ATENEO DE NAGA UNIVERSITY

Accountancy Department
THEORY OF ACCOUNTS
QUIZ NO.1

MULTIPLE CHOICE: Select the best answer for each of the following questions.

1. X purchased some unclaimed freight for P60,000 and can sell it immediately for P90,000. What
accounting concept governs the amount at which to record the goods you purchased?

a. Going-concern concept c. Cost principle

b. Entity concept d. Reliability principle
2. Assume that a company's fiscal year ends on December 31. Which of the following events involves
an adjusting entry that would be affected by how the event was originally recorded?
a. Sale of merchandise on account
b. Signing a one-year lease for machinery to be used in production of goods for sale.
c. Salaries earned by employees this year will be paid next year.
d. Payment of advertising for six months coverage starting December 1 of current year.
3. Historical cost has been the valuation basis most commonly used in accounting because it is

a. Time-bounded. c. reliable
b. conservative. d. accurate
4. Which of the following statements about accounting concepts and conventions are correct?
I. The money measurement concept requires all assets and liabilities to be accounted for
at historical cost.
II. The substance over form convention means that the economic substance of a
transaction should be reflected in the financial statements, not necessarily its legal form.
III. The realization concept means that profits or gains cannot normally be recognized in the
income statement until realized.
IV. The application of the prudence concept means that assets must be understated and
liabilities must be overstated in preparing financial statements.
a. I and IV b. II and IV c. I and III d. II and III
5. Which statement is correct concerning compliance with GAAP?
I. An entity whose financial statements comply with generally accepted accounting
principles shall disclose that fact.
II. Financial statements shall not be described as complying with generally accepted
accounting principles unless they comply with all the requirements of each applicable
Philippine Financial Reporting Standard.
a. I only b. II only c. Both I and II d. Neither I nor II
6. The conceptual framework of accounting sets out two constraints when implementing
accounting procedures namely

a. Cost-benefit and materiality c. Cost-benefit and timeliness

b. Comparability and consistency d. Timeliness and materiality
7. Which of the following is not an internal control related to cash?

a. The person responsible for preparing bank reconciliations should be separate from the
person who is responsible for signing cheques.
b. All cash disbursements, other than those for small amounts, should be made by cheque.
c. The person who opens the mail should be responsible for making a list and depositing
cheques on the same day that they are received.
d. Cash registers should provide a permanent, locked-in record of each transaction.
8. Verifiability of financial accounting information is synonymous with

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

9. The impact of applying the principle of conservatism results in valuations of which of the
following?
Assets Liabilities Expenses
a. Low Low Low
b. High High High
c. Low High High
d. High Low Low

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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
and bank drafts.
b. Compensating balance required by a bank should always be excluded from "cash and
cash equivalent".
c. The purpose of establishing a petty cash fund is to keep enough cash on hand to cover
all normal operating expenses for a period of time.
d. Classification of a restricted cash balance as current or noncurrent should parallel the
classification of the related obligation for which the cash was restricted.
11. Information about different entities and about different periods of the same entity can be
prepared and presented in a similar manner. Comparability and consistency are related to
which of these objectives?

a. comparability (entities); consistency (entities)

b. comparability (periods); consistency (entities)
c. comparability (periods); consistency (periods)
d. comparability (entities); consistency (periods)
12. The costs of selling and administration in a manufacturing firm are an example of

a. Asset valuation c. Systematic and rational allocation

b. Immediate recognition d. Direct matching
13. These are related to the economic resources, economic obligations, residual interest and
changes in them.
a. Basic elements c. Basic objectives
b. Basic principles d. Basic concepts
14. In a bank reconciliation, collection of a note made by the bank not recognized by the company
is
a. deducted from the book balance c. deducted from the bank balance
b. added to the bank balance d. added to the book balance
15. Today many users should rely on the financial statements as their major source of financial
information and such financial statements should, therefore, be prepared and presented with the
needs of the users in view.
a. The statement is sometimes true but most of the time false
b. The statement is sometimes false but most of the time true
c. The statement is true
d. The statement is false
16. An entity mentioned in PFRS for which there are users who rely on the financial statements as
their major source of financial information about the entity.
a. Sole Proprietorship
b. Partnership
c. Corporation
d. Reporting entity
17. The qualitative characteristic that describes that information has the quality that influences the
economic decisions of users by helping them evaluate past, future events or confirming, or
correcting, their past evaluations is
a. Understandability
b. Relevance
c. Reliability
d. Substance over form
18. Comment on the following statements. 1st statement: Material Omissions or misstatements of
items are material if they could individually or collectively, influence the economic decisions of
users taken on the basis of the financial statements.
2nd statement: Materiality depends on the size and nature of the omission or misstatement
judged in the surrounding circumstances.
3rd statement: The size or nature of the item only could be the determining factor in materiality.
a.
b. true, true, true
b. true, false, true
c. true, true, false
d. false, true, true
19. Which of the following is not true?
a. The imprest petty cash system in effect adheres to the rule of disbursement by check.

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 b. Entries are made to the Petty Cash account only to increase or decrease the size of the fund
or to adjust the balance if not replenished at year-end.
c. The Petty Cash account is debited when the fund is replenished.
d. The account "Cash Short/Over" if debit balance, is presented as part of operating expenses.
20. Cash on hand and in bank on the statement of financial position excludes
a. checks drawn before the reporting date but held for later delivery to creditors
b. time deposits
c. US dollars deposited in a foreign currency depository account
d. cash reserved for the acquisition of fixed assets
21. Bank statements provide information about all of the following, except
a. checks cleared during the period.
b. errors made by the company.
c. NSF checks.
d bank charges for the period
22. Seldom does the balance of the cash in bank account in the depositor's books agree with the
balance appearing in the bank statement at, a particular date because of
a. bank secrecy requirements
b. negligence by the bookkeeper
c. a tax avoidance scheme
d. time-lapse differences
23. All of the following can be classified as cash and cash equivalents, except:
a. Redeemable preference shares acquired and due in 60 days
b. Commercial paper held and due for repayment in 90 days
c. Equity instrument
d. Bank overdraft
24. 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
25. At the end of the current year, an entity had various checks and papers in its safe. Which item
should not be included in its cash account in the current year-end statement of financial position?
a. P30,000 cash in current account.
b. Past promissory note issued in favor of the entity by its President
c. Another entity’s P200,000 check payable to the entity dated December 15, 2021
d. The entity’s undelivered check payable to a supplier dated December 31, 2021
26. For information to e useful, the link between the users and the decisions made is
A.
B. Materiality
C. Relevance
D. Reliability
E. Understandability
27. Public utilities’ balance sheets list the plant assets before the current assets. This is
acceptable under which accounting principle/guideline?
A. Conservatism
B. Cost
C. Industry practice
D. This is generally not acceptable
28. When inventory is misstated, its presentation lacks
A. comparability
B. faithful representation
C. relevance
D. all of the choices are correct
29. For which of the following should a provision be recognized?
A. future operating losses
B. obligations under insurance contracts
C. Obligations for plant decommissioning costs
D. reductions in fair value of financial instruments
30. Which of the following is not considered when evaluating whether or not to record a
liability for pending litigation?
A. the type of litigation involved
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 B. the probability of an unfavourable outcome
C. time period in which the underlying cause of action occurred
D. the ability to make a reasonable estimate of the amount of the loss
31. Contingent liability will or will not be recognized as a provision (liability) depending on
A.
B. The outcome of a future event
C. The degree of uncertainty
D. The present condition suggesting a
liability
E. Whether they are probable and
estimable
32. Which of the following liabilities is not contingent?
A. A liability to replace specific defective television set already returned to the
manufacturer.
B. A liability to pay pension benefits if a specific employee lives to retirement.
C. A liability to pay any adverse judgment for a product liability case currently on
appeal
D. A liability to pay for books received by the college bookstore; terms allow for the
return for full refund of any books not sold.
33. In the absence of a standard or an interpretation that specifically applies to a transaction,
other events or condition, management shall ________________ in developing and applying
accountancy policy
a. Use judgment
b. Use material information
c. Use of immaterial information
d. Use of material as well as immaterial information
34. The most important information about a company generally should be disclosed in
a. Schedules
b. The body of the financial statements
c. Supplementary statements
d. Notes to the financial statements
35. The old framework for the preparation and presentation of financial statements is now replaced
by the complete, comprehensive and single document called
a. conceptual framework for financial reporting
b. conceptual framework for financial statements.
c. conceptual framework for business entities
d. conceptual framework.
36. Which of the following characteristics may result in the classification of a liability as current?
a. Short-term obligations refinanced with long-term debt at the end of reporting period.
b. Debts to be liquidated from funds that have been accumulated and are reported as
noncurrent
c. Violation of provisions of a debt agreement.
d. Obligations for advance collections that involve long-term deferment of the delivery of
goods.
37. Which of the following represents a liability?
a. The obligation to pay for goods that an entity expects to order from suppliers next year.
b. The obligation to provide goods that customers have ordered and paid for during the
current year.
c. The obligation to pay interest on a five-year note payable that was issued the last day of
the current year.
d. The obligation to distribute an entity's own ordinary shares next year as a result of a stock
dividend declared near the end of the current year.
38. Cash on hand and demand deposit only is
a.
b. Cash
c. Cash equivalent
d. Cash and cash equivalent
e. Restricted cash
1.
39. If petty cashier pays a certain amount for a transportation out of an imprest petty cash, the
journal entry shall include
a.

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 b. Credit to cash
c. Credit to petty cash
d. Debit to transportation and credit to petty cash
e. No journal entry is made
40. bank statements provide information about all of the following, except
a. checks cleared by the bank
b. NSF checks
c. bank charges
d. errors made by the company

"God gives every bird a worm, but He

does not throw it into the nest."
Swedish Proverb

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