CHAPTER 2

1. Which of the following is correct under the double-entry system?

a. Asset amount must be equal to liability amount.
b. The change in asset must be compensated by a change in liability.
C.The change in a debit-side entry must be compensated by a change in credit- side entry.
d. An increase in asset must be compensated by a decrease in asset.
2. Which of the following statements regarding the double-entry system is incorrect?
a.An increase in asset means a credit entry in assets account.
b. A decrease in liability means a debit entry in liabilities account.
C.An increase in drawings means a debit entry in capital account.
d. A decrease in non-current asset means a credit entry in assets account.
3. Which of the following transactions affects the total value of liabilities of a firm?
a. goods purchased from suppliers by cash
b. interest received from bank
C.office equipment bought on credit
d. goods sold to customers on credit
4.On Apr. 1, 2025, Efren Barillo sets up a firm and brings in office equipment of P50,000 and
inventory of P30,000 to the business. Efren Barillo puts P80,000 into the firm's cash box and
P100,000 into the firm's bank account. Meanwhile, the firm lends P50,000 cash to SJ and
Associates and borrows P200,000 from the bank to acquire a piece of premises.
What is the amount of the firm's capital on Apr. 1, 2025?
a. P510,000
b. P210,000
C. P260,000 d. P460,000 5. Which of the following is correct if the sole proprietor of an entity
borrows P30,000 in the name of the entity and deposits it into the entity's bank account?
a. The assets of the entity increase by P30,000.
b. The liabilities of the entity decrease by P30,000.
C.The capital of the entity increases by P30,000.
d. The drawings of the entity increase by P30,000.
6. Which of the following accounting equations are correct?
1. Non-current assets + Current assets = Non-current liabilities - Current liabilities + Capital
2. Assets - Liabilities = Capital + Revenue - Expenses
3. Capital + Non-current liabilities = Non-current assets + Working capital
a. (1) and (2) only
b. (1) and (3) only
c. (2) and (3) only
d. (1), (2) and (3)
7. Which of the following is not an example of additional capital?
a. A sole proprietor purchases a car through the bank account of the entity.
b. A sole proprietor brings a second-hand computer from his home to the office.
C.A sole proprietor transfers P 1,000 from his own bank account to the entity's account.
d. A sole proprietor uses his own building as an office without receiving any rent.
8. Which of the following is not an example of non-current assets?
a.a second-hand computer used in the office
b. a van that is purchased through installments the total amount of which is not fully settled
c.P40,000 cash
d. a building bought by the entity
9. Which of the following statements are correct?
1. The total amount of liabilities can be greater than the total amount of capital. 2. Assets =
Capital + Liabilities
3. The total amount of assets can be greater than the sum of liabilities and capital.
a. (1) and (2) only
b. (1) and (3) only
c.(2) and (3) only
d. (1), (2) and (3)
10. The entity purchases P10,000 fixtures for entity use on credit. Which of the following will be
affected?
1. assets
2. liabilities
3. capital
a. (1) and (2) only
b. (1) and (3) only
C.(2) and (3) only
d. (1), (2) and (3)
11. Suppose a debtor repays his debt of P50,000 by transferring the money into the bank
account of the business. The effect of the transaction on the accounting equation would be:
a. Both assets and liabilities increase by P50,000.
b. Both assets and liabilities decrease by P50,000.
C.Only assets decrease by P50,000.
d. Assets and liabilities remain unchanged.
12. Under the double-entry system, what is the value of X if assets, current liabilities,
non-current liabilities and capital are X, P40,000, P60,000 and P350,000 respectively?
a. P250,000
b. P350,000
C. P370,000
d. P450,000

CHAPTER 1
1. The __ concept assumes that the business has an indefinite economic life.
a. accounting entity
b. accounting period
c. going concern
d. objectivity
2. Which form of business organization is characterized by limited liability?
a. Sole Proprietorship
b. Partnership
c. Corporation
d. Both sole proprietorship and partnership
3. Which of the following processes best defines accounting?
a.Measuring economic activities
b. Communicating results to interested parties
C.Preventing fraud
d. Both a and b.
4. To which area of accounting are generally accepted accounting principles primarily relevant?
a. Managerial Accounting
b. Financial Accounting
C.Tax Accounting
d. Financial Reporting to all Regulatory Agencies
5. Which of the following is not one of the three types of business activities?
a.Investing
b. Financing
C.Marketing
d. Operating
6. Which of the following processes is considered bookkeeping?
a. Analyzing
b. Reporting
c. Recording
d. Summarizing
7. Krishna started a speech therapy center. He also sells professional books on speech
development. What is the nature of his business? Support your answer with a
reason.
a. manufacturing
b. service
c. trading
d. service and trading
8. Which of the following is a trading business?
a. a clinic
b. a law firm
C.a pharmacy
d. a telecommunications company
9. Which of the following statements is false?
a. A sole proprietor has limited risk with respect to the amount of resources he invests in his
business.
b. A sole proprietorship has only one owner.
C.A sole proprietorship is easy to set up.
d. A sole proprietorship may not be able to obtain loans easily.
10. A business which prepares financial statements every year is following the
concept.
a. accounting entity
b. periodicity
C.going concern
d. objectivity

1. Assets are usually valued under which basis?

a. Replacement cost
b. Historical cost
C.Net realisable value
2. Which of the following best explain the feature of consistency of presentation?
a. When preparing the accounts of a firm, one should normally account for similar items in the
same way from one accounting period to the next.
b. Firms in the same industry must account for similar items in the same way.
C.Firms must comply with accounting standards and regulations.
d. None of the above.
3. Which of the following statements about accounting concepts and the characteristics of
financial reporting information is not correct?
(i) Entities may exclude information that is relevant in financial statements because it is too
difficult for the users to understand.
(ii) The historical cost concept means that only items capable of being measured in monetary
terms can be recognized in the financial statements.
(iii) Consistency in use of the same accounting policies for the same or similar items from one
period to the next is essential to enhance comparability among the entities.
a. (i) and (ii)
b. (i) and (iii)
C.(ii) and (iii)
d. All of the above
4. Which type of business organization is owned by its stockholders?
a. Corporation
b. Partnership
c. Proprietorship
d. All the above are owned by stockholders
5. Which of the following are true of partnerships?
1. The partners' individual exposure to debt is limited.
2. Financial statements for the partnership by law must be produced and made public.
3. A partnership is not a separate legal entity from the partners themselves.
a.1 and 2 only
b. 2 only
c. 3 only
d. 1 and 3 only
6. Which accounting concept should be considered if the owner of a business takes goods from
inventory for his personal use?
a. The substance over form concept
b. The accrual concept
C.The going concern concept
d. The business entity concept
7. Which accounting concept states that omitting or misstating this information could influence
users of the financial statements?
a. The consistency concept
b. The accrual concept
C.The materiality concept
d. The going concern concept
8. Which of the following accounting concepts means that similar items should receive
a similar accounting treatment?
a. Going concern
b. Accrual
C. Substance over form
d. Consistency

1. During the lifetime of an entity, accountants produce financial statements at arbitrary points in
time in accordance with which basic accounting concept?
a. objectivity
b. periodicity
C.conservatism
d. matching
2. The skills needed to be developed by Filipino accountants include the following
a. Intellectual skills.
b. Interpersonal skills.
C.Communication skills.
d. "a" and "c" only.
e. "a", "b" and "c".
3. Which of the following accounting concepts states that an accounting transaction should be
supported by sufficient evidence to allow two or more qualified individuals to arrive at essentially
similar conclusion?
a. matching
b. objectivity
c. periodicity
d. stable monetary unit
4. The financial statements should be stated in terms of a common financial denominator.
a. Accrual
b. Going concern
C.Time period
d. Stable monetary unit
5. Accountants employed by a particular business firm or not-for-profit organization, perhaps as
chief accountant, controller, or financial vice president, are said to be engaged in
a. general accounting.
b. public accounting.
c. practice in commerce and industry.
d. independent accounting.
6. Which accounting process is the recognition or non-recognition of business activities as
accountable events?
a. Identifying
b. Communicating
c. Recording
d. Measuring
7. 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 to raise large capital; unlimited personal liability of owners.
d. Ability to raise large amounts of capital; limited personal liability of owners.
8. The concept of the accounting entity is applicable
a. only to the legal aspects of business organizations.
b. only to the economic aspects of business organizations.
c. only to business organizations.
d. whenever accounting is involved.
9. The measurement phase of accounting is accomplished by
a. storing data.
b. reporting to decision makers.
c. recording data.
d. processing data.
10. The entity concept means that
a.Because a firm is separate and distinct from its owners, those owners cannot have access to
its assets unless the firm ceases to trade.
b. Accounts must be prepared for every firm.
C.The financial affairs of a firm and its owner are always kept separate for the purpose of
preparing accounts.
d. None of the above.
11. The financial accounting process provides information about economic activities of an
enterprise for a specified accounting period that is shorter than the life of the enterprise.
a. time period
b. going concern
C.measurement of economic resources and obligations
d. measurement in terms of money
12. The consistency concept means that
a. When preparing the accounts of a firm, one should normally account for similar items in the
same way from one accounting period to the next.
b. Firms in the same industry must account for similar items in the same way.
C.Firms may never change the way in which they prepare their accounts.
d. None of the above.
13. The consistency standard of reporting requires that
a.expenses be reported as charges against the period in which they are incurred.
b. the effect of changes in accounting upon income be properly disclosed.
c.extraordinary gains and losses should not appear on the income statement.
d. accounting procedures be adopted which give a consistent rate of return.
14. A person applying for examination shall establish the following requisites to the satisfaction
of the Board that he:
a.is a Filipino citizen;
b. is of good moral character;
C.is a holder of the degree of Bachelor of Science in Accountancy conferred by a school,
college, academy or institute duly recognized and/or accredited by the Commission on Higher
Education (CHED) or other authorized government offices; and
d. has not been convicted of any criminal offense involving moral turpitude.
e."a" and "c" only.
f. "a", "b" and "c".
g. All of the above.
15. The main function is to establish and improve accounting standards that will be generally
accepted in the Philippines.
a. Financial Reporting Standards Council
b. Professional Regulation Commission
c. Philippine Institute of CPAs
d. Board of Accountancy
16. They encompass the conventions, rules, and procedures necessary to define what is
accepted accounting practice.
a. Accounting assumptions
b. Accounting concepts
c. Conceptual frameworks
d. Generally accepted accounting principles
17. The Filipino accountants should possess knowledge to enable them to compete
internationally, they are:
a. General knowledge
b. Organizational and Business Knowledge
C. Information Technology Knowledge
d. Accounting Knowledge
e. All of the above.
18. Which area of public accounting means 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
19. Accountants do not recognize that the value of the peso changes over time. This concept is
called the
a. stable monetary unit concept.
b. going concern concept.
C.cost principle.
d. entity concept.
20. Stating assets and liabilities and changes in them in terms of a common financial
denominator is a prerequisite in measuring financial position and periodic net income.
a.unit of measure
b. measurement of economic resources and obligations
c. exchange price
d. accrual
21. Carrying out professional responsibilities diligently and in accordance with applicable
technical and professional standards is descriptive of the principle of
a. professional competence and due care.
b. objectivity.
c. independence.
d. integrity.
22. A professional accountant should be straightforward and honest in all professional and
business relationships. This is in consonance with the fundamental principle of
a. integrity.
b. objectivity.
c. confidentiality.
d. professional competence and due care.
23. Which of the following is an appropriate definition of accounting?
a.The measurement, processing, and communication of financial information about an
identifiable economic entity
b. A means of recording transactions and keeping records
C.The interconnected network of subsystems necessary to operate a business
d. Electronic collection, organization, and communication of vast amounts of information
24. Accounting changes are often made and the monetary impact is reflected in the financial
statements of an entity even though, in theory, this may be a violation of the accounting concept
of
a. materiality.
b. objectivity.
C.conservatism.
d. consistency.
25. The periodicity concept
a. requires that all companies prepare monthly, quarterly and annual financial statements.
b. results from the Bureau of Internal Revenue requirement that taxable income be reported on
an annual basis.
c.requires all companies to use a fiscal year ending December 31.
d. involves dividing the life of a business entity into accounting periods of equal length thus
enabling the financial users to periodically evaluate the results of business operations.
26. The following documents shall be submitted in support of the requirements in the previous
question except the
a. Certificate of Live Birth in National Statistics Office (NSO) security paper.
b. Marriage Contract in NSO security paper for married female applicants.
c. College diploma with date of graduation and Special Order Number.
d. School Identification Card.
e. Baccalaureate Transcript of Records with date of graduation and Special Order Number.
f. National Bureau of Investigation (NBI) Clearance.
27. Proponents of historical costs maintain that in comparison with all other valuation
alternatives for general purpose financial reporting, statements prepared using
historical costs are more
a. objective.
b. relevant.
C.indicative of the entity's purchasing power.
d. conservative.
28. The records of properties acquired and services availed of by a business are maintained in
accordance with the
a. business entity concept.
b. cost principle.
c. proprietorship principle.
d. matching principle.
29. This principle requires relevant information to form part of financial statements for
decision-making purposes.
a. objectivity
b. materiality
c. adequate disclosure
d. accounting entity
30. The principle of objectivity includes the concept of
a.summarization.
b. verifiability.
c. classification.
d. conservatism.
31. The concept of matching is best demonstrated by
a.not recognizing any expense unless some revenue is realized.
b. recognizing prepaid rent received as revenue.
C.associating effort with accomplishment.
d. establishing an allowance for possible market decline in inventory account.
32. 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.