FUNDAMENTALS OF ACCOUNTING – EXERCISE #4

October 19, 2020

Instructor: Kim R. Francisco
Student: ________________________
LESSON 3
Review Questions - - - - - - - - - - - - - - - - - - - - - - - - -- - - - - - - - - - - - - - - - - - - - -- - - - -
1. What is accounting?
- Accounting is the process of recording financial transactions pertaining to a business. The
accounting process includes summarizing, analyzing and reporting these transactions to
oversight agencies, regulators and tax collection entities.

2. Discuss the relationship of bookkeeping and accounting.

- Bookkeeping and Accounting can be transcribed into a common saying that “one is
useless without the other”. In short, while the bookkeeper does the “how accounting is

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done” which refers to the mechanical aspects, the professional accountant does the “why
accounting is done” which refers to the analytical and interpretative aspects of accounting.

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In other words, accounting begins where bookkeeping ends.

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3. Define a business transaction.
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- business transactions and events when they affect the assets, liabilities and owner’s equity
or what we previously termed as accounting elements or accounting values.
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4. What is an account?
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- In accounting, an account is a record in the general ledger that is used to sort and store
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transactions. Another account, Sales, will collect all of the amounts from the sale of
merchandise. Most accounting systems require that every transaction will affect two or
more accounts. The term account is also used in transactions where suppliers sell goods to
customers and grant credit terms such as net 10 days. In those situations, a supplier is
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selling goods on account and the customer has purchased goods on account. The supplier
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has also increased the balance in its current asset account entitled Accounts Receivable
and the customer will increase the balance in its current liability account entitled Accounts
Payable.
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5. What is a debit entry? A credit entry?

- in every transaction, there is a Value Received, we call a Debit and Value Parted With, we
call a Credit. This is the “give and take” process of accounting as expressed in an equation
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6. Does the word “debit” mean an increase?

- Debit, increase in Expense

7. Does the word “credit” mean a decrease?

- Credit, decrease in Asset

8. State the rules of debit and credit in accounting.

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 - Opposite to debits, the “credit rule” state that all accounts that normally contain a credit
balance will increase in amount when a credit is added to them and reduce when a debit is
added to them. The types of accounts to which this rule applies are liabilities, equity, and
income. there could be no instance where the left is heavier than the right and vice versa. It
happens to be a “seesaw”, it is in the state of equilibrium.
Quizzers - - - - - - - - - - - - - - - - -- - - - - - - - - - - - -- - - - - - - - - - - - - - - - - - - -- - - - - - - - - - - - -
True or False
Instruction: Write “T” if the statement is correct and “F” if incorrect.
True ___1. The relationship of bookkeeping and accounting can be transcribed into a common saying
that “one is useless without the other”.
True___ 2. Hiring of employee is a non-accountable activity because it cannot be quantified or
expressed in terms of unit of measure.
True___ 3. Business activities are said to be accountable when they affect the accounting elements.

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True ___4. Operating cycle is the interval of time from the date of acquisition of merchandise

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inventory, sell the inventory to customers and ultimate collection of cash from the sale.

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False__ 5. Financial Statement can be prepared without completing the accounting cycle.

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True___ 6. Accounting cycle refers to the steps of the accounting process.
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False__ 7. The creditors have the first priority over the asset of an enterprise.
True___ 8. Debit means :left: and credit means “right”.
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True___ 9. Debit, means value received and credit, means the value parted with.
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False___10. Business transaction are analyzed from the point of view of the owner.
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MULTIPLE CHOICE
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Instruction: Encircle the letter of the correct answer in each of the given question.
1. The American Accounting Association defines accounting as the “process of identifying,
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measuring and communicating economic information…” Identifying includes -

a. Determination of accountable data
b. Determination of debit and credit
c. Determination of value received and value parted with
d. Determination of income and expenses
2. It is the assigning of peso or monetary values involved in a transaction –
a. Classifying c. Measuring
b. Identifying d. Summarizing
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 3. Debit means –
a. Increases both assets and liabilities
b. Decreases both assets and liabilities
c. Increases assets and decreases liabilities
d. Decreases assets and increases liabilities
4. The amount entered on the left-hand of an account is called –
a. Debit side c. credit side
b. Debit entry d. credit entry
5. The interpreting phase of accounting relates to –
a. Gathering of informative data
b. Processing of data gathered
c. Communicating the analyzed data
d. Recording the data gathered
6. Bookkeeping is the process of recording “systematically” the business transactions.
Systematically means –
a. Free from bias
b. Completed transaction

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c. It follows procedures and principles

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d. It is based on accountant’s judgement

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7. Chronological recording of transactions and events is very essential in Bookkeeping.

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Chronological means –

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a. Recording transactions and events using calendar days
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b. Recording transactions and events on time without delay
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c. Recording transactions and events based on the data of occurrence
d. Recording transactions based on accountable documents
8. The relay information or data which are based on past events and transactions of the
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business, hence, financial statements are –

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a. Historical in nature c. systematic in nature

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b. Financial in character d. none of the above

9. Business transactions are analyzed from the viewpoint of the –
a. Creditor c. owner
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b. Business d. investors
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10. Based on the equation A = L + P, when asset decreases and liability remains the same –
a. Capital decreases c. no effect on capital
b. Capital increases d. asset = liability
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11. Based on the accounting equation A = L + P, when asset increases and capital also increases
by the same amount –
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a. Liability is not affected c. liability decreases

b. Liability increases d. capital increases
12. An account can have a credit balance when –
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a. All entries are on the credit side of the account

b. Credit total exceeds debit total
c. Debit total exceeds credit total
d. All of the given answers
13. An account is said to have a debit balance when –
a. Total debit and total credit are equal
b. Total credit exceeds total debit
c. Total debit exceeds total credit
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 d. When they are “in balance”
14. A debit entry may signify an increase in –
a. Revenue c. assets
b. Owner’s equity d. liability
15. A credit entry may signify an increase in –
a. Asset c. owner’s equity
b. Drawing d. expense
16. A debit may result in a-an –
a. Decrease in expense c. increase in revenue
b. Increase in liability d. increase in asset
17. A credit may result in a/an –
a. Decrease in asset c. increase in owner’s equity
b. Increase in liability d. all of these
18. Credit entries may signify a decrease in the following ccounts –
a. Owner’s Equity and Drawing Account
b. Service Income and Rent Expense Account
c. Accounts Payable and Accounts Receivable

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d. Accounts Receivable and Cash in Bank

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19. Which of the following accounts that will increase when debited?

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a. Income or revenue c. owner’s equity

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b. Accounts payable d. drawing

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20. Which of the following best describes bookkeeping?
a. Clerical part of accounting rs e
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b. Analytical part of accounting
c. Identifying part of accounting
d. Summarizing part of accounting
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21. When a customer’s account is collected in full.

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a. Total assets increased c. total assets remained the same

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b. Total assets decreased d. none of these

22. When a supplier’s account is paid in full, there will be a –
a. Decrease in liability and increase in asset
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b. Increase in asset and decrease in liabilities

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c. Decrease in liability and decrease in asset

d. None of the above
Problems:
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Paired Transactions for Analysis

Instruction: The following “paired” transactions are related to each other. Determine the value
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received or debit and the value parted with or credit.

Value Value
Received Parted With
Or or
Debit Credit
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 A-1 Heginio Lacson invested cash in the business. ___________ __________
2 Heginio Lacson withdrew cash from the business. ___________ __________
B-1 Bought shop supplies on account from Alex Jandoc. ___________ __________
2 Paid in full its account with Alex Jandoc. ___________ __________
C-1 Rendered services on account to Helen Cailing. ___________ __________
2 Collected in full the account of Helen Cailing. ___________ __________
D-1 Sold an old typewriter on account to Virgie Caraso. ___________ __________
2 Collected in full the account of Virgie Caraso. ___________ __________
E-1 Borrowed money from Johnny Gaviliño and issued a
promissory note to him ___________ __________
2 Paid its promissory note issued to Johnny Gaviliño. ___________ __________

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F-1 Received a note from Narvin Lachica for services

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rendered on account. ___________ __________

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2 Collected in full the note issued by Narvin Lachica. ___________ __________

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G-1 Bought a new computer on account from Elizabeth Palma Gil. ___________ __________
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2 Paid its account with Elizabeth Palma Gil. ___________ __________
H-1 Received a promissory note from Rogelio Macabenta for
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borrowed money. ___________ __________

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2 Collected in full the promissory note issued by

Rogelio Macabenta. ___________ __________
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