Day 1 THEORY OF ACCOUNTS

1. The ASC framework (Choose the incorrect one) b.Qualitative characteristics

a.Sets out the concepts that underlie the preparation and presentation of financial statements for
external users. c.Definition, recognition and measurement of the basic elements of financial statements
b.Is not a Statement of Financial Accounting Standards and hence does not define standards for
any particular measurement or disclosure issue.
c.Is concerned with special purpose reports, for example, prospectuses and computations
d.Generally accepted accounting principles
prepared for taxation purposes.
d.Applies to the financial statements of all commercial, industrial and business reporting
enterprises, whether in the public or private sector. Day2
2. Accounting is
I.A service activity and its function is to provide quantitative information, primarily financial in 1. Which is incorrect concerning financial statements?
nature, about economic entities, that is intended to be useful in making economic decision. a.The objective of general purpose financial statements is to provide information about the
II.The art of recording, classifying, and summarizing in a significant manner and in terms of financial position, performance and cash flows of an enterprise that is useful to a wide range
money, transactions and events which are in part at least of a financial character and interpreting of users in making economic decisions.
the results thereof. b. Financial statements also show the results of management’s stewardship of the resources
III.The process of identifying, measuring and communicating economic information to permit entrusted to it.
informed judgment and decision by users of the information. c.The management of an enterprise has the primary responsibility for the preparation and
a.I, II and III b. I only c. II only d. III
presentation of financial statements.
only d.Financial statements are prepared and presented at least annually and are directed toward
3. Financial accounting the specific needs of a wide range of users.
1.Is the examination of financial statements by an independent CPA for the purpose of 1.The providers of risk capital (investors)
expressing an opinion as to the fairness of the financial statements. a.Are interested in information which enables them to assess the ability of the enterprise to
2.Focuses on the preparation and presentation of general purpose reports known as financial provide renumeration, retirement benefits and employment opportunities.
statements. b.Are interested in information that enables them to determine whether their loans and the
3.Has no precise coverage but is used generally to refer to services to clients on matters of interest attaching to them will be paid when due.
accounting, finance, business policies, organization procedures, product costs, distribution and c.Have an interest in information about the continuance of an enterprise especially when they
many other phases of business conduct and operations. have a long-term involvement with or are dependent on the enterprise.
4.Is the preparation of annual income tax returns and determination of tax consequences of
certain proposed business venture. d.Are concerned with the risk inherent in and return provided by their investments and need
4. Categories of hedges include information to help them determine whether they should buy or sell the investments.
a. Fair value hedge c. Cash flow hedge 1.These users are interested in the allocation of resources and activities of enterprises, and
b. Hedge of a net investment in a foreign operation d. All of these therefore require information to regulate the activities of enterprises, determine taxation
5. Characteristic(s) common to all joint ventures include policies and as a basis for national income and similar statistics.
a.One or more venturers are bound by a contractual arrangement. a. Suppliers and trade creditors c. Public
b.The contractual arrangement establishes joint control. b. Customers d. Governments and their agencies
c.The use of proportionate consolidation. 2.Information about economic resources controlled by the enterprise and its capacity to
d.Both a and b. modify these resources is useful in predicting the
6. A party to a joint venture and has joint control over that joint venture a. Ability of the enterprise to meet its financial commitments in the near term.
a. Venturer b. Investor c. Operator d. Manager b. Ability of the enterprise to meet its financial commitments over a longer term.
7. A method of accounting whereby a venturer’s share of each of the assets, liabilities, income c. Future borrowing needs and how future profits and cash flows will be distributed
and expenses of a jointly controlled entity is combined line by line with similar items in the among interested users.
venturer’s financial statements or reported as separate line items in the venturer’s financial d. Ability of the enterprise to generate cash and cash equivalents in the future.
statements 3.Information about the performance of an enterprise is required in order to assess potential
a. Equity method c. Proportionate changes in the economic resources that it is likely to control in the future. This information is
consolidation method primarily pictured in the
b. Cost method d. a.Cash flow statement c. Balance sheet
Combination method
8. This form of joint venture maintains own records and prepares and presents financial
b.Statement of retained earnings d. Income statement
statements in accordance with GAAP. 1.The accrual basis means that
a. Jointly controlled operations c. Jointly controlled entities 1.The effects of transactions and other events are recognized when they occur and not as cash
b. Jointly controlled assets d. All of the above or its equivalent is received or paid and they are recorded in the accounting records and
9. This form of joint venture involves the use of assets and other resources of the venturers reported in the financial statements of the periods to which they relate.
rather than the establishment of a separate entity 2.The financial statements are normally prepared on the assumption that an enterprise will
a. Jointly controlled operations c. Jointly controlled entities continue in operation for the foreseeable future.
b. Jointly controlled assets d. All of the above 3.Where parent and subsidiary relationship exists, consolidated statements for the affiliates
10. Separate financial statements include financial statements are prepared because the parent and the subsidiary are a “single economic entity”.
a.In which the investments are accounted for on the basis of the direct equity interest. 4.The financial statements should be stated in terms of a common financial denominator.
b.In which the investments are accounted for on the basis of the reported results and net assets 1.Qualitative characteristics
of the investees. a.Are the attributes that make the information provided in financial statements useful to
c.In which proportionate consolidation is applied. users.
d.Of an entity that does not have a subsidiary, associate or venturer’s interest in a jointly b.Are the generally accepted accounting principles.
controlled entity. c.Are the basic notions and fundamental premises on which the accounting process is based.
11. Allowed accounting treatment for interests in jointly controlled entity include d.Refer to the definition, recognition and measurement of the elements from which financial
a. Proportionate consolidation c. Either a or b statements are constructed.
b. Equity method of accounting d. None of the above 1.What are the primary qualities of financial accounting information that pertain to the
12. Investment property excludes content rather than to the presentation of financial information?
a.Land held for long-term capital appreciation. a.Relevance and reliability c. Relevance and
b.Building leased out under an operating lease. comparability
c.Property held for future use for administrative purposes. b.Understandability and comparability d. Reliability and
d.None of the above. understandability
13. Investment property includes 1.Information has the quality of relevance when
a.Property being constructed or developed on behalf of third parties. a.It influences the economic decisions of users by helping them evaluate past, present or
b.Property that is being constructed or developed for use as an investment property. future events or confirming or correcting their past evaluations.
c.Property leased to another entity under a finance lease. b.It is free from bias and error and can be depended upon by users to represent faithfully that
d.Property that is being redeveloped for continuing use as investment property. which it either purports to represent or could reasonably be expected to represent.
14. Which is not a purpose of the ASC framework? c.Users are assumed to have a reasonable knowledge of business and economic activities and
a.To assist the ASC in developing accounting standards that represent generally accepted accounting and a willingness to study the information with reasonable diligence.
accounting principles in the Philippines. d.Users are informed of the accounting policies employed, any changes in those policies and
b.To assist the ASC in its review and adoption of existing International Accounting Standards. the effects of such changes.
c.To assist auditors in forming an opinion as to whether financial statements conform with 1.Which statement is incorrect concerning reliability of information?
Philippine GAAP. 1.The information must be neutral, meaning free from bias.
d.To assist the Board of Accountancy in promulgating rules and regulations affecting the 2.The information should reflect the economic substance of the transactions rather than their
practice of accountancy in the Philippines. mere legal form.
15. The ASC framework deals with (choose the incorrect one) 3.The information must be complete within the bounds of materiality and cost.
a.Objective of financial statements 4.Prudence is the inclusion of a degree of caution in the exercise of judgment needed in
making an estimate required under conditions of uncertainty, such that assets or income are
overstated and liabilities or expenses are understated. a.The resolution after the balance sheet date of a court case.
1.Which is incorrect concerning the quality of relevance? b.The bankruptcy of a customer which occurs after the balance sheet date resulting to a loss
a.The relevance of information is affected by its nature and materiality. on a trade receivable account.
b.The information must be relevant to the decision-making needs of the users in order to be c.The discovery of fraud or errors that show that the financial statements were incorrect.
useful.
c.Information about financial position and past performance is frequently used as a basis for d.Dividends to holders of equity instruments proposed or declared after balance sheet date
predicting future financial position and performance and other matters such as dividend and 10. Financial statements portray the financial effects of transactions and other events by
wage payments, security price movements and the ability of the enterprise to meet its grouping them into broad classes according to their economic characteristics. These broad
commitments when they fall due. classes are termed as the
d.The predictive and confirmatory roles of information are not interrelated.
1.Which is incorrect concerning the qualitative characteristic of comparability?
a.Elements of financial statements c. Accounting constraints
b.Features of accounting d. Concepts of capital and capital maintenance
a.Horizontal comparability is the quality of information that allows comparisons within a single 11. The elements directly related to the measurement of financial position are
enterprise through time or from one accounting period to the next. a.Assets, liabilities, equity, revenue and expenses
b.Dimensional comparability is the quality of information that allows comparisons between two b.Assets, liabilities, equity and revenue
or more enterprises engaged in the same industry. c.Assets, liabilities and equity
c.The need for comparability should not be confused with mere uniformity and should not be d. Revenue and expenses
allowed to become an impediment to the introduction of improved accounting standards. 12. Asset is
d.It is appropriate for an enterprise to leave its accounting policies unchanged when more a.A resource controlled by the enterprise as a result of past events and from which future
relevant and reliable alternatives exist. economic benefits are expected to flow to the enterprise.
b.A present obligation of the enterprise arising from past events the settlement of which is
expected to result in an outflow from the enterprise of resources embodying economic
1.Which is incorrect concerning the accounting constraints on relevant and reliable benefits.
information? c.The residual interest in the assets of the enterprise after deducting all its liabilities.
a. It may often be necessary to report before all aspects of a transaction or other event are d.Equivalent to all financial resources of the enterprise.
known, thus impairing reliability. 13. It is the process of incorporating in the balance sheet or income statement an item that
b. The benefits derived from the information should exceed the cost of providing it. meets the definition of an element of financial statements.
c. In achieving a balance between relevance and reliability, the overriding consideration a. Recognition b. Allocation c. Realization d.
is how best to satisfy the economic decision-making needs of users. Summarization
d. If there is undue delay in the reporting of information it may lose its relevance and 14. It is the process of determining the monetary amounts at which the elements are to be
reliability. recognized and carried in the balance sheet and income statement.
2. A contingent liability is a a. Measurement b. Recognition c. Reporting d.
I.Possible obligation arising from past events that will be confirmed only by the occurrence or Interpreting
nonoccurrence of one or more uncertain future events not wholly within the control of the 15. Historical cost is the measurement basis most commonly adopted by enterprises in
enterprise. preparing the financial statements. This means the
II.Present obligation that arises from past events and it is not probable that an outflow of 1.Amount of cash or cash equivalent paid or the fair value of the consideration given.
resources will be required to settle the obligation and the obligation can be measured reliably. 2.Amount of cash or cash equivalent that would have to be paid if the same or an equivalent
a. I only b. II only c. Both I and II d. Neither I nor II asset was acquired currently.
1. A contingent liability is (choose the incorrect one) 3.Amount of cash or cash equivalent that could currently be obtained by selling the asset in
a. Disclosed only c. Disclosed even if remote an orderly disposal.
b.Either probable or measurable but not both d. Not recognized in the financial 4.Discounted value of the future net cash inflows that an item is expected to generate in the
statements normal course of business.

Day3 Day4
1. It is a possible asset that arises from past event and whose existence will be confirmed only 1. Which statement is incorrect concerning the recognition principles?
by the occurrence or nonoccurrence of one or more uncertain future events not wholly within a.An asset is recognized when it is probable that future economic benefits will flow to the
the control of the enterprise. enterprise and the asset has a cost or value that can be measured reliably.
b.A liability is recognized when it is probable that an outflow of resources embodying
a.Continge nt asset c. Goodwill economic benefits will result from the settlement of a present obligation that can measured
b.Intangible asset d. Other asset reliably.
2. A contingent asset (choose the incorrect one) c.Income is recognized when an increase in future economic benefits related to an increase in
1.Disclosed where an inflow of economic benefits if probable. asset or a decrease in liability has arisen that can be measured reliably.
2.Disclosed where an inflow of economic benefits is remote.
3.Not recognized in the financial statement.
d.Expenses are recognized when a decrease in future economic benefits related to an
4.No longer contingent if the realization of income is virtually certain. increase in asset or a decrease in liability has arisen that can be measured reliably.
3. These are the events, both favorable and unfavorable, that occur between the balance sheet 2. Which is incorrect concerning the recognition of a liability?
date and the date when financial statements are authorized for issue. 1.Obligations may be legally enforceable as a consequence of a binding contract or statutory
a. Events after the balance sheet date c. Fundamental errors requirement.
b. Contingencies d. Current events 2.If an enterprise decides as a matter of policy to rectify faults in its products even when
4. Which of the following statements concerning discount on note payable is false? these become apparent after the warranty period has expired, the amounts that are expected to
a. Discount on note payable may be debited when a company discounts its own note with the be expended in respect of goods sold are liabilities.
bank. 3.An obligation normally arises only when the asset is delivered or the enterprise enters into
b. The discount on note payable is a contra liability account which is shown as a deduction from an irrevocable agreement to acquire the asset.
note payable. 4.A decision by the management of an enterprise to acquire assets in the future, in itself,
c. The discount on note payable represents interest charges applicable to future periods. gives rise to a present obligation.
d. Amortizing the discount causes the carrying value of the liability to gradually decrease over 3. Technically, this arises in the course of the ordinary activities of an enterprise and is
the life of the note. referred to by a variety of different names including sales, interest, dividends, royalties and
5. The proceeds from a bond issued with detachable stock purchase warrants should be rent.
accounted for
a. Entirely as bonds payable a.Income b. Gain c. Profit d. Revenue
b. Entirely as stockholders’ equity 4. This process involves the simultaneous or combined recognition of revenues and expenses
c. Partially as unearned revenue and partially as bonds payable that result directly and jointly from the same transactions or other events on the basis of
d. Partially as stockholders’ equity and partially as bonds payable direct association between the costs incurred and the earning of specific items of income.
6. The proceeds from the issuance of convertible bonds payable shall initially be accounted for a.Matching of revenues with costs c. Systematic and rational allocation
as
a. Equity for the entire proceeds b.Matching of costs with revenues d. Immediate recognition
b. Liability for the entire proceeds 5. The following statements pertain to the concept of income and expenses. Which statement
c. Liability for the face amount of the bonds and equity for the excess proceeds. is incorrect?
d. Partly liability and partly equity a.The definition of expenses encompasses losses as well as those expenses that arise in the
7. After initial recognition, an entity shall measure a bond liability at amortized cost using the course of the ordinary activities of the enterprise.
a. Effective interest method c. Straight line method b.Losses represent other items that meet the definition of expenses and may or may not arise
b. Bond outstanding method d. Either effective interest or straight in the course of the ordinary activities of the enterprise.
line method c.The definition of revenue encompasses both income and gains.
8. Events after the balance sheet date are
a. 4. Adjusting events only c.Both adjusting and nonadjusting
d.Gains represent other items that meet the definition of income and may or may not arise in
the course of the ordinary activities of an enterprise.
events
6. Which of the following is not regarded as constituting a separate element in the ASC
b. Nonadjusting events only d. Neither adjusting nor nonadjusting
Framework?
events
a. Income b. Expense c. Gain d. Equity
9. Adjusting events after balance sheet date include all of the following, except
7. Which capital maintenance concept is applied to currently reported net income and
comprehensive income? control
Currently reported net income Comprehensive income 4. Entries to record the replenishment of petty cash fund result in a debit to various expense
a. Financial capital Physical capital accounts and a credit to cash in bank. This accounting procedure typically exemplifies the
b. Physical capital Physical capital a. Imprest petty cash system b. Fluctuating petty cash system
c. Financial capital Financial capital
d. Physical capital Financial capital c. Internal control d. Administrative control
8. Which statement is correct concerning the two concepts of capital? 5. What is the major purpose of an imprest petty cash fund?
1 .Under a financial capital concept, such as invested money or invested purchasing a. To effectively plan cash inflows and outflows
power, capital is synonymous with the net assets or equity of the enterprise. b. To ease the payment of cash to vendors
2. Under a physical capital concept, such as operating capability, capital is regarded as the c. To determine the honesty of the employees
productive capacity of the enterprise. d. To effectively control cash disbursements
6. A cash over or short account
a.Both I and II b. Neither I nor II c. I only d. II a. Is not generally accepted
only b. Is debited when the petty cash fund proves out over
9. Which statement is correct concerning the concepts of capital? c. Is debited when the petty cash fund proves out short
a.Under a financial capital concept, a profit is earned only if the financial d. Is a contra account to cash
amount of the net assets at the end of the period exceeds the financial 7. The payments of accounts payable made subsequent to the close of the accounting period
amount of the net assets at the beginning of the period, after excluding any are recorded as if they were made at the end of the current period.
distributions to and contributions from owners during the period. a. Window dressing b. Kiting c. Lapping d. Imprest system
b.Under a physical capital concept, a profit is earned only if the physical 8. Bank reconciliation
productive capacity at the end of the period exceeds the physical productive a. Is the process of transferring money in or out of a bank account.
capacity at the beginning of the period, after excluding distributions to and b. Requires that every transaction which will result in a cash payment be verified,
contributions from owners during the period. approved and recorded before a bank check is prepared.
a.Both I and II b. Neither I nor II c. I only d. II c. Is an analysis that reflects the bank transactions made by a depositor.
d. Explains the difference between the bank balance and the balance shown in the
only
depositor’s records.
10. The following statements relate to cash. Which statement is true?
a. The term “cash equivalent” refers to demand credit instruments such as money order 9. If the cash balance shown in a company’s accounting records is less than the correct cash
balance and neither the company nor the bank has made any errors, there must be
and bank drafts.
b. The purpose of establishing a petty cash fund is to keep enough cash on hand to cover a. Deposits credited by the bank but not yet recorded by the company
b. Deposits in transit
all normal operating expenses for a period of time.
c. Classification of a restricted cash balance as current or noncurrent should parallel the c. Outstanding checks
d. Bank charges not yet recorded by the company
classification of the related obligation for which the cash was restricted.
d. Compensating balances required by a bank should always be excluded from “cash and 10. Which of the following cash flows does not appear in a cash flow statement using indirect
method?
cash equivalent”.
11. In the case of long-term installments receivable (real estate installment sales) where a major a.Net cash flow from operating activities
b.Cash received from customers
portion of the receivables will be collected beyond the normal operating cycle
a. The entire receivables are classified as noncurrent c.Cash inflow from sale of equipment
d.Cash outflow for dividend payment
b. Only the portion currently due is classified as current and the balance as noncurrent
c. The entire receivables are classified as current with disclosure of the amount not 11. In a cash flow statement using the indirect approach for operating activities, an increase
in inventory should be presented as
currently due
d. The entire receivables are classified as current without disclosure of the amount not a. Outflow of cash b. Addition to net income c. Inflow and outflow of
cash
currently due
12. A discount given to a customer for purchasing a large volume of merchandise is typically d. Deduction from net income
12. Which should not be disclosed in the cash flow statement using the indirect method?
referred to as a
a. quantity discount.b. cash discount. c.trade discount. d. size discount. a. Interest paid, net of amounts capitalized
b. Income taxes paid
13. When the allowance method of recognizing bad debt expense is used, the entry to record the
write-off of a specific uncollectible account would decrease c. Cash flow per share
d. Dividends paid on preferred stock
a. Allowance for doubtful accounts. c. Net realizable value of accounts
receivable. 13. How should a gain from the sale of used equipment for cash be reported in a cash flow
statement using the indirect method?
b. Net income. d. Working capital.
14. At the beginning of 2003, Finney Company received a three-year interest-bearing a. In investing activities as a reduction of the cash inflow from the sale
b. In investment activities as a cash outflow
P1,000,000 trade note. Finney reported this note as a P1,000,000 trade note receivable on its
2003 year-end statement of financial position and P1,000,000 as sales revenue for 2003. What a.In operating activities as a deduction from income
b.In operating activities as an addition to income
effect did this accounting for the note have on Finney's net earnings for 2003, 2004, 2005, and
its retained earnings at the end of 2005, respectively? 14. In a cash flow statement, if used equipment is sold at a gain, the amount shown as a cash
flow from investing activities equals the carrying amount of the equipment
a. Overstate, overstate, understate, no effect
b. Overstate, understate, understate, no effect a. Plus the gain
b. Plus the gain and less the amount of tax attributable to the gain
c. Overstate, understate, understate, understate
d. No effect, no effect, no effect, no effect c. Plus both the gain and the amount of tax attributable to the gain
d. With no addition or subtraction
15. Which of the following items should be excluded from a company’s inventory at the balance 15. If the cash balance in a company’s bank statement is less than the correct cash balance
and neither the company nor the bank has made any errors, there must be
sheet date?
a. Goods in transit which were sold FOB destination. a. Deposits credited by the bank but not yet recorded by the company
b. Outstanding checks
b. Goods delivered to another company for sale on consignment.
c. Goods sold to a customer which are being held for the customer to call for at the c. Bank charges not yet recorded by the company
customer’s convenience. d. Deposits in transit
d.Goods in transit which were purchased FOB shipping point. Day6
di. 1. Nontrade receivables are classified as current assets only if they are reasonably expected to
Day5 be realized in cash
1. Cash equivalents are a. Within one year or normal operating cycle, whichever is shorter.
a. Short-term and highly liquid investments that are readily convertible into cash. b. Within the normal operating cycle
b. Short-term and highly liquid investments that are readily convertible into cash with c. Within one year or the normal operating cycle, whichever is longer
remaining maturity of three months. d. Within one year, the length of the operating cycle notwithstanding
c. Short-term and highly liquid investments that are readily convertible into cash and so 2. Installments receivable arising from sales of household appliances should be classified as
near their maturity that they represent insignificant risk of changes in value because of a. Current assets
changes in interest rates. b. Noncurrent assets
d. Short term and highly liquid marketable equity securities. a.Current assets; however, the amount not realizable within one year should be disclosed, if
2. Which of the following statements is false? material
a. Not all items included in cash constitute legal tender. b.None of these
b. Cash may be offset against a liability if the deposit of funds in restricted account 3. In the case of long-term installments receivable (real estate installment sales) where a
clearly constitutes the legal discharge of the liability. major portion of the receivables will be collected beyond the normal operating cycle
c. Legally restricted bank deposit held as compensating balances should be segregated a. The entire receivables are classified as current without disclosure of the amount not
from the cash account and reported under a separate caption. currently due
d. One-year BSP treasury bills with remaining maturity of three months on balance sheet a.The entire receivables are classified as noncurrent
date may be shown as part of “cash and cash equivalents” provided this is disclosed. b.Only the portion currently due is classified as current and the balance as noncurrent
3. All cash receipts are deposited intact and all cash disbursements are made by means of check. c.The entire receivables are classified as current with disclosure of the amount not currently
This internal control is known as due
a.Administrative control b.Imprest system c.Accounting control d.Auditing 4. Receivables from subsidiaries and affiliates, if significant should be classified as
a.Current assets
b.Noncurrent assets
c.Either as noncurrent or current depending on the expectation of realizing them within one year
or over one year
d.Intangible assets
5. Receivables from officers, directors and employees for goods sold or services rendered in the
ordinary course of business
a. Are considered current if proper control is exercised in granting credit and the accounts
are currently collectible
b. Are not included in trade accounts receivable
c. Are included in current assets even if the receivables are actually loans and advances
and the collection is unlikely within a year
d. Are always classified as noncurrent
6. Credit balances in accounts receivable should be classified as
a. Current liability
b. Part of accounts payable
c. Noncurrent liability
d. Deduction from accounts receivable
7. A method of estimating doubtful accounts that focuses on the income statement rather the
balance sheet is the allowance method based on
a. Direct writeoff c. Credit sales
b. Aging of trade accounts receivable d. Balance of accounts receivable
8. The “corridor” in the recognition of actuarial gain or loss is equal to
a. 10% of the present value of the defined benefit obligation at the beginning of the year.
a.10% of the fair value of the plan assets at the beginning of the year.
b.10% of the lower between the present value of the defined benefit obligation and the fair
value of the plan assets at the beginning of the year.
c.10% of the higher between the present value of the defined benefit obligation and the fair
value of the plan assets at the beginning of the year.
9. The components of the financial statements include all, except
a.Balance sheet, income statement and cash flow statement
b.Statement of changes in equity or statement of recognized gains and losses
c.Notes, comprising a summary of significant accounting policies and other explanatory notes
d.Additional statements such as environmental reports and value added statements
10. Which is incorrect concerning fair presentation of financial statements?
a. In virtually all circumstances, a fair presentation is achieved by compliance with
applicable Philippine Financial Reporting Standards.
b. Financial statements shall present fairly the financial position, performance and cash
flows of an enterprise.
c. An enterprise whose financial statements comply with PFRS shall make an explicit and
unreserved statement of such compliance in the notes.
d. Inappropriate accounting treatments are rectified either by disclosure of the accounting
policies used or by note or explanatory material.
11. Which is incorrect concerning the overall considerations in the preparation and presentation
of financial statements?
a. An enterprise shall prepare its financial statements, except for cash flow information,
under the accrual basis of accounting.
b. The presentation and classification of items in the financial statements shall be retained
from one period to the next.
c. Assets and liabilities, income and expenses, shall not be offset unless required or
permitted by another PFRS.
d. Comparative information need not be disclosed in respect of the previous period for all
numerical information in the financial statements.
12. A method of estimating doubtful accounts that emphasizes asset valuation rather than
income measurement is the allowance method based on
a. Aging of receivables
b. Direct writeoff
c. Gross sales
d. Credit sales less sales returns and allowances
13. A company uses the allowance method for recognizing doubtful accounts. The entry to
record the writeoff of a specific uncollectible account
a. Affects neither net income nor working capital
b. Affects neither net income nor accounts receivable
c. Decreases both net income and working capital
d. Decreases both net income and accounts receivable

14. When the allowance method of recognizing bad debt expense is used, the entries at the time
of collection of an account previously written off would
a. Decrease the allowance for doubtful accounts
b. Increase net income
c. Have no effect on the allowance for doubtful accounts
d. Have no effect on net income
15. When a specific customer’s account receivable is written off as uncollectible, what will be
the effect on net income under each of the following methods of recognizing bad debt expense?
Allowance Direct writeoff
a. None Decrease
b. Decrease None
c. Decrease Decrease
d. None None