ADJUSTING ENTRY THEORIES: 38.

Accounting periods should be of equal length to facilitate

1. The adjusting entry to recognize an expense which is comparisons between periods.
unrecorded and unpaid will cause total assets to increase. 39. Failure to record the adjusting entry for depreciation will
2. The adjusting entry to allocate part of the cost of a one- overstate assets on the balance sheet.
year fire insurance policy to expense will cause total 40. In recording the adjusting entry for accrued salaries, all
assets to increase. the accounts involved are decreased.
3. Every adjusting entry must change both an income 41. The owner’s personal withdrawals for the year cause a
statement account and a balance sheet account. decrease in profit.
4. Failure to record the adjusting entry for depreciation 42. The expiration of usefulness of equipment during an
results in assets and owner’s equity being overstated on accounting period is called depreciation.
the balance sheet. 43. Acquiring a computer for cash is just exchanging one
5. A fiscal period must begin on January 1. asset for another and will not result in an expense even in
6. Revenue cannot be recognized unless delivery of goods future periods.
has occurred or services have been rendered.
7. Adjusting entries are useful in apportioning costs among Fill in the Blanks
two or more accounting periods. 1. The financial year of a business is from Jan. 1 to Dec. 31. In
8. Recording incurred but unpaid expenses is an example of Jan. 2021, it provided goods worth P125,000 to a customer.
an accrual. This amount should be recorded in the year
9. Revenue is equal to the cash received by a company ___________________. In Dec. 2021, it paid P240,000 for
during an accounting period. the rent for Jan. 2022. This expense should be recorded in the
10. A company’s fiscal year must correspond to the calendar year _________________.
year.
11. In recording the adjusting entries for depreciation, both 2. There are two main accounting theories that determine how
accounts involved are increased. income and expenses are accounted for. They are the
12. The amount of accrued revenues is recorded by debiting ____________ concept and the _______________ concept.
an asset account and crediting an income account.
13. Accrued revenue is a term used to describe revenue that 3. A business prepares an income statement for a financial
has been received but not yet earned. year. The business collected P260,000 for 13 months of rental
14. Book value is the original cost of a building less income, but only recorded P240,000 as rent income in the
depreciation for the year. income statement. This practice complies with the
15. The adjusting entry to recognize earned revenues which ______________ concept.
was received in advance will cause total liabilities to
decrease. 4. In a business with a 12-month financial year starting from
16. If all transactions were originally recorded in conformity Jan. 1, the last month of the financial year is
with GAAP, there would be no need for adjusting entries at _______________. For another business with a 12-month
the end of the period. financial year starting from Mar. 1, the last month of the
17. The adjustment to record depreciation of property and financial year is _______________.
equipment consists of a debit to depreciation expense and
a credit to accumulated depreciation. 5. There are certain rules dictating the financial period that
18. When services are not paid for until after they have been income and expenses are to be recorded in. Income is
performed, the accrued expense is recorded by an recognized and recorded when it is ________________ and
adjusting entry at the end of the accounting period. expenses are recorded when they are _______________.
19. The adjusting entry to recognize earned commission
revenues not previously recorded or billed will cause total 6. The financial year of a business is from Jan. 1 to Dec. 31. In
assets to increase. preparing the income statement for the year ended Dec. 31,
20. When the reduction in prepaid expenses is not properly 2022, the business includes the income and expenses from
recorded, this causes the asset accounts and expense Jan. to Dec. 2022 only. This practice follows the
accounts to be understated. ________________ concept. An income earned in Jan. 2021
21. Applying accrual accounting results in a more accurate which was collected in Dec. 2020 is recorded in 2021. This
measurement of profit for the period than does the cash second practice follows the _______________ concept.
basis of accounting.
22. Not all increases to cash represent revenues. 7. A trial balance lists all the names of ledger accounts in the
23. Adjusting entries affect cash flows in the current period. ________________ and their _______________ as at a
24. Accrual accounting recognizes revenues and expenses at particular date. The total from accounts with ____________
the point that cash changes hands. balances should tally with the total from accounts with
25. A deferral is the recognition of an expense that has arisen ____________ balances.
but has not yet been recorded.
26. Assets become liabilities when they expire. IDENTIFICATION
27. When there is no direct connection between revenues and 1. An accounting method in which revenues are reported in the
costs, the costs are systematically allocated among the period in which they are earned, and expenses are reported in
periods benefited. the period in which they are incurred.
28. Revenue results from collection of accounts receivable. 2. The entry required at the end of an accounting period to
29. Accumulated depreciation accounts may be referred to as bring the accounts up to date and to ensure the proper
contra-asset accounts. matching of income and expenses.
30. Accounts that are partly income statement amounts and 3. The allocation of the cost of property and equipment to
partly balance sheet amounts are called mixed accounts. expense over its useful life.
31. An asset’s book value represents the true market value of 4. An account which is "offset against" another account.
the asset. 5. An expense that is unpaid and unrecorded.
32. If the adjustment for accrued salaries is omitted, liabilities 6. A postponement of the recognition of an expense already
and expenses will be understated. paid, or of revenues already received in advance.
33. A decrease in an expense account is the equivalent of a 7. A working paper often used by accountants to summarize
decrease in owner’s equity. adjusting entries.
34. Failure to record the adjusting entry for accrued salaries 8. The difference between the accumulated depreciation
results in the current year’s profit being overstated. account and the related property and equipment account.
35. As equipment is depreciated, its book value increases and 9. It is used to classify and summarize transactions, and to
its accumulated depreciation increases. prepare data for financial statements.
36. An adjusting entry includes at least one balance sheet
account and at least one income statement account. MULTIPLE CHOICE
37. All decreases in owner’s equity are a result of expenses.
1. Which of the following events would be associated with an b. a deferred revenue.
end-of-period adjustment? c. an accrued expense.
a. The decision to start a second production shift. d. an accrued revenue.
b. The payment of salaries and wages.
c. The recording of depreciation on equipment. 12. The purchase of a prepaid insurance policy would initially
d. The transfer of staff to another department. be recorded as
a. a deferred expense.
2. Deferred revenues should be reported as b. a deferred revenue.
a. Contributed capital on the balance sheet. c. an accrued expense.
b. Expenses on the income statement. d. an accrued revenue.
c. Income on the income statement.
d. Liabilities on the balance sheet. PART 2

3. Accrued revenues should be reported as 1. If a P2,500 adjustment for depreciation is omitted, which of
a. Assets on the balance sheet. the following financial statement errors will occur?
b. Expenses on the income statement. a. Assets will be understated
c. Liabilities on the balance sheet. b. Expenses will be overstated
d. Revenues on the income statement. c. Owner’s equity will be overstated
d. Profit will be understated
4. A deferred expense should be recorded when
a. An expense is incurred as cash is paid. 2. The Supplies account had a P2,800 debit balance at the end
b. A non-cash resource is consumed after cash is of the accounting period before adjustment for supplies used,
paid. and an inventory of P600 worth of unused supplies was on
c. A service is rendered before payment of cash. hand. Which of the following is the required adjusting entry?
d. Cash is paid before an expense has been a. Debit Supplies Expense P600 and credit Supplies
incurred. P600.
b. Debit Supplies P600 and credit Supplies Expense
5. An accrued expense should be recorded P600.
a. By a buyer when a service is received on c. Debit Supplies P2,200 and credit Supplies Expense
payment of cash. P2,200.
b. By a seller when a service is rendered before d. Debit Supplies Expense P2,200 and credit Supplies
payment of cash. P2,200.
c. When an expense is incurred as cash is paid.
d. When an expense is incurred before cash is paid. 3. A law firm began November with office supplies of P16,000.
During the month, the firm purchased supplies of P29,000. On
6. An accrued revenue should be recorded by a November 30, supplies on hand totaled P21,000. Supplies
a. Buyer when a service is received on payment of expense for the period is
cash. a. P24,000.
b. Seller when a customer pays for a service before b. P29,000.
the service is rendered. c. P45,000.
c. Seller when a service is rendered before receipt d. P21,000.
of cash.
d. Seller when a service is rendered on receipt of 4. On Nov. 15, 2022, cash is received in advance of rendering
cash. services. Assuming that the services have been performed by
Dec. 31, 2022, the adjusting entry would be a debit to
7. Deferred expenses should be reported as a. Cash and a credit to Service Revenues.
a. assets on the balance sheet. b. Service Revenues and a credit to Accounts
b. expenses on the income statement. Receivable.
c. income on the income statement. c. Unearned Revenues and a credit to Cash.
d. liabilities on the balance sheet. d. Unearned Revenues and a credit to Service
Revenues.
8. Accrued expenses should be reported as
a. assets on the balance sheet. 5. An entity’s weekly payroll of P5,000 is paid on Fridays.
b. expenses on the income statement. Assume that the last day of the month falls on Wednesday.
c. liabilities on the balance sheet. Which of the following is the required adjusting entry?
d. revenues on the income statement. a. Debit Salaries Expense P3,000 and credit Salaries
Payable P3,000
9. An end-of-period adjustment involves b. Debit Salaries Expense P2,000 and credit Salaries
a. a change in an account balance that is neither an Payable P2,000
accrual or a deferral. c. Debit Salaries Payable P3,000 a O and credit
b. a recognition of the extra cash flows related to the Salaries Expense P3,000
year-end delivery of goods and services. d. Debit Unpaid Salaries P3,000 and credit Salaries
c. an adjustment that results in revenues or expenses Payable P3,000
being reported in a different time period from the
associated cash flows. 6. A business received cash of P30,000 in advance for
d. an exchange of resources between two departments revenue that will be earned later. The cash receipt entry
in an organization. debited cash and credited unearned revenues for P30,000. At
the end of the period, P11,000 is still unearned. The adjusting
10. A deferred revenue should be recorded by a entry for this situation will
a. buyer when a service is received on payment of cash. e. Debit revenues and credit unearned revenues for
b. seller when a customer pays for a service before the P19,000.
service is rendered. f. Debit revenues and credit unearned revenues for
c. seller when a service is rendered before receipt of P11,000.
cash. g. debit unearned revenues and credit revenues for
d. seller when a service is rendered on receipt of cash. P19,000.
h. Debit unearned revenues and credit revenues for
11. Salaries and wages that are recorded as expenses at year P11,000.
end but remain unpaid are an example of
a. a deferred expense.
7. Which of the following accounts could not be credited in c. Purchase of a two-year insurance policy.
an adjusting entry? d. Purchase of office equipment.
a. Interest Receivable
b. Office Supplies 8. An adjusting entry cannot include a debit to a(n)
c. Prepaid Rent a. asset and a credit to a liability.
d. Service Revenues b. asset and a credit to a revenue.
c. expense and a credit to an asset.
8. At the beginning of 2022, an entity purchased a fire d. liability and a credit to a revenue.
insurance policy covering a property for a period of two
years. The P5,600 cost of the policy was paid in cash. At 9. An adjusting entry made to record accrued interest on a note
the end of 2022, the company will reduce Prepaid payable due next year consists of a debit to
Insurance for this policy by a. Interest Expense and a credit to Cash.
a. P0. b. Interest Expense and a credit to Interest Payable.
b. P467. c. Interest Expense and a credit to Notes Payable.
c. P5,600. d. Interest Receivable and a credit to Interest Earned.
d. P2,800.
10. Failure to record depreciation at year-end will result in an
9. An entity has P1,500 of supplies on hand at the end of a. overstatement of total assets.
2022. During 2023, P2,750 of supplies were purchased. A b. overstatement of total liabilities.
count of supplies on hand at the end of 2023 found an c. understatement of profit.
inventory of P875. What was the amount of supplies d. understatement of total liabilities.
expense for 2023? e.
a. P1,875.
b. P5,125. Use the following information to answer questions 11 to 15
c. P3,375. below. The following information pertains to Esterlina Gevera
d. P4,250. Machine Shop:

PART 3 a. Accrued interest on a note receivable amounted to P1,000.

b. A one-year insurance policy was purchased for P20,000.
1. Which of the following transactions will not result in an Three months have passed since the purchase.
increase in revenues? c. Depreciation on buildings is at P50,000.
a. Accumulation of interest in bank account. d. The company received a P36,000 advance payment during
b. An investment in the business by the owner. the year on services still to be performed. By the end of the
c. Sale of goods on credit. year, one-fourth of the services had been performed.
d. Sale of services for cash. e. The company’s Supplies account showed a beginning debit
balance of P2,000 and supplies purchased of P8,000; P3,000
2. Unearned Revenues was P6,000 at the end of February and of supplies were on hand at year-end.
P7,500 at the end of March. Service Revenues was P42,000
for the month of March. How much cash was received for 11. The adjusting entry for Supplies would include a
services provided during March? e. Credit to Supplies for P3,000.
a. P55,500 f. Credit to Supplies Expense for P8,000.
b. P40,500 g. Debit to Supplies Expense for P7,000.
C. P28,500 h. Debit to Supplies Expense for P8,000
d. P43,500 12. The adjusting entry for depreciation on buildings would
include a
3. Failure to adjust for accrued Salaries at year-end will result a. Credit to Accumulated Depreciation-Buildings for
in an P50,000.
a. overstatement of liabilities. b. Credit to Buildings for P50,000.
b. overstatement of profit. c. Credit to Depreciation Expense-Buildings for
c. understatement of assets. P50,000.
d. understatement of owner's equity. d. Debit to Accumulated Depreciation-Buildings for
P50,000.
4. Salaries Payable were P3,500 at the end of September and
P2,800 at the end of October. Salaries Expense for October 13. The adjusting entry for the insurance policy would include a
was P18,000. How much cash was paid for Esalaries during a. Credit to Insurance Expense for P15,000.
October? b. Credit to Prepaid Insurance for P5,000.
a. P18,700 c. Debit to Insurance Expense for P15,000.
b. P24,100 d. Debit to Prepaid Insurance for P5,000.
C. P17,300
d. P11,700 14. The adjusting entry to record the accrued interest on the
note would include a
5. An adjusting entry can include a debit to a(n) a. Credit to Interest Income for P1,000.
a. asset and a credit to a liability. b. Credit to Interest Receivable for P1,000.
b. expense and a credit to a revenue. c. Debit to Interest Expense for P1,000.
c. liability and a credit to a revenue. d. Debit to Interest Payable for P1,000.
d. revenue and a credit to an asset.
15. The adjusting entry to record the amount of service
6. The adjustment for that portion of revenue received in revenues earned during the period would include a
advance which now has been earned is to debit a. Credit to Unearned Service Revenues for
a. Cash and credit Unearned Revenues. P9,000.
b. Service Revenues and credit Unearned Revenues. b. Debit to Service Revenues for P27,000.
C. Unearned Revenues and credit Cash. c. Debit to Unearned Service Revenues for P9,000.
d. Unearned Revenues and credit Service Revenues. d. Debit to Unearned Service Revenues for
P27,000.
7. Which of the following transactions during the year would
most likely not need an adjusting entry at the end of the 16. Which of the following transactions will not result in the
period? recognition of an expense?
a. Cash withdrawal by the owner. a. A cash withdrawal by the owner.
b. Performance of a service that previously was paid for. b. Expiration of prepaid insurance.
 c. Interest accrued on a bank loan. 2. When the Income Statement columns of the worksheet
d. Use of machinery during the period. are initially footed, they should be out of balance by the
amount of profit or loss.
17. The accountant may spread the cost of a building over 3. Total assets, total liabilities and owner’s equity on the
many years primarily because of the balance sheet are the same as the totals of the Balance
a. Fiscal year assumption. Sheet columns on the worksheet.
b. Going concern assumption. 4. The worksheet is prepared after the formal adjusting and
c. Periodicity assumption. closing entries.
d. Periodicity assumption and going concern 5. The statement of changes in equity relates the income
assumption. statement to the balance sheet by showing how the
owner’s Capital account changed during the accounting
18. Which of the following accounts would probably need to be period.
adjusted at year-end? 6. The purchase of land is an example of an investing
a. Land activity.
b. Notes Payable 7. The amount of owner’s withdrawals can be found on the
c. Supplies worksheet.
d. Withdrawals 8. The balance sheet may be prepared by referring solely to
the Balance Sheet columns of the worksheet.
19. Which of the following is an example of an accrual? 9. The balances of the Accumulated Depreciation accounts
a. Bookkeeping fees collected but not yet earned. will appear on the credit side of the worksheet’s Balance
b. Equipment purchased for use in the business. Sheet columns.
c. Interest earned but not yet received. 10. On a worksheet, the balance of the owner’s Capital
d. Six months’ rent paid in advance. account is its ending amount for the period.
11. Working papers provide a written record of the work
20. Which of the following accounts would likely not need to be performed by the accountant or auditor.
adjusted at year-end? 12. The worksheet is a type of accountant’s working paper.
a. Land 13. The amount placed opposite the owner’s Capital account
b. Office Supplies in the Balance Sheet columns of the worksheet is the
c. Prepaid Advertising amount to be reflected for owner’s Capital on the balance
d. Unearned Revenues sheet.
14. The worksheet should be prepared after the formal
21. Which of the following is an example of a deferral? financial statements have been prepared.
a. A commission collected in advance. 15. The amount for owner’s Withdrawals will appear in the
b. Interest earned on a bank account. Income Statement columns off a worksheet.
c. Interest expense incurred but not yet paid. 16. Buying and producing goods and services are examples
d. Medical fees earned but not yet collected. of operating activities.
17. The account Commissions Earned would appear on the
1. Withdrawals are found in the ________________ column of balance sheet.
the balance sheet section of the worksheet. 18. The account Wages Payable would appear on the income
2. Salaries Payable is a liability that will appear in the statement.
____________ of the worksheet. 19. A worksheet is more useful for a small entity than for a
3. The figure for Profit on the worksheet is carried over the large one.
______________ column of the balance sheet. 20. The purchase of equipment is an example of a financing
4. The _________________ is a report that shows changes in activity.
capital. 21. Financial statements cannot be prepared correctly until all
the accounts have been adjusted.
5. The ending figure for capital from the statement of changes 22. Paying taxes to the government is an example of a
in equity is placed on the ________________. financing activity.
6. A worksheet is ________________ report. 23. When the Balance Sheet columns of the worksheet are
7. ____________________ are prepared after the completion initially footed, they should be in balance.
of the worksheet. 24. The balance sheet is also known as the statement of
8. The __________________ reports how well a business financial position.
performs for a period of a time. 25. Financial position may be assessed by referring to a
9. The adjustment for supplies reflects the amount of supplies balance sheet.
_________________ 26. The heading for an income statement might include the
10. Supplies Expense is found on the income statement. line “As at December 31, 2022.”
Supplies are found on ________________ 27. The statement of changes in equity discloses the
11. ___________________ reflects the cost of equipment at withdrawals during the period.
time of purchase. 28. The statement of cash flows discloses significant events
12. Depreciation Expense is found on the related to the operating, investing, and financing activities
_________________ of a business.
13. ________________________ is a contra asset that has a 29. When adjusting entries are entered onto a worksheet, it is
credit balance. not necessary to record them in the general journal.
14. Accumulated Depreciation, a contra asset, is found on the 30. An important use of the worksheet is as an aid in the
______________ preparation of financial statements.
15. Historical or original cost of a vehicle less
______________ reflect the book value of the vehicle. MULTIPLE CHOICE
16. Adjustments are the result of ________________ 1. Which of the following is an example of an operating
transactions. activity?
17. A ______________ will increase accumulated a. Obtaining capital from owners
depreciation. b. Purchasing equipment
18. _______________ affect both the income statement and c. Selling goods and services to customers
balance sheet. d. Selling land

WORKSHEET THEORIES: 2. The owner’s Capital account is found on the

1. The Adjusted Trial Balance columns of the worksheet are a. Balance sheet debit column and nowhere else.
prepared by combining the Trial Balance and Adjustments b. Trial balance credit column, adjusted trial balance
columns of the worksheet. credit column, and balance sheet credit column
of a worksheet.
 c. Trial balance credit column, adjustments credit 12. A statement of changes in equity
column, adjusted trial balance credit column, and a. has no relationship with the balance sheet.
balance sheet credit column of a worksheet. b. indicates whether the cash position of the entity will permit
d. Trial balance credit column and income withdrawals by the owner.
statement debit column of a worksheet. c. provides a link between the income statement and the
e. Trial balance debit column, adjustments debit balance sheet.
column, adjusted trial balance credit column, and d. shows the income and expenses of the entity for a given
income statement credit column of a worksheet. period.

3. The profit figure appears in all the following financial 13. Which of the following is an example of an investing
statements except the activity?
a. Balance sheet. a. Obtaining a bank loan
b. Income statement. b. Paying taxes to the government
c. Statement of cash flows. c. Producing goods and services
d. Statement of changes in equity. d. Purchasing a building

4. The statement of cash flows would disclose the withdrawal 14. Which of the following is an example of a financing
of cash by the owner activity?
a. In the financing activities section. a. Acquiring land
b. In the investing activities section. b. Employing workers
c. In the notes to the financial statements. c. Paying off a loan
d. In the operating activities section. d. Selling equipment

5. If the amount of profit for the current period is less than 15. The statement of changes in equity would not show
the amount of the owner’s withdrawals, there will be a(n) a. revenues and expenses.
a. Decrease in the Cash account. b. the owner's ending capital balance.
b. Decrease in the owner’s Capital account. c. the owner's initial capital balance.
c. Increase in liabilities on the balance sheet. d. the owner's withdrawals for the period.
d. Increase in the Cash account.
e. Increase in the owner’s Capital account.

6. Profit for Jeffrey Franco’s Treasures is P250,000 for the

current year. The owner withdrew P30,000 per month for
personal living expenses. The owner’s Capital account will
show a net
a. Decrease of P110,000.
b. Decrease of P360,000. 16. If the balance of the Villanueva, Capital account was
c. Increase of P610,000. P210,000, what would be the balance of the Building account?
d. Increase of P110,000. a. P250,000
e. Increase of P360,000. b. P40,000
c. P90,000
7. Which of the following is a cash outflow from operating d. P210,000
activities?
a. Payment for interest expense. 17. If the balance of the Building account was P170,000, what
b. Payment to acquire property and equipment. would be the total of liabilities and owner’s equity?
c. Payment to settle notes payable. a. P170,000
d. Payment to owners in the form of withdrawals. b. P270,000
c. P320,000
8. The trial balance debit or credit amount of each account is d. P350,000
combined with the amount of any debit or credit
adjustment to that account to determine the new balance 18. If the balance of the Building account was P150,000 and
of the account. This process is known as the equipment was sold for P70,000, what would be the total of
a. Balancing c. footing. owner’s equity?
b. cross-footing. d.Totaling. a. P150,000
b. P160,000
9. Which of the following comes first in the accounting c. P270,000
process? d. P330,000
a. Journalizing external transactions
b. Preparation of an adjusted trial balance 19. If the balance of the Building account was P140,000 and
c. Preparation of an unadjusted trial balance P30,000 of Accounts Payable were paid in cash, what would
d. Worksheet preparation be the balance of the Villanueva, Capital account?
a. P210,000
10. Which two steps in the accounting cycle are aided by the b. P260,000
preparation of a worksheet? c. P320,000
a. Adjusting the accounts and preparing financial d. P340,000
statements
b. Analyze source documents and preparing 20. If the balance of the Building account was P80,000 and
financial statements P30,000 of Accounts Payable were paid in cash, what would
c. Posting journal entries and adjusting the be the total liabilities and owner’s equity?
accounts a. P140,000
d. Journalizing transactions and closing the b. P180,000
accounts c. P190,000
d. P230,000
11. Posting a P3,000 debit as a credit causes an error
a. In the journal. PART 2
b. Known as transposition. 1. In which columns of a worksheet would the adjusted
c. That is divisible by 9. balance of Accumulated Depreciation appear?
d. That is divisible by 2. a. Adjusted Trial Balance Credit, Balance Sheet Debit
 b. Adjusted Trial Balance Credit, Income Statement
Credit. 11. If total credits exceed total debits in the Balance Sheet
c. Adjusted Trial Balance Debit, Balance Sheet Debit columns of a worksheet,
d. Trial Balance Credit, Adjustments Credit, Adjusted a. A loss has occurred.
Trial Balance Credit, and Balance Sheet Credit b. A mistake has been made.
e. Trial Balance Debit, Adjusted Trial Balance Debit c. a profit has occurred.
d. Assets exceed liabilities.
2. Worksheets are prepared because e. No conclusion can be drawn until the closing entries
a. They aid in the preparation of the financial have been made.
statements, adjusting entries, and closing entries.
b. They are necessary for the preparation of the 12. Which columns of the accounting work sheet show
financial statements. unadjusted amounts?
c. They are required by generally accepted accounting a. Trial Balance
principles. b. Adjustments
d. They constitute a permanent record of all adjusting c. Income Statement
entries made for the period. d. Balance Sheet
13. Which columns of the work sheet show profit?
a. Trial Balance
3. Which of the following is a cash inflow from financing b. Adjustments
activities? c. Income Statement
a. Receipt from collections on notes receivable. d. Both b and c
b. Receipt from interest on notes receivable.
c. Receipt from issuance of notes payable. 14. Which situation indicates a loss on the Income statement?
d. Receipt from sale of property and equipment. a. Total debits equal total credits
b. Total credits exceed total debits
4. In the adjusted trial balance, the owner’s equity account c. Total debits exceed total credits
reflects d. None of the above
a. The beginning-of-the-period balance.
b. The increase to income and expense. 15. Supplies has a P60,000 unadjusted balance on your trial
c. The period ending balance. balance. At year-end you count supplies of P20,000. What
d. The results of adjusting entries. adjustment will appear on your work sheet?

5. Assuming an entity is profitable in the current period, the

total of the balance sheet credit column in the worksheet will 16. Which of the following steps comes first in worksheet
be preparation?
a. Larger than the balance sheet debit column. a. Compute each account's adjusted balance by combining the
b. Larger than the income statement credit column. trial balance and adjustment figures.
c. Larger than the income statement debit column. b. Compute profit or loss as the difference between total
d. Smaller than the balance sheet debit column. revenues and total expenses on the income statement.
c. Enter the account balances in the unadjusted trial balance
6. The usefulness of the worksheet is in columns and total the amounts.
a. Aiding the preparation of financial statements. d. Enter the adjusting entries in the adjustment columns and
b. Identifying the accounts that need to be adjusted. total the amounts.
c. Summarizing the effects of all the transactions of the
period. 17. If the income statement debit and credit columns are not
d. All of the above. equal after adding the respective columns,
a. an error has been made.
7. Which of the following types of information is not found in b. the entity either generated a profit or incurred a loss.
financial statements? c. the entity generated a profit.
a. Profits d. the entity incurred a loss.
b. Revenue e. the liabilities must exceed the assets.
c. Selling prices
d. Assets 18. The Income Statement Debit column of the worksheet
contains
a. asset account balances.
8. Accounting data flow from the b. expense account balances.
a. Balance sheet to the income statement c. contra asset account balances.
b. Income statement to the statement of owner’s equity d. liability account balances.
c. Statement of owner’s equity to the balance sheet e. revenue account balances.
d. Both b and c are correct
FILL IN THE BLANKS
9. Consider the steps in the accounting cycle. Which part of 1. The balance of Withdrawals is closed by a ____________
the accounting cycle provides information to help a business and the amount transferred to owner’s Capital by a
decide whether to expand its operations? ___________.
a. Post-Closing Trial Balance 2. At the end of the closing process, all temporary accounts in
b. Adjusting Entries the ledger will have a _____________ balance.
c. Closing Entries 3. The ____________________ contains a list of permanent
d. Financial Statements accounts after the adjusting and closing entries have been
posted to the ledger from a journal.
4. Closing entries can be prepared from a ______________.
10. The amount of profit will appear on the debit side of the
5. After closing entries are posted, Income Summary will have
Income Statement columns on a worksheet,
__________ a balance.
a. If profit exceeds the owner’s withdrawals.
6. After closing entries are posted, owner’s Capital in the
b. If total assets exceeded total liabilities for the period.
ledger will contain the ______________.
c. If total expenses exceeded total revenue for the
7. Revenue is closed to Income Summary by a __________ to
period.
each revenue account and a to ____________Income
d. If total revenue exceeded total expenses for the
Summary.
period.
8. Expenses is closed to Income Summary by _________ the
e. if withdrawals have been made during the period.
individual expenses and ____________ Income Summary.
9. If the balance of Withdrawals is a credit, it will be closed by 31. Reversing entries are made to correct errors in the
_____________ Income Summary and ______________ accounts.
owner’s Capital. 32. The purpose of reversing entries is to simplify the
10. Journalizing adjustments can be done from the bookkeeping process.
__________ 33. Adjusting entries are all dated as at the first day of the
11. Cash, Equipment, and Supplies are not part of the new accounting period.
__________ process. 34. Closing entries clear income and expense accounts at the
12. Income Summary is a ____________ account. end of the period.
13. Income summary is ___________ by the end of the 35. Trial balances are prepared primarily to ensure that no
period. entries have been omitted.
14. Revenue, Expenses, and Withdrawals are examples of 36. In the accounting cycle, closing entries are prepared
_____________. before adjusting entries.
15. _____________ in temporary accounts will not be carried 37. In the accounting cycle, information from source
over to the next accounting period. documents is initially recorded in the journal.
38. Nominal account balances are reduced to zero by closing
entries.
COMPLETION OF ACCOUNTING CYCLE THEORIES: 39. There is sufficient information on a post-closing trial
1. Closing entries can be prepared by referring solely to the balance to prepare a balance sheet.
Income Statement columns of the worksheet. 40. There is sufficient information on a post-closing trial
2. After the adjusting and closing entries have been recorded balance to prepare a statement of changes in equity. 41. If
and posted, the general ledger accounts that appear on the post-closing trial balance does not balance, then the
the balance sheet have no balances. error(s) definitely occurred at some point during the
3. General ledger account balances agree with those in the closing process.
financial statements even before adjusting and closing 41. The adjusting entries involving Rent Receivable and
entries are recorded and posted. Salaries Payable could be reversed.
4. The income summary account is used to close the income 42. The adjusting entries involving Depreciation Expense-
and expense accounts. Building and Supplies Expense could be reversed.
5. The balance of the owner’s capital account represents the 43. All nominal accounts must be closed before the Income
cumulative net result of income, expense and withdrawal Summary account can be closed.
transactions. 44. The post-closing trial balance will have fewer accounts
6. Closing entries deal primarily with the balances of real than the adjusted trial balance.
accounts. 45. The balances of all the accounts that appear on a balance
7. The only accounts that are closed are income statement sheet are the same on the adjusted trial balance as they
accounts. are on a post-closing trial balance.
8. Closing entries result in the transfer of profit or loss into
the owner’s Capital account. MULTIPLE CHOICE
9. After all closing entries have been entered and posted, the 1. Some entities adjust their accounts and close their books
balance of the Income Summary account will be zero. only on an annual basis. For these firms,
10. Depreciation Expense-Building is a permanent account a. Worksheets may be prepared on an interim
11. An expense account is closed with a debit to the expense basis.
account and a credit to Income Summary. b. Worksheets are not needed.
12. Income Summary is closed with a debit to Income c. Worksheets are prepared only on an annual
Summary and a credit to the owner’s Withdrawals basis.
account. d. Worksheets are not prepared.
13. When profit or loss is exactly zero, one of the usual
closing entries will be avoided. 2. Closing entries reduce the following type of accounts to a
14. The Income Summary account appears in the income zero balance at the end of the period.
statement. a. Income and expenses
15. Temporary accounts are also known as real accounts. b. Income summary
16. There is sufficient information on a post-closing trial c. Withdrawals
balance to prepare an income statement. d. All of the above
17. The post-closing trial balance will contain only real
accounts. 3. The closing entry for Salaries Expense, with a balance of
18. The Income Summary account will appear on the post- P240,000 is __________
closing trial balance.
19. The post-closing trial balance contains asset, liability, 4. The purpose of the post-closing trial balance is to
withdrawal and capital accounts. a. provide the account balances for the preparation of the
20. The final trial balance is called a post-closing trial balance. balance sheet.
21. A reversing entry is a journal entry which is the exact b. ensure that the ledger is in balance for completion of the
opposite of a related adjusting entry made at the end of worksheet.
the period. c. aid the journalizing and posting of the closing entries.
22. To simplify the recording of regular transactions in the next d. ensure that the ledger is in balance for the start of the next
accounting period, all adjusting journal entries are period.
reversed.
23. Post-closing trial balance tests the equality of the 5. Which of the following accounts will appear on the post-
accounts after the adjustments and the closing entries are closing trial balance?
posted. a. Building
24. Supplies Expense is a temporary account. b. Depreciation Expense-Building
25. A revenue account is closed with a credit to the revenue c. Owner's Withdrawals
account and a debit to Income Summary. d. Service Revenues
26. During the closing process, revenues are transferred to
the credit side of the Income Summary account. 6. A final check on the adjusting and closing process is
27. During the closing process, expenses are transferred to provided by the
the credit side of the Income Summary account. a. Worksheet.
28. A reversing entry will include either a debit to a revenue b. Post-closing trial balance.
account or a credit to an expense account c. Financial statements.
29. Reversing entries are never required. d. Adjusted trial balance.
30. Reversing entries can be made for deferrals but not for
accruals.
7. If the last item on a trial balance reads "Owner's Equity", this a. Debit Income Summary and credit Owner's Capital
must be the b. Debit Owner's Capital and credit Owner's Withdrawals
a. post-closing trial balance. c. Debit Income Summary and credit Owner's Withdrawals
c. adjusted trial balance. d. Debit Owner's Capital and credit Income Summary
b. unadjusted trial balance.
d. reversed trial balance. 9. In preparing closing entries, which of the following columns
of the work sheet are the most helpful?
8. If a trial balance were to be prepared on the first day of the a. Adjustments.columns
new year, and the account Salaries Expense had a credit b. Adjusted Trial Balance columns
balance, you would know that c. Income Statement columns
a. the trial balance is a post-closing trial balance. d. Balance Sheet columns
b. the adjusting entries have been recorded.
c. the trial balance is an adjusted trial balance. 10. The primary objective of reversing entries is to
d. a reversing entry has been made. a. correct errors.
b. simplify the bookkeeping associated with accruals from the
9. Reversing entries are prior period.
a. optional. c. transfer the balance of the expense accounts to the Owner's
b. made to record a change in corporate objectives. Capital account and set the accounts equal to zero.
c. required by generally accepted accounting principles. d. place the expenses for the current period in the proper
d. made prior to preparing a post-closing trial balance. accounts.

10. Which of the following comes last in the accounting 11. Which of the following accounts could appear in an
process? adjusting entry, closing entry and reversing entry?
a. preparation of a post-closing trial balance a. Interest Income
b. preparation of an adjusted trial balance b. Salaries Payable
c. worksheet preparation c. Depreciation Expense-Buildings
d. journalizing external transactions d. Accumulated Depreciation-Buildings

PART 2 12. When an entity has earned a profit, the profit amount is
1. An important purpose of closing entries is to entered on the work sheet on the
a. adjust the accounts in the ledger. a. debit side of the Income Statement columns and the credit
b. set nominal account balances to zero at the start of the next side of the Balance Sheet columns.
period. b. credit side of the Income Statement columns and the debit
c. set real account balances to zero at the start of the next side of the Balance Sheet columns.
period. c. debit side of both the Income Statement and the Balance
d. help in preparing financial statements. Sheet columns.
d. credit side of both the Income Statement and the Balance
2. Which of the following sequences of documents or records Sheet columns.
describes the proper sequence in the accounting cycle?
a. Source documents, ledger, journal, financial statements 13. Probably the last account to be listed on a post-closing trial
b. Journal, source documents, ledger, financial statements balance would be
c. Source documents, journal, ledger, financial statements a. Salaries Payable.
d. Ledger, source documents, journal, financial statements b. Salaries Expense.
c. Owner's Capital.
3. Closing entries will d. Income Summary.
a. increase the Owner's Capital balance.
b. decrease the Owner's Capital balance. 14. When there is a loss, the entry to close the Income
c. not affect the Owner's Capital balance. Summary account is
d. either increase or decrease the Owner's Capital balance. a. debit Loss and credit Income Summary.
b. debit Owner's Capital and credit Income Summary.
4. Which of the following accounting cycle steps comes before c. debit Income Summary and credit Loss.
the others? d. debit Income Summary and credit Owner's Capital.
a. The financial statements are prepared.
b. Closing entries are recorded and posted. 15. On the completed work sheet, which set of columns usually
c. Source documents are analyzed. should be out of balance after the initial footing?
d. Adjusting entries are recorded and posted. a. Balance Sheet columns only
b. Adjusted Trial Balance columns only
5. Closing entries ultimately will affect c. Income Statement columns only
a. total liabilities. d. Both Income Statement and Balance Sheet columns
b. the Cash account.
c. total assets. 16. The post-closing trial balance contains
d. the Owner's Capital account. a. real accounts only.
b. nominal accounts only.
6. If no adjustments are needed for a particular entity, its c. both real accounts and nominal accounts.
a. post-closing trial balance will be identical to its trial balance. d. neither real accounts nor nominal accounts.
b. adjusted trial balance will be identical to its post-closing trial
balance. 17. In which financial statement does Income Summary
c. trial balance will be identical to its adjusted trial balance. appear?
d. trial balance, adjusted trial balance, and post-closing trial a. Income statement
balance will be identical. b. Statement of changes in equity
c. Balance sheet
7. Which of the following accounts is not closed during the d. It does not appear in any financial statement.
closing process? ridse
a. Income Summary 18. When an entity has suffered a loss, the loss amount is
b. Owner's Capital entered on the work sheet on the
c. Commissions Revenues a. debit side of the Income Statement columns and the credit
d. Owner's Withdrawals side of the Balance Sheet columns.
b. credit side of the Income Statement columns and the debit
8. Which of the following could not possibly be a closing entry? side of the Balance Sheet columns.
c. debit side of both the Income Statement and the Balance
Sheet columns.
d. credit side of both the Income Statement and the Balance
Sheet columns.