FINANCIAL STATEMENTS
PAS 1 prescribes the basis for the
presentation of general-purpose financial
statements to improve comparability both
with the entity's financial statements of
previous periods (intra-comparability)
and with the financial statements of other
entities (inter-comparability).
Complete set of financial statements
1. Statement of financial position
2. Statement of profit or loss and other
comprehensive income
3. Statement of changes in equity
4. Statement of cash flows
5. Notes(5a) comparative information in
respect of the preceding period; and
6. Additional statement of financial
position (required only when certain
instances occur)
Statement of Financial Position (Balance
Sheet) – a formal statement showing the
resources (assets), obligations (liabilities),
and equity at a given point in time.
Elements of the Statement of Financial
Position (Balance Sheet)
• Assets – resources by the entity as
controlled a result of past events
from which future economic
benefits are expected to flow to
the entity.
• Liabilities – present obligations of
an entity arising from past events,
the settlement of which are
expected to result in an outflow
from the entity of resources
embodying economic benefits.
• Equity – the owner’s residual
interest in the assets of an entity
that remains after deducting its
liabilities.
Recognition of Assets and Liabilities:
Assets – are recognized in the balance
sheet when it is probable that future
economic benefits will flow to the entity
and the asset has a cost or value that can
be measured reliably.
Liabilities – are recognized in the balance
sheet when it is probable that an outflow
of resources embodying economic benefits
will result from the settlement of a present
obligation and the amount at which the
settlement will take place can be measured
reliably.
Current and Noncurrent Classification:
Assets and liabilities should be separately
classified on the face of the balance sheet
except in circumstances when a liquidity-
based (unclassified) presentation provides
more reliable and relevant information.
Minimum line items in the statement of
financial position
a. Property, plant and equipment;
b. Investment property;
c. Intangible assets;
d. Financial assets (excluding amounts
shown under (e), (h) and (i))
e. Investments accounted for using the
equity method
f. Biological assets;g. Inventories;
h. Trade and other receivables;i. Cash and
cash equivalents;
j. Assets (or disposal groups) classified as
held for sale in accordance
k. Trade and other payables;
l. Provisions;
m. Financial liabilities (excluding amounts
shown under (k) and (l));
n. Liabilities and assets for current tax, as
defined in PAS 12 Income Taxes;
o. Deferred tax liabilities and deferred tax
assets, as defined in PAS 12
p. Liabilities included in disposal groups
classified as held for sale in accordance
with PFRS 5;
q. Non-controlling interests, presented
within equity; and
r. Issued capital and reserves attributable
to owners of the parent
ASSETS
CURRENT ASSETS
An entity shall classify an asset as current
when:
1. it expects to realize the asset or intends
to sell or consume it, in its normal
operating cycle;
2. it holds the asset primarily for the
purpose of trading;
3. it expects to realize the asset within
twelve months after the reporting
period; or
4. the asset is cash or a cash equivalent
unless the asset is restricted from being
exchanged or used to settle a liability
 for at least twelve months after the
reporting period.
All other assets should be classified as
non-current asset.
Presentation of Current Assets:
Current assets are usually listed in order
of liquidity. The line items in the current
assets section are:
1. Cash and cash equivalents
2. Financial assets such as trading
securities, AFS securities and other
short term marketable securities
3. Trade and other receivables
4. Inventories
5. Prepaid expenses
Noncurrent Assets – a residual definition,
meaning these are the assets that were
not classified as current asset. The
noncurrent assets include: PPE, long-term
investments, intangible assets and other
noncurrent assets. investments, intangible
assets and other noncurrent assets.
Quizzer 1.1
1. Accounting is
I. A service activity and its function is to
provide quantitative information,
primarily financial in nature, about
economic entities, that is intended to
be useful in making economic
decision.
II. The art of recording, classifying, and
summarizing in a significant manner
and in terms of money, transactions
and events which are in part at least
of a financial character and
interpreting the results thereof.
III. The process of identifying, measuring
and communicating economic
information to permit informed
judgment and decision by users of
the information.
a. I, II and III b. I only c. II
only d. III only
2. Financial accounting
a. Is the examination of financial
statements by an independent CPA
for the purpose of expressing an
opinion as to the fairness of the
financial statements.
b. Focuses on the preparation and
presentation of general purpose
reports known as financial
statements.
c. Has no precise coverage but is used
generally to refer to services to
clients on matters of accounting,
finance, business policies,
organization procedures, product
costs, distribution and many other
phases of business conduct and
operations.
d. Is the preparation of annual income
tax returns and determination of
tax consequences of certain
proposed business venture.
3. Which is incorrect concerning financial
statements?
a. The objective of general purpose
financial statements is to provide
information about the financial
position, performance and cash
flows of an enterprise that is useful
to a wide range of users in making
economic decisions.
b. b. Financial statements also show
the results of management’s
stewardship of the resources
entrusted to it.
c. The management of an enterprise has
the primary responsibility for the
preparation and presentation of financial
statements.
d. Financial statements are prepared and
presented at least annually and are directed
toward the specific needs of a wide range of
users.
4. Financial statements portray the
financial effects of transactions and
other events by grouping them into
broad classes according to their
economic characteristics. These broad
classes are termed as the
a. Elements of financial statements
b. Features of accounting
c. Accounting constraints
d. Concepts of capital and capital m
5. It is the process of incorporating in the
balance sheet or income statement an
item that meets the definition of an
element of financial statements.
a. Recognition
b. Allocation
c. Realization
d. Summarization

6. It is the process of determining the
monetary amounts at which the
elements are to be recognized and
carried in the balance sheet and
income statement.
a. Measurement
b. Recognition
c. Reporting
d. Interpreting
7. Which is not a current asset?
a. office supplies inventory
b. petty cash (undeposited)
c. cash short-term investment
d. cash surrender value of life
insurance
8. Theoretically, at the date of a service
which is not immediately consumed,
the cost of such service is a (an):
a. Accrued expense
b. deferred revenue
c. expense
d. asset
9. Cloud Company, a parent company has
reported the following current
accounts in its financial records as of
December 31, 2022:
Cash and cash equivalents P 3,000,000
Loans and receivables 20,000,000
Inventory 2,000,000
Prepaid expenses 500,000
Total P 25,500,000
Included in the loans and receivables is a
P5,000,000 loan to Panda Company, a
subsidiary. The loan is repayable on
demand but the demand feature is
primarily a form of a protection or a tax
driven feature of the loan and it is the
intention of both parties that the loan will
remain outstanding for the foreseeable
future. What is the correct amount of
current assets that Cloud Company should
report in its December 31, 2023 financial
position?
a. P20,500,000
b. 23,500,000
c. 25,000,000
d. 25,500,000
10. Metlog Inc. reported the following
items in its December 31, 2022
adjusted trial balance:
Accounts payable, net of P121,000 debit
balance, P1,089,000; customer’s account
with credit balance, P120,000; advances to
employees, P45,000; unearned commission
income P288,000; provision for warranties,
P258,000; bonds payable, P5,000,000;
discount on bonds payable, P250,000; and
deferred gain P100,000. What total amount
of liabilities should be reported by Metlog
in its statement of financial position?
a. 6,626,000
b. 6,726,000
c. 7,126,000
d. 7,226,000
11. The accounts and balances shown
below were gathered from Hakdog’s
trial balance on December 31, 2022.
All adjusting entries have been made.
Cash and cash equivalents, P300,000; loans
and receivables, P700,000; prepaid
expenses P100,000; stock in trade
P800,000; investment in associate
P1,000,000; investment property P900,000;
long term fund investment P500,000; PPE -
net P8,000,000; Patents and trademarks –
net P600,000; Goodwill P800,000; accounts
payable P150,000; notes payable P300,000;
unearned revenues P250,000; bonds
payable P1,000,000; dividends payable
P140,000; premium on bonds payable
P100,000; taxes payable 250,000; advances
from shareholders P500,000.
Question 1: How much should be the
amount of current assets on Hakdog’s
December 31, 2022 balance sheet?
a. 1,400,000
b. 1,700,000
c. 1,900,000
d. 2,200,000
Question 2: How much should be the
amount of current liabilities to be reported
in the December 31, 2022 balance sheet of
Hakdog?
a. 840,000
b. 1,090,000
c. 1,450,000
d. 1,590,000
CASH AND CASH EQUIVALENTS
Composition of Cash – includes cash on
hand as well as current and other
accounts maintained with banks such as
the following:
a. Undeposited currency and coins
b. Petty cash
c. Demand deposits
d. Undeposited negotiable checks
e. Foreign currencies
f. Bank drafts
g. Money orders
h. Other short-term funds
Valuation of Cash and Cash Equivalents
a. Fa – Face Amount
b. Cu – Current Exchange Rate
c. E – Estimated Realizable Value
Financial Statement Presentation
Shown as the first item among the current
assets as one line item but the detail of
which should be disclosed in the notes to
FS.
Special Items
CERTIFIED CHECKS – Checks that have
been accepted by the bank and where the
drawer’s account has been debited but
the money has yet to be withdrawn by the
payee. The funds are now held by the
bank on behalf of the payee and the check
is no longer outstanding.
BANK OVERDRAFT – presented as an
accounting liability. However, a bank
overdraft that is repayable on demand that
forms part of an entity’s cash management
should be included as a component of cash
and cash equivalent.
COMPENSATING BALANCE AGREEMENT –
Part of or deposits that a bank can use to
offset an existing loan. However,
compensating balances can also describe
a minimum amount of the deposit that a
depositor agrees to maintain to guarantee
future credit availability.
➢ In the case of deposits that a bank
can use to offset a loan, the
assumption is that this amount is
legally restricted to withdrawal and
therefore excluded from cash,
however in cases that it still
remains to be unrestricted, the
compensating balance shall be part
of cash. If the compensating
balance is legally restricted the
following rules shall be followed:
a. The related loan is short-
term: The compensating
balance shall be part of
current assets but separately
from cash.
b. The related loan is long-
term: The compensating
balance is part of non-
current assets as an
investment.
➢ An informal agreement to maintain
a minimum amount of deposit will
not be legally restricted and
therefore included in cash.
TIME DEPOSITS – Bank savings account
that earns interest but not subject to
immediate withdrawal or check issuance.
A notice must be submitted by the
depositor for the withdrawal of funds and
interest earned shall be forfeited.
➢ Time deposits are excluded from
cash because of their restriction on
availability as funds and are
classified as restricted and shall
follow these specific classifications:
a. Cash equivalents if the
original term is 3 months or
less.
b. Short term investments if
the original term is more
than 3 months to1 year.
c. Long-term investments if the
original term is more than 1
year.
CASH EQUIVALENTS
Cash equivalents are short-term highly
liquid investments that are readily
convertible into cash and so near their
maturity that they present insignificant
risk of changes in value because of
changes in interest rates.
The three important characteristics for
cash equivalents as mentioned in PAS 7
are short-term, highly liquid and near
maturity. In other words, short-term debt
instruments with low risk (also low yield)
and acquired 3 months or less from
maturity date shall be considered as cash
equivalents.
Examples include Treasury Bills, Bonds
and Notes, Time Deposits, Certificate of
deposits and Bankers Acceptances and
Commercial Papers.
Quizzer 1.2 (Cash Equivalents)
1. An item that should be excluded from cash
and cash equivalents on the December 31,
2005 balance sheet of Haydee
Company is
a. A customer’s check denominated in
foreign currency.
b. A check issued by Haydee Company on
December 30, 2005, but dated January
10, 2006.
c. A P1,000,000 time deposit which
matures in 4-months
d. A P100,000 balance in the company’s
current account maintained as a payroll
fund.
2. Which of the following is not a basic
characteristic of a system of cash control?
a. Use of a voucher system
b. Combined responsibility for handling
and recording cash
c. Daily deposit of all cash received
d. Internal audits at irregular intervals
3. Which is false concerning
measurement of cash and cash
equivalents?
a. Cash is measured at face value
b. Cash in foreign currency is
measured at the current exchange
rate
c. If a bank or financial institution
holding the funds of the company is
in bankruptcy or financial difficulty,
cash should be written down to
estimated realizable value.
d. Cash equivalents should be
measured at maturity value,
meaning face value plus interest
4. If material, deposits in foreign bank
which are subject to foreign exchange
restriction shall be classified
a. Separately as current asset with
appropriate disclosure
b. Separately as non-current asset
with appropriate disclosure
c. Separately as current asset without
appropriate disclosure
d. Separately as non-current asset
without appropriate disclosure
5. Which of the following statements in
relation to the cash short or over
account is true?
a. It would be impossible to have cash
shortage or overage if employees
were paid in cash rather than by
check
b. The entry to account for daily cash
sales for which a small amount of
cash shortage existed would
include a debit to cash short or
over account
c. If the cash short or over account
has a debit balance at the end of
the period it must be debited to an
expense account
d. A credit balance in a cash shorty or
over account should be considered
a liability because the short
changed customer will demand
return of this amount.
6. What happens when a petty cash is in
use?
a. Expenses paid with petty cash are
recorded when the fund is
replenished
b. Most small amounts are paid from
cash receipts before they are
deposited
c. Petty cash is debited when the fund
is replenished
d. Petty cash fund is credited when
the fund is replenished.
7. The petty cash fund account under the
imprest fund system is debited
a. Only when the fund is created
b. When the fund is created and every
time the fund is replenished
c. When the fund is created and when
the size of the fund is increased
d. When the fund is created and when
the fund is decreased

8. Unreleased checks (checks drawn
before the end of reporting period but
held for later delivery to creditors)
a. Shall be treated as outstanding
checks
b. Shall be restored to the cash
balance
c. Shall be treated as outstanding
checks if the date is shortly after
the end of the reporting period
d. Shall be treated as outstanding
checks if they are ultimately
encashed.
9. Which of the following is not
considered a cash equivalent?
a. A three-year treasury note
maturing on May 30 of the current
year purchased by the entity on
April 15 of the current year.
b. A three-year treasury note
maturing on May 30 of the current
year purchased by the entity on
January 15 of the current year.
c. A 90-day T-bill
d. All of these
10. At the end of the current year, an
entity had various checks and papers
in its safe. Which item should not be
included in cash in the current year-
end statement of financial position? a.
US $20,000 cash
b. Past due promissory note issued in favor
of the entity by the president
c. Another entity’s P150,000 check payable
to the entity dated December 15 of the
current year
d. The entity’s undelivered check payable
to a supplier dated December 31 of the
current year
11. Boggart Company had the following
account balances on December 31,
2021:
Cash in bank – current account
1,250,000
Cash in bank – payroll account 250,000
Cash on hand 125,000
Cash in bank – restricted account for
building construction expected to be
disbursed in 2022 750,000
Time deposit, purchased December 15,
2021 and due March 15, 2022 500,000
The cash on hand includes a P50,000
check payable to Boggart Company,
dated January 15, 2022. What should
be reported as cash and cash
equivalents on December 31, 2021?
a. 1,575,000
b. 2,075,000
c. 1,625,000
d. 2,175,000
12. Eme Company had the following
account balances on December 31,
2021:
Cash in bank P4,500,000
Cash on hand P250,000
Cash restricted for addition to plant
expected to be disbursed in 2022
3,200,000
Cash in bank includes P1,200,000 of
compensating balance against short-
term borrowing arrangement. The
compensating balance is not legally
restricted as to withdrawal by Eme
Company. In the December 31, 2021
statement of financial position, what
total cash should be reported under
current assets?
a. 3,550,000
b. 4,500,000
c. 4,750,000
d. 7,950,000
e.
13. Aki Company shows the following
account balances in their financial
records as of December 31, 2022:
Checking account at Chinabank
(P20,000); Checking account at
Landbank P500,000; Payroll account
BPI P100,000; Foreign bank account-
restricted P750,000; Postage stamps,
P22,000; employees postdated checks
P30,000; IOU from president’s brother
P75,000; traveler’s check P50,000; no
sufficient fund check P18,000; petty
cash fund (P16,000 in currency and
expense receipts for P84,000)
P100,000 and cashier’s check P36,000.
What is the correct cash balance to be
reported in the balance sheet of Aki
Company on December 31, 2022?
a. P582,000
b. P686,000
c. P702,000
 d. P704,000
14. The cash account in the current asset
section of Mavis Company showed a
balance of P555,000. It was found to
include the following items:
Petty cash fund (P1,000 is in the form of
paid vouchers) P5,000; checking account
balance per bank statement (P25,000
check is still outstanding) P255,000;
undeposited receipts (including a post-
dated check for P5,000) P120,000;
currencies and coins awaiting deposit
P55,000; bond sinking fund cash
P100,000; check drawn by manager,
returned by bank marked NSF P20,000.
What is the correct cash balance for Mavis
Company?
a. P404,000
b. P429,000
c. P430,000
d. P529,000
15. Account of the petty cash fund of
Mema Company showed its
composition as follows: Currency and
coin 16,500
Paid vouchers
Transportation 3,000
Gasoline 2,000
Office supplies 2,500
Postage stamps 1,500
Due from employees 6,000
Customer’s check returned by bank and
marked NSF 5,000
Check drawn by entity to the order of
the petty cash custodial 13,500
What is the correct amount of petty
cash fund for statement presentation
purposes?
a. 50,000
b. 35,000
c. 30,000
d. 45,000
16. The December 31, 2021 trial balance
of Ferson Company includes the
following accounts:
Petty cash fund 12,500
Current account – PNB 1,000,000
Current account – Allied (overdraft)
(62,500)
Money market placement – BPI
250,000
Time deposit – Metrobank 500,000
The petty cash fund includes
unreplenished December 2021 petty
cash expense vouchers for P3,750 and
an employee check for P1,250 dated
January 31, 2022.
A check for P25,000 was drawn against
PNB current account dated and
recorded December 29, 2021 but
mailed to payee on January 15, 2022.
The Money market placement was
acquired on Dec. 27, 2021 and will
mature on February 28, 2022.
The Metrobank time deposit is set
aside for land acquisition in early 2022.
What amount should be reported as
cash and cash equivalents on
December 31, 2021?
a. 1,282,500
b. 1,287,500
c. 1,032,500
d. 1,220,000
17. Snow Company had the following
transactions all through our the year
2022 which is its first year of
operations:
Sales (90% collected in first 1,500,000
year
Bad debt written off 60,000
Disbursements for cost and 1,200,000
expenses
Disbursements for income 90,000
taxes
Purchases of fixed assets 400,000
Depreciation of fixed`assets 80,000
Proceeds from issuance of 500,000
ordinary shares
Proceeds from short-term 100,000
borrowings
Payments on short term 50,000
borrowings
What is the cash balance at December 31,2022
a. 150,000
b. 170,000
c. 210,000
d. 280,000
18. Fanty Company’s checkbook balance
on December 31, 2021 was
P2,000,000. In addition, Fanty held the
following items in its sage on that
date:
• Check payable to Fanty, dated
January 2, 2021 in payment of a sale
made in December 2020, not included
in December 31 book balance 800,000.
• Check payable to Fanty, deposited
January 15, and included in December
31 book balance, but returned by bank
on December 30 stamped NSF. The
check was redeposited on January 2,
2022 and cleared a week later.
200,000.
• Check drawn on Fanty’s account,
payable to vendor, dated on December
31, 2021, but not yet mailed until
January 10, 2022. 120,000. The
amount was not included in the
checkbook balance.
What is the amount to be reported as
cash in December 31, 2021?
a. 1,920,000
b. 2,120,000
c. 2,600,000
d. 2,720,000
19. The following information is shown in
the accounting records of Brep
Company:
What is the cash balance on December
31, 2023 of Brep Company?
a. 324,000
b. 447,000
c. 758,000
d. 915,000
1. A form of business that buys raw
materials and transforms them into
finished products.
c. Manufacturing
d. Outsourcing
b. Merchandising
a. Service-oriented business
2. The business borrowed ₱1M from
the bank. At maturity date, the
business pays the bank ₱1.4M to
settle the loan. The ₱.4M difference
between the settlement amount and
the principal (i.e., 1.4M – 1M = .4M
difference) is recorded as
c. Interest expense.
d. Utilities expense.
a. Prepaid rent.
b. Notes payable.
3. Under this concept, a business is
not expected to end its operations in
the near term.
a. Separate entity concept
d. Materiality
b. Going concern
c. Stable monetary unit
4. All of the following describe
accounting, except
a. A service activity
c. A universal language of business
b. An information system
d. An exact science rather than an art.
5. Revenues earned from rendering
services are recorded in this account.
a. Sales
d. Gains
c. Interest income
b. Service fees
6. In accounting, it means the
allocation of the cost of an asset over
the periods in which the asset is used.
b. Depreciation
d. Cost spreading
c. Bad debts
a. Allocationing
7. Cash is increased through
d. a and c
b. a credit.
c. ask Mama to make padala.
a. a debit.
8. Which of the following statements is 14. Which of the following is incorrect
correct? regarding profit?
b. The internal users of accounting b. Profit is the excess of total income
information include management, over total expenses.
owners and creditors. d. Profit is earned if total income is
c. The external users of accounting less than total expenses.
information include potential and a. Profit is measured only indirectly as
existing investors and lenders and an arithmetical difference.
other creditors. c. Profit increases equity.
a. Financial accounting is the branch
of accounting that deals with the 15. Ben deposited P50,000 in a bank
specific needs of an entity’s account in the name of the business.
management. Which of the following is true in
d. Government accounting is the regards to the fundamental accounting
branch of accounting that deals with equation?
the analysis of the costs of products b. Liabilities increase by P50,000
and services. a. Assets increase by P50,000
d. Owner’s equity decreases by
9. Recording assets at their acquisition P50,000
cost (entry value), rather than at their c. Assets decrease by P50,000
net selling price (exit value), is in line
with the concept of 16. The following are decisions made
a. Single entity concept. by external users except
d. Matching principle. a. whether to hold or sell investments
c. Going concern concept. in stocks.
b. Historical cost concept. d. whether to obtain additional capital
from outside creditors or to generate it
10. He paid monthly rent of the office, internally.
P9,500 b. whether or not to extend a loan to
b. Debit rent expense, credit cash the business.
a. Debit cash, Credit J. Ilagan capital c. whether to sell goods on credit to
d. Debit cash, credit rent expense the business.
c. Debit J. Ilagan capital, credit cash
17. The business renders services to
11. The term ‘economic resource’ clients.
connotes a. Sales
a. equity c. Interest income
b. income b. Service fees
c. asset d. Gain
d. liability
18. In accounting, the term “recording”
12. The minimum balance of an is also called
account is zero. In accounting, a d. videoing.
negative balance in an account is b. communicating.
referred to as c. debiting.
c. psychotic balance. a. journalizing.
a. abnormal balance.
b. crazy balance. 19. This includes money or its
d. LOL balance. equivalent that is readily available for
unrestricted use.
13. Costs that are treated as assets c. Cash
until the product is sold are called* d. Cash payable
c. Conversion costs b. Cash expense
b. Period costs a. Money expense
d. None of these
a. Product costs
20. Which of the following statements
regarding accounting is incorrect?
b. Although bookkeeping and
accounting are interrelated, they are
not the same.
c. The purpose of accounting is to
provide information that is useful in
making economic decisions.
d. A transaction or event is recorded in
the accounting records only if it has an
effect on the assets, liabilities, equity,
income or expenses of the business.
a. All business transactions and events
are recorded in the accounting books.
21. Transactions and other events are
recorded in the periods in which they
occur, not when they affect cash.
d. Consistency
c. Reporting period
a. Going concern
b. Accrual basis
22. A customer bought goods from
your business, on credit. The customer
orally promised to pay the sale price
next week. Which of the following
accounts is increased and therefore
debited?
c. Notes receivable
d. Sales
b. Accounts receivable
a. Cash
23. Which of the following is not one of
the necessary processes performed in
accounting in order to provide
information that is useful to interested
users?
c. Recording
a. Identifying
b. Summarizing
d. Counting
24. Which of the following is the
correct flow of manufacturing cost?
a. Raw materials, work in process,
finished goods, cost goods sold
d. Cost of goods sold, raw materials,
work in process, finished goods
b. Raw materials, finished goods, cost
of goods sold, work in process
c. Work in process, finished goods,
raw materials, cost of goods sold
25. It is a present obligation that has
resulted from past events and has the
potential to cause a transfer of an
economic resource in its settlement.
A. equity
B. asset
C. liability
D. income
26. Revenues, expenses, and
withdrawals would not appear on a(n):
e. Post-closing trial balance
g. Unadjusted trial balance
f. Adjusted trial balance
h. Worksheet
27. Which of the following is correct
concerning the qualitative
characteristics?
c. Information that is not capable of
affecting the decisions of users is
considered irrelevant.
a. Free from error means the
information contained in the financial
statements is perfectly accurate in all
respects.
d. The enhancing qualitative
characteristics can convert non-useful
information to useful information.
b. Neutrality means information is
selected or presented with bias to
increase the probability that the
information will be received favorably
by the users.
28. You own a business. Your
business is engaged in buying goods
at a wholesale price and reselling
them at retail prices on Facebook.
Your business is a
a. service business.
c. merchandising business.
d. monkey business
b. manufacturing business.
29. Which of the following is most
likely considered an adjusting entry?
a. The entry to record the payment of
interest payable
d. The entry to record bad debts
expense for the period
c. The entry to record the purchase of
equipment
b. The entry to record the collection of
accounts receivable
30. Under this concept, some costs 37. Which of the following is most
are initially recognized as assets and likely not considered an adjusting
recognized only as expenses when the entry?
related revenue is recognized. b. The recognition of depreciation
d. Matching principle expense for the period
b. Historical cost concept a. The accrual of an electricity bill for
c. Going concern electricity used but not yet paid
a. Separate entity concept d. The entry to record the collection of
interest receivable
31. Which of the following credit terms c. The recognition of the used and
allow for a cash discount? unused portions of a prepaid rent
d. 1/10, n/30
a. n/30 38. Your business obtained a ₱1M
c. n/60 loan from a financing company. The
b. n/eom financing company made you sign a
contract promising to repay the loan
32. When two debits get together, the after a year. Which of the following
result is accounts is increased and therefore
c. multiplication. credited?
b. deduction. b. Accounts receivable
d. love and happiness. c. Notes payable
a. addition. d. Notes receivable
a. Accounts payable
33. A controlling account can be found
in the 39. The most common form of
d. Income statement business organization is
c. Accounts receivable ledger c. partnership.
a. General ledger a. corporation.
b. Source documents d. cell phone stand
b. sole proprietorship.
34. Decreases the proprietorship
a. Additional investment 40. Which of the following statements
c. Rent expense is incorrect?
d. Initial investment d. Accounting education is the branch
b. Service income of accounting that deals with the
teaching of accounting and related
subjects in order to produce
35. Which of the following credit terms competent and responsible business
allow for a cash discount? professionals.
b. n/eom c. Tax accounting refers to the branch
d. 1/10, n/30 of accounting that deals with tax
c. n/60 computations, filing of tax returns, and
a. n/30 tax planning.
b. Internal users of financial
36. The measure of how quickly an information refer to the entity’s
item can be converted into cash is management personnel.
referred to as. a. Erroneous financial statements can
c. Liquidity lead to bad financial decisions.
d. Profitability
b. Solvency 41. This qualitative characteristic
a. Leverage requires at least two items.
a. Comparability
d. Understandability
c. Verifiability
b. Timeliness
42. Which of the following appears in 48. You opened up a business and
the balance sheet debit column of a invested ₱5M cash as the business’
worksheet? initial capital. Which of the following
a. Service revenue accounts is increased and therefore
b. Income summary debited?
c. Owner withdrawals b. Owner’s equity
d. Accounts payable a. Cash
d. Accounts receivable
43. This represents the value of c. Accounts payable
inventories that have been sold during
the accounting period. 49. Assets should be recognized
i. Interest Expense initially at original acquisition costs.
iii. Rent expense c. Time-period assumption
ii. Travel expense b. Cost principle
iv. Cost of sales a. Objectivity
d. Materiality
44. Your business sells goods to a
credit customer. Which of the following 50. These users need accounting
accounts is increased? information in evaluating the stability of
d. All of these the business in so far as their job
b. Cost of sales security, future remuneration, and
a. Accounts receivable career growth and opportunities are
c. Sales concerned.
c. Auditors
45. The term ‘present obligation’ a. Employees
connotes b. Creditors
A. liability d. Regulatory authorities
B. income
C. equity 51. A business incurs total expenses
D. asset of ₱630,000 and reports loss of
₱270,000. How much is the total
46. These users need accounting income?
information in order to regulate d. 360,000
businesses that are within the scope of c. 380,000
their legal authority. a. 900,000
b. Creditors b. 320,000
c. Auditors
a. Employees 52. This accounting process is the
d. Government regulatory bodies or recognition or nonrecognition of
agencies activities as accountable events.
f. Measuring
47. Entity A had total assets, liabilities, h. Reporting
and equity of ₱150M, ₱90M and g. Communicating
₱60M, respectively, at the beginning of e. Identifying
the period. During the period, Entity
A’s total liabilities decreased to ₱40M, 53. Accrued revenues
while its profit was ₱25M. There were d. Increase assets
no other transactions or events that a. Decrease assets
affected equity during the period. How c. Decrease liabilities
much is Entity A’s ending total assets? b. Increase liability
d. ₱125M
a. ₱75M
b. ₱115M
c. ₱95M
54. The accounting standards that are December 31, PP18,500; Raw
currently used in the Philippines are materials used P25, 300; Period Costs
referred to as the P50,500. Direct labor incurred in
d. Juan’s GAAP. December amount to 150 percent of
b. Philippine GAAP. manufacturing overhead in December.
c. Filipino Accounting Standards What is the amount of direct labor
(FAS). incurred by ABC Company in
a. Philippine Financial Reporting December?
Standards (PFRS). a. P75,200
c. P63,900
55. Which of the following relates to d. P49,250
the concept of consistency? b. P39,700
c. Measuring assets at their acquisition
cost. 61. A journal designed for entering
d. Using the same accounting only sales on account is called the
treatment for similar items from period e. Cash receipts journal
to period. h. General journal
a. Treating the business as a separate g. Sales journal
entity from its owner. f. Cash payments journal
b. Recording sales revenue when a
sale occurs rather than when the sale 62. Sales revenue minus sales returns
price is collected. and allowances and sales discounts
equals:
56. These accounts are closed at the a. Gross margin
end of the accounting period. c. Cost of goods sold
b. Mixed accounts b. Income from operations
a. Real accounts d. Net sales
c. Nominal accounts
d. Door accounts 63. Real accounts are presented in
what formal report?
57. The “Allowance for bad debts” b. Balance sheet
account is a contra account of d. Worksheet
c. Accounts receivable. a. Income statement
d. Equipment c. Unadjusted trial balance
b. Building.
a. Cash. 64. The usefulness of information is
58. It is an economic resource assessed in terms of its
controlled by the entity that has c. timeliness.
resulted from past events and has a b. verifiability.
potential to produce economic d. size.
benefits. a. qualitative characteristics.
A. income
B. equity 65. Prepaid insurance is a(n)
C. liability d. Expense
D. asset b. Liability
a. Asset
59. The term liability refers to c. Revenue
a. The equity of an owner only
c. The equity of an owner and/or 66. Which of the following is one of the
creditors fundamental qualitative
d. The equity of a debtor. characteristics?
b. The equity of the creditors only a. Comparability
d. Verifiability
60. ABC Company reports the b. Relevance
following cost information for c. Timeliness
December:Cost of goods
manufactured P135,800; Finished 67. What is the normal balance of the
goods inventory, December 1 sales returns account?
P30,200; Finished goods inventory, a. debit
December 31 P35,300; Work-in- d. none of these
process inventory December 1 b. credit
P22,500; Work-in-process inventory c. zero
 75. The document authorizing the
68. This account is used to record the issuance of materials from the
temporary withdrawals of the owner storeroom is the:
during the period. d. Purchase order
a. Owner’s drawing b. Purchase requisition
c. Owner’s equity a. Materials requisition
d. Interest expense c. Receiving report
b. Owner’s capital
76. Which of the following is not a
69. Which of the following is not an special journal?
asset? a. Sales journal
d. Salaries b. Cash receipts journal
a. Cash c. Purchases journal
b. Furniture d. Subsidiary ledger
c. Equipment
77. The business purchases inventory
70. What is the law regulating the on account (on credit).
practice of accountancy in the a. Cash
Philippines? c. Accounts payable
d. R.A. 9892 d. Prepaid supplies
c. R.A. 9928 b. Accounts receivable
b. R.A. 9118
a. R.A. 9298 78. Entity A had total assets of ₱120M
and total liabilities of ₱80M at the
71. Which of the following would result beginning of the period. If at the end of
to total expenses of ₱480,000? the period, total assets increased by
a. Total income of ₱360,000 and profit ₱30M, while total liabilities remained
₱120,000 the same, Entity A’s total equity at the
b. Total income of ₱580,000 and loss end of the period would be
of ₱100,000 d. ₱80M
d. Total income of ₱630,000 and loss c. ₱60M
of ₱150,000 a. ₱70M
c. Total income of ₱630,000 and profit b. ₱90M
of ₱150,000
79. The business pays its employees
72. Revenues earned from sales of compensation for the services they
goods are recorded in this account. have rendered during the period.
a. Sales c. Freight-out
b. Service fees a. Rent expense
c. Interest income d. Salaries expense
b. Cost of sales or Cost of goods sold
73. In conjunction with the transaction
in #9 above, which of the following 80. At the beginning of the period, a
accounts is also increased and business has a cash balance of
therefore credited? ₱20,000. During the period, total cash
d. Accounts receivable collections and total cash payments
a. Cash amounted to ₱100,000 and ₱70,000,
b. Owner’s equity respectively. How much is the ending
c. Accounts payable balance of cash?
a. 10,000
74. This process refers to the reporting d. 70,000
of the information processed in the c. 50,000
accounting system to interested users. b. 30,000
c. debiting.
b. communicating.
a. journalizing.
d. videoing.
81. Accounting is described in various
ways. Which of the following is not one 88. Entity A’s accounts receivable has
of those descriptions? a balance of ₱10,000. If the related
c. Accounting is the “language of allowance for bad debts account has a
business” because it is fundamental to balance of ₱4,000, the carrying
the communication of financial amount of accounts receivable in
information. Entity A’s financial statements is
b. Accounting is a social science and a d. 0.
practical art. b. ₱6,000.
a. Accounting is a process and a a. ₱14,000.
service activity. c. ₱4,000.
d. Accounting is the art of
professionally stealing money and 89. The business sells goods to a
other evil purposes. customer who orally promises to pay
for the purchase price after 30 days.
82. The business sells goods to a b. Accounts payable
customer who orally promises to pay c. Cash
for the purchase price after 30 days. a. Accounts receivable
c. Accounts receivable d. Cost of sales
b. Inventory
a. Building 90. A business purchased equipment
d. Owner’s capital for ₱10,000 but deliberately reported it
as ₱100,000. Which of the following
83. When the seller is liable for principles is most likely not violated?
shipping costs, the payment is c. Historical cost
recorded with a debit to: a. Faithful representation
a. Delivery expense b. Free from error
c. Inventory d. Materiality
d. cash
b. Freight-in 91. In accounting, recording a
transaction in a debit-credit form is
84. A decrease in the economic called
benefits of a resource would be d. journalizing.
treated as c. identifying and analyzing.
A. assets b. posting.
B. liability a. journalinging.
C. expense
D. income 92. This branch of accounting focuses
on catering to the information needs of
85. With special journal, summary external users
postings of column totals are made to c. Auditing
appropriate accounts d. External accounting
a. Monthly b. Financial accounting
d. On a periodic basis a. Management accounting
b. Daily
c. Yearly 93. The claim of the owner(s) on the
total assets of an entity is also called
86. The term “accrual” as used in A. equity
accounting means B. income
b. to record an expense that is already C. liability
incurred but not yet paid. D. asset
d. a and b
a. to record an income that is already 94. An increase to an account is
earned but not yet collected. recorded
c. to record the collection of income or c. in the side of that account that
the payment of expense. represents its normal balance.
a. in the debit side of that account.
87. Accrued revenues b. in the credit side of that account.
d. Increase assets d. beside the account.
c. Decrease liabilities
a. Decrease assets
b. Increase liability
95. It is the process of objectively
evaluating evidence and expressing
an opinion regarding the
correspondence between
management’s assertions and
established criteria.
d. Tax accounting
c. Accounting research
a. Accounting education
b. Auditing

96. You purchased a computer for

₱50,000 cash. To record this
transaction, which of the following
accounts will you credit?
c. Owner’s capital
b. Computer equipment
a. Cash
d. Inventory

97. Which of the following users of

financial information is not considered
a creditor of the business?
c. A customer that buys goods from
the entity on credit
b. A supplier that sells goods to the
entity on credit
a. A loan provider, such as a bank
d. A financing company that provides
the entity with machineries on a “rent-
to-own” basis

98. The business receives billing for

electricity used during the period.
Before the bill is paid, it is initially
recorded in this account.
b. Interest payable
c. Accounts payable
a. Utilities payable
d. Salaries payable

99. A business owner’s contribution to

the business results in
a. an increase in assets and an
increase in income.
d. an increase in assets and an
increase in owner’s equity.
c. an increase in assets and an
increase in liabilities.
b. a decrease in assets and an
increase in owner’s equity.

100. You purchased goods to be held

for sale in the ordinary course of
business activities, on cash basis.
Which of the following accounts is
increased and therefore debited?
d. Inventory
c. Accounts payable
a. Cash
b. Owner’s equity