Yes
d. Decrease in Owner’s Equity Yes
4. Which of the following will decrease the capital account?
a. Initial Investment b. Net Income c. Purchase of Merchandise d. Expenses
5. All of the following describe accounting, except
a. A service activity
b. An information system
c. A universal language of business
d. An exact science rather than an art
6. The communicating process of accounting includes all of the following, except
a. Recording b. Classifying c. Summarizing d. Interpreting
7. What is the overall objective of accounting?
a. To provide information that the managers of an economic entity need to control the operations
b. To provide information that the creditors can use in deciding whether to grant loans to an entity
c. To measure the periodic income of the economic entity
d. To provide quantitative financial information about an entity that is useful in making
economic decision
8. What is the law regulating the practice of accountancy in the Philippines?
a. R.A. No. 9298 b. R.A. No. 9198 c. R.A. No. 9928 d. R.A. No.
9892
9. What is the body authorized by law to promulgate rules and regulations affecting the practice of the
accounting profession in the Philippines?
a. Board of Accountancy
b. Philippine Institute of Certified Public Accountants
c. Securities and Exchange Commission
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d. Financial Reporting Standards Council

10. What is the standard setting body in the Philippines at the present time?
a. Accounting Standards Council
b. Auditing and Assurance Standards Council
c. Philippine Accounting Standards Board
d. Financial Reporting Standards Council
11. The International Accounting Standards Board was formed
a. To enforce IFRS in foreign countries
b. To develop a single set of highly quality IFRS
c. To establish accounting standards for multinational entities
d. To develop accounting standards for countries that do not have their own standard-setting bodies
12. The standards published by IASB are called
a. International Accounting Standards
b. Financial reporting standards
c. International Financial Reporting Standards
d. Statement of Financial Accounting Standards
13. Which statement is true concerning the Conceptual Framework for Financial Reporting?
a. The Conceptual Framework is not a reporting standard and does not define standard for any
particular measurement or disclosure issue
b. The conceptual framework is concerned with general purpose financial statements including
consolidated financial statements
c. Nothing in the conceptual framework overrides any specific Philippine Financial Reporting
Standard
d. All of the statements are true about the Conceptual Framework
14. Which is not a purpose of the Conceptual Framework?
a. To assist the FRSC in developing accounting standards that will represent GAAP in the
Philippines
b. To assist the FRSC in the review and adaption of existing international accounting standards
c. To assist auditors in forming an opinion as to whether financial statements conform with
Philippine GAAP
d. To assist the BOA in promulgating rules and regulations affecting the practice of public
accountancy
15. What is the authoritative status of the Conceptual Framework?
a. The conceptual framework has the highest level of authority
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b. In the absence of a standard or an interpretation that specifically applies to a transaction, the

Conceptual Framework shall be followed
c. In the absence of a standard or a interpretation that specifically applies to transaction,
management shall consider the applicability of the Conceptual Framework in developing and
applying an accounting policy that results in information that is relevant and faithfully represented
d. The Conceptual Framework applies only when the IASB develops new standards
16. What is an objective of financial reporting?
a. To provide information that is useful in making investing and credit decisions
b. To provide information that is useful to management
c. To provide information about the potential users
d. To provide information about ways to solve internal and external conflicts about the entity
17. Which is not a specific objective of financial reporting?
a. Financial reporting shall provide information about entity resources, claims against those resources
and changes in them
b. Financial reporting shall provide information useful in evaluating management
stewardship
c. Financial reporting shall provide information useful in investment, credit and similar decision
d. Financial reporting shall provide information useful in assessing cash flow prospects
18. Which best describes the term going concern?
a. When current liabilities exceed current assets
b. The ability of the entity to continue in operation for the foreseeable future
c. The potential to contribute to the flow of cash and cash equivalents to the entity
d. The expenses exceed income
19. Which of the following is not a basic assumption underlying financial accounting?
a. Economic Entity assumption
b. Going Concern Assumption
c. Periodicity assumption
d. Historical cost assumption
20. The economic entity assumption
a. Is inapplicable to unincorporated
b. Recognizes the legal aspects of business organizations
c. Requires periodic income measurement
d. is applicable to all forms of business organizations
21. The fundamental qualitative characteristics are
a. Relevance and faithful representations
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b. Relevance, faithful representation and materiality

c. Relevance and reliability
d. Faithful representation and materiality
22. Accounting information is considered relevant when it
a. Can be depended on to represent the economic conditions and events that it is intended to
represent
b. Is capable of making a difference in a decision
c. Is understandable by reasonably informed users accounting information
d. Is verifiable and neutral
23. The enhancing qualitative characteristics of financial information are
a. comparability and understandability
b. Verifiability and timeliness
c. Comparability, understandability and verifiability
d. Comparability, understandability, verifiability and timeliness
24. In the event of conflict between the economic substance of a transaction and the legal form, the
economic substance shall prevail
a. Form over substance c. Relevance
b. Substance over form d. Completeness
25. An item would be considered material when
a. The expected benefits exceed the additional costs
b. The impact on earnings is greater than 10%
c. The standard definition of materiality is met
d. The omission or misstatement of the amount would make a difference to the users
26. Which best describes cost-benefit constraint?
a. The benefit of the information must be greater than the cost of providing it
b. Financial information should be free from cost to users
c. Cost of providing financial information is not always evident or measurable but must be
considered
d. All of the choices are correct
27. The elements directly related to the measurement of financial position are
a. Asset, Liability and Equity
b. Asset and Liability
c. Income and Expense
d. Asset, Liability, Equity, Income and Expenses
28. Asset is recognized when
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a. It is probable that future economic benefit will flow to the entity

b. The cost or value of the asset can be measured reliably
c. The entity obtains control of the rights associated with the asset
d. It is probable that future economic benefit will flow to the entity and the cost or value of
the asset can be measured reliably
29. It is the process that involves the simultaneous or combined recognition of revenue and expenses that
result directly from the same transactions and other events
a. Matching of cost with revenue
b. Matching of revenue with cost
c. Systematic and rational allocation
d. Immediate recognition
30. Which of the following is an example of the cause and effect association principle?
a. Sales Commission c. Depreciation of PPE
b. Allocation of Insurance d. Officer’s Salaries
31. Refers to the process of transferring the debit and credit amounts from journals to the ledger accounts
a. Balancing off b. Transferring c. Posting d. Closing
32. A sole proprietor contributes his own van with a value of 400,000 to the business. The journal entry
should be:
Account to debited Account to credited
a. Asset Liability
b. Cash Capital
c. Capital Van
d. Van Capital
33. Which of the following is not included in a trial balance?
a. dates of transactions b. ledger accounts c. debit balances d. credit balances
34. The first financial statement that is prepared from the trial balance is the
a. statement of cash flows c. income statement
b. statement of changes in equity d. balance sheet
35. Which of the following steps in the accounting cycle are listed in logical order?
a. Prepare the income statement, prepare the statement of financial position and then prepare a
worksheet
b. Post the journal entries to the ledger accounts, prepare worksheet, and then take a trial balance
c. Journalize the closing entries, post the closing entries, and then take a post-closing trial
balance
d. Post the closing entries, take a post-closing trial balance, then journalized the closing entries
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36. Which of the following is a business event that is also considered a recordable transaction?
a. An entity hires a new employee
b. A customer purchases a merchandise
c. An entity orders a product from a supplier
d. An employee sends a purchase requisition to the purchasing department
37. Balance sheet accounts are
a. permanent accounts c. accounts with debit balances only
b. temporary accounts d. adjusting accounts
38. When owner’s equity decreases, one of the following must occur:
a. withdrawal decreases c. an income increases
b. an asset increase d. a liability increases
39. The normal balance of an account is on the
a. side represented by decrease in the account balance
b. debit side of the account
c. side represented by increases in the account balance
d. credit side of the account
40. The accrual basis of accounting recognizes
a. revenues when cash is received
b. expenses when cash is paid
c. revenues when products are produced as part of operating activities
d. expenses when resources are consumed as part of operating activities
41. The journal entry to record an accrued expense results in which of the following types of accounts being
debited and credited
a. asset and income b. asset and liability c. expense and asset d. expense and liability
42. Accrued revenues
a. decrease assets b. decrease liabilities c. increase assets d. increase
liabilities
43. Which of the following pairs of accounts would not appear in the same adjusting entry?
a. Interest revenues and Interest Payable
b. Rent expenses and rent payable
c. Service revenues and Accounts receivable
d. Service revenues and unearned revenues
44. Adjusting entries involve
a. at least one real and one nominal account
b. only capital accounts
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c. only nominal accounts

d. only real accounts
45. Which of the following is an example of a deferral? BONUS
a. Legal fees already earned but not yet collected
b. property taxes accrued but not yet paid
c. The accumulation of interest in a bank account
d. The purchase of an entity vehicle
46. Which columns of the accounting work sheet show unadjusted amounts?
a. Trial balance b. Adjustments c. Closing Entries d. Financial
Statements
47. The amount of profit will appear on the debit side of the Income Statement columns on a worksheet,
a. If profit exceeds the owner’s withdrawals
b. If total assets exceeded total liabilities for the period
c. If total expenses exceeded total revenue for the period
d. If total revenue exceeded total expenses for the period
48. Worksheets are prepared because
a. they aid in the preparation of the financial statements, adjusting entries and closing
entries
b. they are necessary for the preparation of the financial statements
c. they are required by GAAP
d. they constitute a permanent record of all adjusting entries made for the period
49. Which of the following accounts will appear on the post-closing trial balance?
a. Building b. depreciation expense c. owner withdrawals d. service revenues
50. Which of the following accounts could appear in an adjusting entry, closing entry and reversing entry?
a. Interest Income c. Depreciation Expense
b. Salaries Payable d. Accumulated Depreciation