ToF

1. Accounting is often characterized as the “language of business”.

2. A partnership is a business owned and operated by two or more persons who bind themselves to

contribute money, property or industry to a common fund, with the intention of dividing the profits

among themselves.

3. The Philippine accountant considers peso as the common unit of measure for all business transactions.

4. For accounting purposes, a business and its owner are considered one and the same.

5. Summarization reduces the effects of numerous transactions into useful groups or categories.

6. The liability of corporate stockholders is limited to the amount of their investment.

7. The terms bookkeeping and accounting are synonymous.

8. Most members of the accountancy profession are Certified Public Accountants.

9. A corporation is an economic unit that is legally separate from its owners.

10. The personal liability of a partner is limited to the amount of his investment.

11. Manufacturing companies buy raw materials, convert them into products and then sell the products to

other companies or to final consumers.

12. The entity concept states that the transactions of different entities should not be accounted for together.

13. A partnership is always owned by two individuals.

14. For reporting purposes, the personal assets and debts of a business owner should be combined with

the assets and debts of the business.

15. Government accounting deals solely with the identification of the sources of resources consistent with

laws.

16. All members of the accountancy profession are Certified Public Accountants.

17. Accounting is a service activity whose function is to provide quantitative information, about economic

entities that is intended to be useful in making economic decisions.

18. A corporation is a business owned by its stockholders.

19. A separate legal entity organized in accordance with codes and laws and in which ownership is divided

into shares of stock is referred to as a corporation.

20. An audit is the independent examination that ensures the fairness and reliability of the reports that

management submits to users outside the business entity.

21. A business transaction is the occurrence of an event or of a condition that must be recorded.

22. One characteristic of a corporation is that its owners are personally liable for any losses incurred by the

business.

23. The set of guidelines and procedures that constitute acceptable accounting practice at a given time is

GAAP, which stands for generally accepted accounting process.

24. Classification reduces the effects of numerous transactions into useful groups or categories.

25. The liability created when supplies are bought on account is called an account payable.

26. Equipment is listed as an asset because it is used up in a relatively long period of time.
27. The owner’s Withdrawals account is listed with the other expenses of a business.

28. A withdrawal by the owner is recorded as a deduction from assets and an increase in expenses.

29. Assets are things of value owned by a business entity.

30. Every transaction is recorded in terms of increases and/or decreases in two or more accounts.

31. Liabilities represent amounts owed to creditors.

32. In the fundamental accounting equation, assets are added to liabilities.

33. Business transactions are expressed in terms of money.

34. The first step in analyzing a transaction is to determine what accounts are involved.

35. Capital represents the owner’s investment, or equity, in a business.

36. When a business receives cash, it is always recorded as an increase to Cash and a decrease to an

Expense.

37. Accounts Receivable is considered an asset.

38. An owner can invest cash or other assets of value in the business.

39. Both sides of the fundamental accounting equation must always be equal.

40. BOA means Basis of Accounting.

41. Transactions are analyzed on the basis of source documents.

42. Every business transaction affects a minimum of two accounts.

43. A credit entry to an expense account will increase it.

44. Normally, income accounts have debit balances.

45. An account titled Unearned Revenues is a liability account.

46. A group of accounts in a ledger is called a chart of accounts.

47. A listing of the accounts in a ledger is called a chart of accounts.

48. A journal entry may include debits to more than one account and credits to more than one account, but

the total of the debits must always equal the total of the credits.

49. The double-entry system means that transactions are recorded both in the journal and in the ledger.

50. The accounting cycle begins with the recording of the transactions and ends with the preparation of the

financial statements.

51. Debit means decrease and credit means increase.

52. The T-account is sometimes called the book of original entry.

53. In some transactions, the accounting equation may not be maintained.

54. Income statement accounts are also known as temporary accounts.

55. Amounts entered on the left side of an account, regardless of the account title, are called credits or

charges to the account.

56. The chart of accounts is a system of organizing and numbering the accounts in the general ledger.

57. Notes receivable are claims against debtors evidenced by a written promise to pay a certain sum of

money at a definite time to the order of a specified person or to bearer.

58. A trial balance may balance but may not be correct.

59. A transposition error means a posting of a journal entry to the wrong ledger account.

60. A trial balance with equal debit and credit totals proves that all transactions have been correctly

journalized and posted to the proper ledger accounts.

61. Double posting of a transaction causes the debits and credits not to balance.

62. The sequence of the account titles in a trial balance depends upon the size of the account balances.

63. An expense may be recognized and recorded although no cash outlay has been made.

64. The normal balance of any account refers to the side of the account-debit or credit-where decreases

are recorded.

65. A recording error caused by the erroneous rearrangement of digits, such as writing P627 as P672, is

called a transposition.

66. The process of recording a transaction in a journal is called journalizing.

67. The journal is used to classify and summarize transactions, and to prepare data for basic financial

statements.

68. The adjusting entry to recognize an expense which is unrecorded and unpaid will cause total assets to

increase.

69. The adjusting entry to allocate part of the cost of a one-year fire insurance policy to expense will cause

total assets to increase.

70. Every adjusting entry must change both an income statement account and a balance sheet account.

71. Failure to record the adjusting entry for depreciation results in assets and owner’s equity being

overstated on the balance sheet.

72. A fiscal period must begin on January 1.

73. Revenue cannot be recognized unless delivery of goods has occurred or services have been rendered.

74. Adjusting entries are useful in apportioning costs among two or more accounting periods.

75. Recording incurred but unpaid expenses is an example of an accrual.

76. Revenue is equal to the cash received by a company during an accounting period.

77. A company’s fiscal year must correspond to the calendar year.

78. In recording the adjusting entries for depreciation, both accounts involved are increased.

79. The amount of accrued revenues is recorded by debiting an asset account and crediting an income

account.

80. Accrued revenue is a term used to describe revenue that has been received but not yet earned.

81. 1Book value is the original cost of a building less depreciation for the year.

82. The adjusting entry to recognize earned revenues which was received in advance will cause total

liabilities to decrease.

83. If all transactions were originally recorded in conformity with GAAP, there would be no need for

adjusting entries at the end of the period.

84. The adjustment to record depreciation of property and equipment consists of a debit to depreciation

expense and a credit to accumulated depreciation.

85. When services are not paid for until after they have been performed, the accrued expense is recorded

by an adjusting entry at the end of the accounting period.

86. The adjusting entry to recognize earned commission revenues not previously recorded or billed will

cause total assets to increase.

87. When the reduction in prepaid expenses is not properly recorded, this causes the asset accounts and

expense accounts to be understated.

88. Applying accrual accounting results in a more accurate measurement of profit for the period than does

the cash basis of accounting.

89. Not all increases to cash represent revenues.

90. Adjusting entries affect cash flows in the current period.

91. Accrual accounting recognizes revenues and expenses at the point that cash changes hands.

92. A deferral is the recognition of an expense that has arisen but has not yet been recorded.

93. Assets become liabilities when they expire.

94. When there is no direct connection between revenues and costs, the costs are systematically allocated

among the periods benefited.

95. Revenue results from collection of accounts receivable.

96. Accumulated depreciation accounts may be referred to as contra-asset accounts.

97. Accounts that are partly income statement amounts and partly balance sheet amounts are called mixed

accounts.

98. An asset’s book value represents the true market value of the asset.

99. If the adjustment for accrued salaries is omitted, liabilities and expenses will be understated.

100. A decrease in an expense account is the equivalent of a decrease in owner’s equity.

101. Failure to record the adjusting entry for accrued salaries results in the current year’s profit being

overstated.

102. As equipment is depreciated, its book value increases and its accumulated depreciation

increases.

103. An adjusting entry includes at least one balance sheet account and at least one income

statement account.

104. All decreases in owner’s equity are a result of expenses.

105. Accounting periods should be of equal length to facilitate comparisons between periods.

106. Failure to record the adjusting entry for depreciation will overstate assets on the balance sheet.

107. In recording the adjusting entry for accrued salaries, all the accounts involved are decreased.

108. The owner’s personal withdrawals for the year cause a decrease in profit.

109. The expiration of usefulness of equipment during an accounting period is called depreciation.

110. Acquiring a computer for cash is just exchanging one asset for another and will not result in an

expense even in future periods.

111. The RA 9892 is also known as the Philippine Accountancy Act of 2004.
112. The statement of cash flows discloses significant events related to the operating, Investing, and

financing activities of a business.

113. When adjusting entries are entered onto a worksheet, it is not necessary to record them in the

general journal.

114. An important use of the worksheet is as an aid in the preparation of financial statements.

115. The Adjusted Trial Balance columns of the worksheet are prepared by combining the Trial

Balance and Adjustments columns of the worksheet.

116. When the Income Statement columns of the worksheet are initially footed, they should be out of

balance by the amount of profit or loss.

117. The purchase of land is an example of an investing activity.

118. The amount of owner’s withdrawals can be found on the worksheet.

119. The balance sheet may be prepared by referring solely to the Balance Sheet columns of the

worksheet.

120. The worksheet should be prepared after the formal financial statements have been prepared.

121. The amount for owner’s Withdrawals will appear in the Income Statement columns of a

worksheet.

122. Buying and producing goods and services are examples of operating activities.

123. The account Commissions Earned would appear on the balance sheet.

124. The account Wages Payable would appear on the income statement.

125. A worksheet is more useful for a small entity than for a large one.

126. The purchase of equipment is an example of a financing activity.

127. Financial statements cannot be prepared correctly until all the accounts have been adjusted.

128. Total assets, total liabilities and owner’s equity on the balance sheet are the same as the totals

of the Balance Sheet columns on the worksheet.

129. The worksheet is prepared after the formal adjusting and closing entries.

130. Paying taxes to the government is an example of a financing activity.

131. When the Balance Sheet columns of the worksheet are initially footed, they should be in

balance.

132. The balances of the Accumulated Depreciation accounts will appear on the credit side of the

worksheet’s Balance Sheet columns.

133. On a worksheet, the balance of the owner’s Capital account is its ending amount for tis the

period.

134. Working papers provide a written record of the work performed by the accountant or auditor.

135. The worksheet is a type of accountant's working paper.

136. The amount placed opposite the owner's Capital account in the Balance Sheet columns of the

worksheet is the amount to be reflected for owner's Capital on the balance sheet.

137. The balance sheet is also known as the statement of financial position.
138. Financial position may be assessed by referring to a balance sheet.

139. The heading for an income statement might include the line "As at December 31, 2020."

140. The statement of changes in equity relates the income statement to the balance sheet by

showing how the owner's Capital account changed during the accounting period.

141. The statement of changes in equity discloses the withdrawals during the period.

142. Closing entries can be prepared by referring solely to the Income Statement columns of the

worksheet.

143. After the adjusting and closing entries have been recorded and posted, the general ledger

accounts that appear on the balance sheet have no balances.

144. General ledger account balances agree with those in the financial statements even before

adjusting and closing entries are recorded and posted.

145. The income summary account is used to close the income and expense accounts.

146. The balance of the owner’s capital account represents the cumulative net result of Income,

expense and withdrawal transactions.

147. Closing entries deal primarily with the balances of real accounts.

148. The only accounts that are closed are income statement accounts.

149. Closing entries result in the transfer of profit or loss into the owner’s Capital account.

150. After all closing entries have been entered and posted, the balance of the Income Summary

account will be zero.

151. Depreciation Expense-Building is a permanent account.

152. An expense account is closed with a debit to the expense account and a credit to Income

Summary.

153. Income Summary is closed with a debit to Income Summary and a credit to the owner’s

Withdrawals account.

154. When profit or loss is exactly zero, one of the usual closing entries will be avoided.

155. The Income Summary account appears in the income statement.

156. Temporary accounts are also known as real accounts.

157. There is sufficient information on a post-closing trial balance to prepare an income statement.

158. The post-closing trial balance will contain only real accounts.

159. The Income Summary account will appear on the post-closing trial balance.

160. The post-closing trial balance contains asset, liability, withdrawal and capital accounts.

161. The final trial balance is called a post-closing trial balance.

162. A reversing entry is a journal entry which is the exact opposite of a related adjusting entry made

at the end of the period.

163. To simplify the recording of regular transactions in the next accounting period, all adjusting

journal entries are reversed.

164. Post-closing trial balance tests the equality of the accounts after the adjustments and the

closing entries are posted.

165. Supplies Expense is a temporary account.

166. A revenue account is closed with a credit to the revenue account and a debit to Income

Summary

167. During the closing process, revenues are transferred to the credit side of the Income Summary

account.

168. During the closing process, expenses are transferred to the credit side of the Income Summary

account.

169. A reversing entry will include either a debit to a revenue account or a credit to an expense

account.

170. Reversing entries are never required.

171. Reversing entries can be made for deferrals but not for accruals.

172. Reversing entries are made to correct errors in the accounts.

173. The purpose of reversing entries is to simplify the bookkeeping process.

174. Adjusting entries are all dated as at the first day of the new accounting period.

175. Closing entries clear income and expense accounts at the end of the period.

176. Trial balances are prepared primarily to ensure that no entries have been omitted.

177. In the accounting cycle, information from source documents is initially recorded in

178. In the accounting cycle, closing entries are prepared before adjusting entries. The journal.

179. Nominal account balances are reduced to zero by closing entries.

180. There is sufficient information on a post-closing trial balance to prepare a balance sheet.

181. There is sufficient information on a post-closing trial balance to prepare a statement of changes

in equity.

182. If the post-closing trial balance does not balance, then the error(s) definitely occurred at some

point during the closing process.

183. The adjusting entries involving Rent Receivable and Salaries Payable could be reversed.

184. The adjusting entries involving Depreciation Expense-Building and Supplies Expense could be

reversed.

185. All nominal accounts must be closed before the Income Summary account can be closed.

186. The post-closing trial balance will have fewer accounts than the adjusted trial balance.

187. The balances of all the accounts that appear on a balance sheet are the same on the adjusted

trial balance as they are on a post-closing trial balance.

188. The chart of accounts for a merchandising entity differs from that of a service entity.

189. The difference between revenues from sales and cost of sales is operating income.

190. For cash sales, the operating cycle is from cash to inventory to accounts receivable and back to

cash.
191. The bill of lading is a document prepared by the seller detailing the terms of delivery.

192. A validated deposit slip indicates that cash and checks were actually deposited.

193. Discounts offered to the buyer to encourage early payment are trade discounts.

194. Cash discounts are called purchases discounts from the buyer’s viewpoint.

195. The sales discounts account is a contra-income account and will have a debit balance.

196. A credit term of “2/10, n/30” means that the buyer may deduct 2% from the invoice if payment is

made within 10 days from the end of the month.

197. Purchases returns and allowances is a deduction from purchases.

198. The cost of merchandise purchased during the period is determined by subtracting from the net

purchases the amount of transportation costs incurred during the period.

199. The purchase of equipment not for resale should be debited to the purchases. Account.

200. If the seller is to shoulder the cost of delivery, the term is stated as F.O.B. destination.

201. The term freight prepaid or collect will dictate who shoulders the transportation costs.

202. The two main systems for accounting for merchandise are periodic and perpetual.

203. The perpetual inventory system requires recording the cost of each sale as it occurs.

204. There is no need for a physical inventory count in the perpetual inventory system.

205. The debit balance of the inventory account in the trial balance under the periodic inventory

system is the amount of the inventory at the end of the current year.

206. The ending inventory of one period is the beginning inventory of the next period.

207. The balance in the merchandise inventory account at the beginning of the period represents the

cost of the merchandise on hand at that time.

208. The operating cycle involves the purchase and sale of inventory as well as the subsequent

payment for purchases and collection of cash.

209. A business can shorten its operating cycle by increasing its percentage of cash sales and

reducing its percentage of credit sales.

210. Merchandise inventory could include goods that are in transit.

211. An advantage of using the periodic inventory system is that it requires less recordkeeping than

the perpetual inventory system.

212. The periodic inventory system relies on a physical count of merchandise for its balance sheet

amount.

213. Under the periodic inventory system, cost of goods sold is treated as an account.

214. The periodic inventory system provides an up-to-date amount of inventory on hand.

215. Summing ending merchandise inventory and cost of goods sold gives the cost of goods

available for sale.

216. A physical inventory is usually taken at the end of the accounting period.

217. Under the periodic inventory system, purchases of merchandise are not recorded in the

Merchandise Inventory account.

218. An entity would be more likely to know the amount of inventory on hand if it used the periodic

inventory system rather than the perpetual inventory system.

219. Taking a physical inventory refers to making a count of all merchandise on hand at a particular

time.

220. When the periodic inventory system is used, a physical inventory should be taken at the end of

the fiscal year.

221. The income statement of an entity that provides services only will not have cost of goods sold.

222. For a merchandising entity, the difference between net sales and operating expenses is called

gross margin.

223. Sales Returns and Allowances is described as a contra-revenue account.

224. On the income statement of a merchandising concern, profit is the amount by which net sales

exceed operating expenses.

225. Transportation Out is included in the cost of goods sold calculation.

226. Advertising Expense appears as a selling expense on the income statement.

227. Transportation In is considered a cost of merchandise purchased.

228. The difference between gross sales and net sales is equal to the sum of sales discounts, and

sales returns and allowances.

229. When the terms of sale include a sales discount, it usually is advisable for the buyer to pay

within the discount period.

230. The terms 2/10, n/30 mean that a 2% discount is allowed on payments made over 10 but before

30 days after the invoice date.

231. Terms of 2/10, n/30 is an example of a trade discount.

232. Goods should be recorded at their list price less any trade discounts involved.

233. FOB shipping point means that the seller incurs the shipping costs.

234. Under the perpetual Inventory system, the cost of merchandise is debited to Merchandise

Inventory at the time of purchase.

235. The Merchandise Inventory account is not affected when a sales allowance is granted.

236. Ending merchandise inventory is included in the calculation of cost of goods available for sale.

237. Ending merchandise inventory for year 1 automatically becomes beginning merchandise

inventory for year 2.

238. The calculation of cost of goods available for sale during the year is not affected by the previous

year’s ending inventory.

239. The change in inventory level from the beginning to the end of the year affects cost of goods

sold.

240. Transportation in is treated as a deduction in the cost of goods sold section of the income

statement.
241. Under the periodic inventory system, the Purchases account is used to accumulate all

purchases of merchandise for resale.

242. Cost of goods sold is the primary difference between a merchandising and a service business

income statement.

243. Debiting income summary and crediting beginning merchandise inventory eliminates the

beginning inventory at the end of the period.

244. Cost of goods sold is a major expense of a merchandising business.

245. Using the nature of expense method of presenting expenses in the income statement has the

advantage of simplicity because no allocation of operating expenses between functional classifications

is necessary.

246. The function of expense method reports gross margin and income from operations.

247. Operating income is not computed in the nature of expense method.

248. Gross margin from sales is the income that the business would have made if all goods available

for sale had been sold during the period.

249. The excess of gross profit over operating expenses is called operating profit.

250. In the worksheet, the ending inventory amount will appear in the income statement credit

column and the balance sheet debit column.

251. The determination of net cost of purchases would include addition of transportation out.

252. The traditional balance sheet arrangement of assets on the left-hand side with the liabilities and

owner’s equity on the right-hand side is called the report form.

253. Net sales is not an account name.

254. In the income statement, operating expenses are classified as selling expenses, administrative

expenses and other operating expenses.

255. The sales returns and allowances account has a normal debit balance.

256. The closing entry for transportation in debits purchases and credits income summary.

257. Both Transportation In and Transportation Out accounts are closed by crediting the accounts.

258. On the worksheet of a merchandising entity that uses the perpetual inventory system, the

Merchandise Inventory account balance is not adjusted.

259. When using the perpetual inventory system, the Merchandise Inventory account will not appear

in closing entries.

260. The worksheet of a merchandising entity that uses the perpetual inventory system will not have

a Transportation In account.

261. When preparing a worksheet for a merchandising entity that uses the perpetual inventory

system, the cost of goods sold can be derived from the balances of several accounts in the Income

Statement columns.

262. Under the perpetual inventory system, the ending merchandise inventory balance is closed at

the same time as Cost of Goods Sold.

263. When preparing a worksheet for a merchandising entity that uses the periodic inventory system,

the merchandise inventory amount shown on the trial balance will be carried over to the Balance Sheet

debit column.

264. On the worksheet of a merchandising entity that uses the periodic inventory system, both

Purchases and Purchases Returns and Allowances appear in the Income Statement columns.

265. The Purchases account is closed to the Merchandise Inventory account.

266. The ending inventory amount appears in both Income Statement columns on the worksheet of a

merchandising entity that uses the periodic inventory system.

267. Under the periodic inventory system, the Merchandise Inventory account appears in the closing

entries made at the end of the period.

268. When preparing closing entries under the periodic inventory system, Sales and Purchases

Returns and Allowances are both closed in the same entry.

269. Sales Discounts is a contra-revenue account with a normal credit balance.

270. Purchases Discounts would be recorded as a credit.

271. Transactions involving the payment of cash for any purpose are usually recorded in a cash

journal.

272. Special journals are modified in practice to adapt to the specific needs of an entity.

273. The primary ledger that contains all of the balance sheet and income statement accounts is

called the general ledger.

274. At the end of each month, the total of the amount column of the sales journal is posted as a

debit to accounts receivable and a credit to sales.

275. After postings have been completed for the month, if the sum of the balances in the accounts

receivable subsidiary ledger does not agree with the balance of the accounts receivable account in the

general ledger, the errors must be located and corrected.

276. Sales on account of office equipment used in the business would be recorded in the sales

journal.

277. Each amount in the other accounts column of the cash receipts journal must be posted

individually to the appropriate general ledger account.

278. When there are numerous accounts with a common characteristic, it is common to place them

in a separate ledger called a detail ledger.

279. The sale of merchandise for cash is recorded in the sales journal.

280. The total of the other accounts column of the cash receipts journal is not posted to the general

ledger.

281. When special journals, control accounts and subsidiary ledgers are used, no posting to any

ledger is performed until the end of the month.

282. For each transaction recorded in the purchases journal, the credit is entered in the accounts

payable column.
283. Acquisitions on account which are not provided for in special debit columns are recorded in the

other accounts column in the purchases journal.

284. Debits to creditors’ accounts for invoices paid are recorded in the accounts payable debit

column of the cash payments journal.

285. Comparing the purchase order with the receiving report will show that all the goods ordered

actually arrived and that all goods that arrived were actually ordered.

286. The total of the accounts payable column in the cash payments journal is posted at the end of

the month as a debit to accounts payable and a credit to cash.

287. When customers are allowed to return merchandise for credit to their accounts, these

transactions are recorded in the general journal.

288. A check register is used to record all expenditures.

289. The voucher register is a substitute for a sales journal.

290. The voucher register takes the place of the cash payments journal.

291. Finished goods inventory is an asset, but inventories of raw materials and work in process are

not considered assets until production is completed.

292. Manufacturing costs are regarded as expenses of the current period and are expensed when

incurred.

293. Product costs are the costs of purchasing or manufacturing inventory and considered as assets

until the goods are sold.

294. All costs and expenses incurred by a manufacturing entity are considered product costs rather

than period costs.

295. A manufacturing entity usually has three separate inventories: raw materials, work in process

and finished goods.

296. Raw materials inventory refers to the direct materials on hand and available for use in the

manufacturing process.

297. Manufacturing overhead includes all manufacturing costs except direct labor and direct

materials.

298. The wages paid to supervisors are an example of indirect labor.

299. Product costs are all deducted from revenue in the period in which they are incurred.

300. Prime costs consist of direct materials and direct labor. Conversion cost is essentially direct

labor.