AC 1 - Introduction to Accounting

Assessment 1

I. Multiple Choice – Choose the answer that best fits the statement

1. If a business is not being sold or closed, the amounts reported in the accounts for assets used in
the business operations are based on the cost of the assets. This practice is justified by:
a. Accounting entity
b. Going concern
c. Time period
d. Accrual concept

2. The financial information must be comprehensible or intelligible if it is to be useful.

a. Completeness
b. Comparability
c. Relevance
d. Understandability

3. Which of the following statements is incorrect?

a. In accordance with the unit of measure assumption, accountants normally revise the amounts
to reflect the changing purchasing power of money due to inflation or deflation
b. Expenses are matched with revenues and not the reverse
c. In accordance with the going concern assumption, the life of the business is presumed to be
indefinite
d. The accrual method, which builds directly on the revenue and matching principles, ignores
the timing of cash receipts or payments when determining when to recognize revenue or
expenses

4. Which of the following groups uses accounting information primarily to help protect the public?
a. Taxing authorities
b. Management
c. Regulatory agencies
d. Economic planners

5. It is the result of the standard of adequate disclosure

a. Substance over form
b. Completeness
c. Faithful representation
d. Neutrality

6. The attributes of relevance include all except

a. Predictive value
b. Feedback value
c. Materiality
d. Neutrality

7. Those who lend money or deliver goods and services before being paid are called
a. Investors
b. Debtors
c. Underwriters
d. Creditors
8. It is the capacity of information to make a difference in decision by helping users evaluate the
past, present, or future events, or confirming, or correcting their past evaluations.
a. Understandability
b. Comparability
c. Neutrality
d. Relevance

9. According to the conceptual framework, the usefulness of providing information in financial

statement is subject to constraint of
a. Consistency
b. Timeliness
c. Faithful representation
d. Cost

10. This accounting concept justified the usage of accruals and deferrals?
a. Stable monetary unit
b. Going concern
c. Materiality
d. Consistency

II. Enumeration

11. What are the five types of financial statements?

12. What are the three types of business according to ownership?
13. What are the three attributes of relevance?
14. What are the three attributes of faithful representation?

III. True or False

15. The terms bookkeeping and accounting are synonymous

16. Accounting is often characterized as “the language of business”
17. A corporation is an economic unit that is legally separate from its owners
18. The personal liability of a partner in a partnership is limited to his investment
19. The set of guidelines and procedures that constitute acceptable accounting practice at a given
time is GAAP, which stands for Generally Accepted Accounting Process
20. A corporation is business owned by its shareholders/stockholders
21. For accounting purposes, a business and owner are considered one and the same