1. In a Sole Proprietorship, which of the following accounts is closed to Income Summary at the end of the fiscal year?

a. Drawing b. Accumulated Depreciation c. Prepaid Expenses d. Supplies Expense

2. In a Sole Proprietorship, which of the following accounts will NOT be closed to Income Summary at the end of the fiscal year?
a. Salaries Expense b. Revenue c. Drawing d. Depreciation Expense
3. In a Sole Proprietorship, which of the following accounts will be closed to Owner's Capital at the end of the fiscal year?
a. Salaries Expense b. Fees Earned d. Drawing d. Depreciation Expense
4. In a Sole Proprietorship, which of the following accounts will NOT be included in Closing Entries at the end of the fiscal year?
a. Drawing b. Accumulated Depreciation c. Fees Earned d. Supplies Expense
5. Which of the following correctly depicts a Closing Entry?
a. Debit: Income Summary; Credit: Prepaid Insurance b. Debit: Prepaid Insurance; Credit: Income Summary
c. Debit: Insurance Expense; Credit: Income Summary d. Debit: Income Summary; Credit: Insurance Expense
6. Closing entries are made
a. in order to terminate the business as an operating entity.
b. so that all assets, liabilities, and owner's capital accounts will have zero balances when the next accounting period starts.
c. in order to transfer net income (or loss) and owner's drawing to the owner's capital account.
d. so that financial statements can be prepared.
7. Closing entries are
a. an optional step in the accounting cycle b. posted to the ledger accounts from the worksheet.
c. made to close permanent or real accounts. d. journalized in the general journal.
8. The income summary account
a. is a permanent account. b. appears on the balance sheet. c. appears on the income statement. d. is a temporary account.
9. If Income Summary has a credit balance after revenues and expenses have been closed into it,
a. there is a loss b. there is a profit c. the company is at breakeven d. it is indeterminable.
10. Which of the following is a true statement about closing the books of a proprietorship?
a. Expenses are closed to the Expense Summary b. Only revenues are closed to the Income Summary
c. Revenues and expenses are closed to the Income Summary d. Owner's drawing account are closed to the Income Summary
11. Closing entries may be prepared from all but which one of the following sources?
a. Adjusted trial balance b. Columns 7 to 10 of worksheet c. Balance sheet d. Income and owner's equity statements
12. An error has occurred in the closing entry process if
a. revenue and expense accounts have zero balances. b. the owner's capital account is credited for the amount of net income.
c. the owner's drawing is closed to the owner's capital d. the balance sheet accounts have zero balances.
13. The balance in the income summary account before it is closed will be equal to
a. the net income or loss on the income statement. b. the beginning balance in the owner's capital account.
c. the ending balance in the owner's capital account. d. zero.
14. After closing entries are posted, the balance in the owner's capital account in the ledger will be equal to
a. the beginning owner's capital reported on the owner's equity statement. b. zero
c. the amount of the owner's capital reported on the balance sheet. d. the net income for the period.
Use the following information for the next three questions
The income statement for the month of June, 2008 of Delgado Enterprises contains the following information:

Revenues P7,000; Wages Expense, P2,000; Rent Expense,1,000; Supplies Expense, 300; Advertising Expense, 200; Insurance Expense, 100;

15. The entry to close the revenue account includes a

a. debit to Income Summary for P3,400. b. credit to Income Summary for P3,400.
c. debit to Income Summary for P7,000. d. credit to Income Summary for P7,000.
16. The entry to close the expense accounts includes a
a. debit to Income Summary for P3,400. b. credit to Rent Expense for P1,000,
c. credit to Income Summary for P3,600. d. debit to Wages Expense for P2,000.
17. After the revenue and expense accounts have been closed, the balance in Income Summary will be
a. P0. b. a debit balance of P3,400 . c. a credit balance of P3,400. d. a credit balance of P7,000.
18. All of the following statements about the post-closing trial balance are correct except it
a. shows that the accounting equation is in balance
b. provides evidence that the journalizing and posting of closing entries have been properly completed.
c. contains only permanent accounts.
d. proves that all transactions have been recorded.
19. The purpose of the post-closing trial balance is to
a. prove that no mistakes were made.
b. prove the equality of the balance sheet account balances that are carried forward into the next accounting period.
c. prove the equality of the income statement account balances that are carried forward into the next accounting period.
d. list all the balance sheet accounts in alphabetical order for easy reference.
20. Speedy Bike Company received a P940 check from a customer for the balance due. The transaction was erroneously recorded as a debit to Cash
P490 and a credit to Service Revenue P490. The correcting entry is
a. debit Cash, P940; credit Accounts Receivable, P940. b. debit Cash, P450 and Accounts Receivable, P490; credit Service Revenue, P940.
c. debit Accounts Receivable, P940; credit Cash, P450 d. debit Cash, P450 and Service Revenue, P490; credit Accounts Receivable, P940.
21. Tyler Company paid P530 on account to a creditor. The transaction was erroneously recorded as a debit to Cash of P350 and a credit to Accounts
Receivable, P350. The correcting entry is
a. Accounts Payable.................... 530 b. Accounts Receivable .................. 350
Cash....................................................... 530 Cash............................................... 350
c. Accounts Receivable .............. 350 d. Accounts Receivable ..................... 350
Accounts Payable .................................. 350 Accounts Payable........................... 530
Cash.................................................. 880
22. A lawyer collected P830 of legal fees in advance. He erroneously debited Cash for P380 and credited Accounts Receivable for P380. The
correcting entry is
a. Cash............................. 380 b. Cash.................................... 830
Accounts Receivable.... 450 Service Revenue ..................... 830
Unearned Revenue .............. 830
c. Cash......................... 450 d. Cash…................................. 450
Accounts Receivable........... 450 Accounts Receivable........... 380
Unearned Revenue ............ 830
23. An intangible asset
a. does not have physical substance, yet often is very valuable. b. is worthless because it has no physical substance.
 c. is converted into a tangible asset during the operating cycle. d. cannot be classified on the balance sheet
24. On a classified balance sheet, current assets are customarily listed
a. in alphabetical order. b. with the largest dollar amounts first. c. in the order of liquidity. d. in the order of acquisition.
Use the following information for the next four questions
The following items are taken from the financial statements of Cerner Company for the year-ending December 31, 2008:
Accounts payable P 18,000 Cerner, Drawing 14,000 Salaries expense 32,000
Accounts receivable 11,000 Depreciation expense 12,000 Service revenue 133,000
Accumulated depreciation – equipment 28,000 Insurance expense 3,000 Supplies 4,000
Advertising expense 21,000 Note payable, due 6/30/09 70,000 Supplies expense 6,000
Cash 15,000 Prepaid insurance (12-month policy) 6,000 Equipment 210,000
Cerner, Capital (1/1/08) 102,000 Rent expense 17,000
25. What is the company’s net income for the year ending December 31, 2008?
a. P133,000 b. P42,000 c. P28,000 d. P12,000
26. What is the balance that would be reported for owner’s equity at December 31, 2008?
a. P102,000 b. P130,000 c. P144,000 d. P158,000
27. What are total current assets at December 31, 2008?
a. P26,000 b. P32,000 c. P36,000 d. P218,000
28. What is the book value of the equipment at December 31, 2008?
a. P238,000 b. P210,000 c. P182,000 d. P170,000
29. An expense has not been paid and has not yet been recognized in the accounts by a routine entry. To properly adhere to the Matching Principle,
which of the following is required:
a. Capital Stock entry b. Deferral entry c. Accrual entry d. Inventory entry
30. Warren, Inc. has wages that have been earned but not paid at the end of the accounting period. The entry to properly accrue Wages Expense
includes:
a. Wages Payable, debit; Wages Income, credit b. Wages Income, debit; Wages Payable, credit
c. Wages Payable, debit; Wages Expense, credit d.. Wages Expense, debit; Wages Payable, credit
31. Warren, Inc. neglects to make the required adjusting entry for wages at the end of the accounting period. Which of the following statements
reflect the impact of this oversight?
a. Salary Expense for the year is overstated. b. Liabilities at the end of the year are understated.
c. Assets at the end of the year are understated. d. Owner's equity at the end of the year is understated.
32. Accrued Revenue is recorded when:
a. Services have already been earned and recorded.
b. Services have already been paid for in cash and are expected to be earned in the upcoming accounting period.
c. Services have already been paid for in cash.
d. Services have been earned but have not yet been recorded.
33. Scott's Lawn Service borrowed P10,000 from 3rd National Bank on November 1, 2001. The loan is for a term of three years and carries a 10%
rate of interest. Interest is due at the maturity of the loan. The entry to properly accrue 2001 Interest Expense should include:
a. A debit to Interest Expense and a credit to Interest Payable. b. A debit to Interest Expense and a credit to Cash.
c. A debit to Interest Expense and a credit to Accounts Receivable. d. A debit to Interest Expense and a credit to Loan Receivable.
34. Scott's Lawn Service borrowed P10,000 from 3rd National Bank on November 1, 2001. The loan is for a term of three years and carries a 10%
rate of interest. Interest is due at the maturity of the loan. To properly accrue interest expense in 2001, Scott should:
a. Do nothing as the loan is not due until November 2004. b. Recognize Interest Expense for 2 of the loan's 36-month term.
c. Recognize Interest Expense for 12 of the loan's 36-month term. d. Recognize Interest Expense for 10 of the loan's 36-month term.
35. Sandra's Styling Salon, a Sole Proprietorship, pays weekly salaries of P5,000 each Friday for a five-day week ending on that day. The accrual
required for a fiscal period ending on Thursday is:
a. Debit Salaries Payable, P4,000; credit Cash, P4,000 b. Debit Salary Expense, P4,000; credit Drawing, P4,000
c. Debit Salary Expense, P4,000; credit Salaries Payable, P4,000 d. Debit Drawing, P4,000; credit Cash, P4,000
36. Rental Services, Inc. earned P2,000 of Rental Revenue in December 2001, but does not expect payment until January 2002. What is the
appropriate accrual entry at December 31, 2001?
a. Debit Rent Receivable; credit Cash. b. Debit Rent Receivable; credit Rent Revenue.
c. Debit Rent Revenue; credit Rent Receivable d. Debit Cash; credit Rent Revenue
37.A company pays its employees every Friday. The amount paid every week is P600. September 30, 2000, is a Tuesday. Which of the following
statements is true about the entry prepared on September 30, 2000?
a. Salaries payable must be debited by P240 b. Salaries Payable must be credited by P240
c. Salaries Payable must be debited by P360 d. Salaries Payable must be credited by P360
38. A company pays its employees every Friday. The amount paid every week is P600. September 30, 2000, is a Tuesday. Assume that salaries for
September were accrued on September 30. Which of the following statements is true about the entry prepared on October 3, 2000?
a. Salaries payable must be debited by P240 b. Salaries Payable must be credited by P240
c. Salaries Payable must be debited by P360 d. Salaries Payable must be credited by P360
39. Jim is a lawyer who requires that his clients pay him in advance of legal services rendered. Jim routinely credits Legal Service Revenue when his
clients pay him in advance. In June Jim collected P12,000 in advance fees and completed 75% of the work related to these fees. What adjusting entry
is required by Jim's firm at the end of June?
a. Unearned Revenue .......... 9,000 b. Unearned Revenue ..................... 3,000
Legal Service Revenue ......................... 9,000 Legal Service Revenue ................... 3,000
c. Cash ............................... 12,000 d. Legal Service Revenue ............... 3,000
Legal Service Revenue ..................... 12,000 Unearned Revenue ...................... 3,000
40. If prepaid expenses are initially recorded in expense accounts and have not all been used at the end of the accounting period, then failure to make
an adjusting entry will cause
a. assets to be understated. b. assets to be overstated. c. expenses to be understated. d. contra-expenses to be overstated.
41. If unearned revenues are initially recorded in revenue accounts and have not all been earned at the end of the accounting period, then failure to
make an adjusting entry will cause
a. liabilities to be overstated. b. revenues to be understated. c. revenues to be overstated. d. accounts receivable to be overstated.
42. Which of the following statements concerning accrual-basis accounting is incorrect?
a. Accrual-basis accounting follows the revenue recognition principle.
b. Accrual-basis accounting is the method required by generally accepted accounting principles.
c. Accrual-basis accounting recognizes expenses when they are paid.
d. Accrual-basis accounting follows the matching principle.
43. The revenue recognition principle dictates that revenue be recognized in the accounting period
a. before it is earned. b. after it is earned. c. in which it is earned. d. in which it is collected.
44. For prepaid expense adjusting entries
a. an expense—liability account relationship exists. b. prior to adjustment, expenses are overstated and assets are understated.
45. If the adjusting entry for depreciation is not made,
a. assets will be understated. b. owner's equity will be understated.
c. net income will be understated. d. expenses will be understated.
46. Which of the following statements related to the adjusted trial balance is incorrect?
a. It shows the balances of all accounts at the end of the accounting period.
b. It is prepared before adjusting entries have been made.
c. It proves the equality of the total debit balances and the total credit balances in the ledger.
d. Financial statements can be prepared directly from the adjusted trial balance.
47 . Financial statements are prepared directly from the
a. general journal. b. ledger. c. trial balance. d. adjusted trial balance.
48. Can financial statements be prepared directly from the adjusted trial balance?
a. They cannot. The general ledger must be used.
b. Yes, adjusting entries have been recorded in the general journal and posted to the ledger accounts.
c. No, the adjusted trial balance merely proves the equality of the total debit and total credit balances in the ledger after adjustments are
posted. It has no other purpose.
d. They can because that is the only reason that an adjusted trial balance is prepared.
49. An adjusted trial balance
a. is prepared after the financial statements are completed.
b. proves the equality of the total debit balances and total credit balances of ledger accounts after all adjustments have been made.
c. is a required financial statement under generally accepted accounting principles.
d. cannot be used to prepare financial statements.
50. Which of the statements below is not true?
a. An adjusted trial balance should show ledger account balances.
b. An adjusted trial balance can be used to prepare financial statements.
c. An adjusted trial balance proves the mathematical equality of debits and credits in the ledger.
d. An adjusted trial balance is prepared before all transactions have been journalized.
51. Income from operations is gross profit less
a. administrative expenses. b. operating expenses. c. other expenses and losses. d. selling expenses.
52. Sales revenue less cost of goods sold is called
a. gross profit. b. net profit. c. net income. d. marginal income.
53. Cost of goods sold is determined only at the end of the accounting period in
a. a perpetual inventory system. b. a periodic inventory system.
c. both a perpetual and a periodic inventory system. d. neither a perpetual nor a periodic inventory system.
54. Which of the following expressions is incorrect?
a. Gross profit – operating expenses = operating income b. Sales – cost of goods sold – operating expenses =operating income
c. Net income + operating expenses = operating profit d. Operating expenses – cost of goods sold = gross profit
55. Detailed records of goods held for resale are not maintained under a
a. perpetual inventory system. b. periodic inventory system.
c. double entry accounting system. d. single entry accounting system.
56. A perpetual inventory system would likely be used by a(n)
a. automobile dealership. b. hardware store. c. drugstore. d. convenience store.
57. Which of the following is a true statement about inventory systems?
a. Periodic inventory systems require more detailed inventory records.
b. Perpetual inventory systems require more detailed inventory records.
c. A periodic system requires cost of goods sold be determined after each sale.
d. A perpetual system determines cost of goods sold only at the end of the accounting period.
58. In a perpetual inventory system, cost of goods sold is recorded
a. on a daily basis. b. on a monthly basis. c. on an annual basis. d. with each sale.
59. The Merchandise Inventory account is used in each of the following except the entry to record
a. goods purchased on account. b. the return of goods purchased.
c. payment of freight on goods sold. d. payment within the discount period.
60. A buyer would record a payment within the discount period under a perpetual inventory system by crediting
a. Accounts Payable. b. Merchandise Inventory. c. Purchase Discounts. d. Sales Discounts.
61. If a purchaser using a perpetual system agrees to freight terms of FOB shipping point, then the
a. Merchandise Inventory account will be increased. b. Merchandise Inventory account will not be affected.
c. seller will bear the freight cost. d. carrier will bear the freight cost.
62. Freight costs paid by a seller on merchandise sold to customers will cause an increase
a. in the selling expense of the buyer. b. in operating expenses for the seller.
c. to the cost of goods sold of the seller. d. to a contra-revenue account of the seller.
63. In a perpetual inventory system, the discount allowed for paying for merchandise purchased within the discount period is credited to
a. Merchandise Inventory. b. Purchase Discounts. c. Purchase Allowance. d. Sales Discounts.
64. Zach’s Market recorded the following events involving a recent purchase of merchandise:
Received goods for P50,000, terms 2/10, n/30.
Returned P1,000 of the shipment for credit.
Paid P250 freight on the shipment.
Paid the invoice within the discount period.
As a result of these events, the company’s merchandise inventory
a. increased by P48,020. b. increased by P49,250. c. increased by P48,265. d. increased by P48,270
65. A credit sale of P800 is made on April 25, terms 2/10, n/30, on which a return of P50 is granted on April 28. What amount is received as payment
in full on May 4?
a. P735 b. P784 c. P800 d P750
66. The entry to record the receipt of payment within the discount period on a sale of P750 with terms of 2/10, n/30 will include a credit to
a. Sales Discounts for P15. b. Cash for P735. c. Accounts Receivable for P750. d. Sales for P750.
67. Company X sells P400 of merchandise on account to Company Y with credit terms of 2/10, n/30. If Company Y remits a check taking advantage
of the discount offered, what is the amount of Company Y's check?
a. P280 b. P392 c. P360 d. P320
68. Holt Company sells merchandise on account for P2,000 to Jones Company with credit terms of 2/10, n/30. Jones Company returns P400 of
merchandise that was damaged, along with a check to settle the account within the discount period. What is the amount of the check?
a. P1,960 b. P1,968 c. P1,600 d. P1,568
69. The collection of a P900 account after the 2 percent discount period will result in a
 a. debit to Cash for P882. b. debit to Accounts Receivable for P900. c. debit to Cash for P900. d. debit to Sales Discounts for P18.
70. In a perpetual inventory system, the Cost of Goods Sold account is used
a. only when a cash sale of merchandise occurs. b. only when a credit sale of merchandise occurs.
c. only when a sale of merchandise occurs. d. whenever there is a sale of merchandise or a return of merchandise sold.
71. Sales revenues are usually considered earned when
a. cash is received from credit sales. b. an order is received.
72. Sales revenue
a. may be recorded before cash is collected. b. will always equal cash collections in a month.
c. only results from credit sales. d. is only recorded after cash is collected.
73. A credit memorandum is prepared when
a. an employee does a good job. b. goods are sold on credit.
c. goods that were sold on credit are returned. d. customers refuse to pay their accounts.
74. A credit sale of P900 is made on July 15, terms 2/10, n/30, on which a return of P50 is granted on July 18. What amount is received as payment
in full on July 24?
a. P900 b. P833 c. P850 d P882
75. When goods are returned that relate to a prior cash sale,
a. the Sales Returns and Allowances account should not be used. b. the cash account will be credited.
c. Sales Returns and Allowances will be credited. d. Accounts Receivable will be credited.
76. A Sales Returns and Allowances account is not debited if a customer
a. returns defective merchandise. b. receives a credit for merchandise of inferior quality.
c. utilizes a prompt payment incentive. d. returns goods that are not in accordance with specifications.
77. As an incentive for customers to pay their accounts promptly, a business may offer its customers
a. a sales discount. b. free delivery. c. a sales allowance. d. a sales return.
78. The credit terms offered to a customer by a business firm are 2/10, n/30, which means that
a. the customer must pay the bill within 10 days.
b. the customer can deduct a 2% discount if the bill is paid between the 10th and 30th day from the invoice date.
c. the customer can deduct a 2% discount if the bill is paid within 10 days of the invoice date.
d. two sales returns can be made within 10 days of the invoice date and no returns thereafter.
79. A sales discount does not
a. provide the purchaser with a cash saving. b. reduce the amount of cash received from a credit sale.
c. increase a contra-revenue account. d. increase an operating expense account.
80. Which of the following accounts has a normal credit balance?
a. Sales Returns and Allowances b. Sales Discounts c. Sales d. Selling Expense
81. With respect to the income statement,
a. contra-revenue accounts do not appear on the income statement. b. sales discounts increase the amount of sales.
c. contra-revenue accounts increase the amount of operating expenses. d. sales discounts are included in the calculation of gross profit..
82. The respective normal account balances of Sales, Sales Returns and Allowances, and Sales Discounts are
a. credit, credit, credit. b. debit, credit, debit. c. credit, debit, debit. d. credit, debit, credit.
83. A merchandising company using a perpetual system will make
a. the same number of adjusting entries as a service company does. b. one more adjusting entry than a service company does.
c. one less adjusting entry than a service company does. d. different types of adjusting entries compared to a service company.
84. In preparing closing entries for a merchandising company, the Income Summary account will be credited for the balance of
a. sales. b. merchandise inventory. c. sales discounts. d. freight-out.
85. The sales revenue section of an income statement for a retailer would not include
a. Sales discounts. b. Sales . c. Net sales. d. Cost of goods sold.
86. The operating expense section of an income statement for a wholesaler would not include
a. freight-out. b. utilities expense. c. cost of goods sold. d. insurance expense.
87. Income from operations will always result if
a. the cost of goods sold exceeds operating expenses. b. revenues exceed cost of goods sold.
c. revenues exceed operating expenses. d. gross profit exceeds operating expenses.
88. Thelman Company reported the following balances at June 30, 2008: Sales P10,800; Sales Returns and Allowances 400; Sales Discounts 200
Cost of Goods Sold 5,000. Net sales for the month is
a. P10,800. b. P10,400. c. P10,200. d. P5,200.
89. All of the following items would be reported as other expenses and losses except
a. freight-out. b. casualty losses . c. interest expense. d. loss from employees' strikes.
90. If a company has net sales of P500,000 and cost of goods sold of P350,000, the gross profit percentage (Gross Profit/Net Sales) is
a. 70%. b. 30%. c. 15%. d. 100%.
91. In terms of liquidity, merchandise inventory is
a. more liquid than cash. b. more liquid than accounts receivable.
c. more liquid than prepaid expenses. d. less liquid than store equipment.
92. On a classified balance sheet, merchandise inventory is classified as
a. an intangible asset. b. property, plant, and equipment. c. a current asset. d. a long-term investment.
Use the following information for next three questions.
During 2008, Salon Enterprises generated revenues of P60,000. The company’s expenses were as follows: cost of goods sold of P30,000, operating
expenses of P12,000 and a loss on the sale of equipment (other expense) of P2,000.
93. Salon’s gross profit is
a. P60,000. b. P30,000. c. P18,000. d. P16,000.
94. Salon’s income from operations is
a. P60,000. b. P30,000. c. P18,000. d. P12,000.
95. Salon’s net income is
a. P60,000. b. P30,000. c. P18,000. d. P16,000.
96. At the beginning of September, 2008, RFI Company reported Merchandise Inventory of P4,000. During the month, the company made purchases
of P7,800. At September 31, 2008, a physical count of inventory reported P3,200 on hand. Cost of goods sold for the month is
a. P600. b. P7,800. c. P8,600. d. P11,800.
97. At the beginning of the year, Midtown Athletic had an inventory of P400,000. During the year, the company purchased goods costing
P1,600,000. If Midtown Athletic reported ending inventory of P600,000 and sales of P2,000,000, the company’s cost of goods sold a
a. P1,000,000 b. P1,400,000 c. P1,000,000 d. P1,400,000
98. During the year, Darla’s Pet Shop’s merchandise inventory decreased by P20,000. If the company’s cost of goods sold for the year was
P300,000, purchases must have been \
a. P320,000. b. P280,000. c. P260,000. d. Unable to determine.
99. Cost of goods available for sale is computed by adding
 a. beginning inventory to net purchases. b. beginning inventory to the cost of goods purchased.
c. net purchases and freight-in. d. purchases to beginning inventory.
100. The Freight-in account
a. increases the cost of merchandise purchased. b. is contra to the Purchases account.
c. is a permanent account. d. has a normal credit balance.
101. West Company has the following account balances: Purchases P48,00; Sales Returns and Allowances 6,400; Purchase Discounts 4,000; Freight-
in 3,000; Delivery Expense 4,000; The cost of goods purchased for the period is
a. P52,000. b. P47,000. c. P51,000. d. P44,600.
102. Baden Shoe Store has a beginning merchandise inventory of P30,000. During the period, purchases were P140,000; purchase returns, P4,000;
and freight-in P10,000. A physical count of inventory at the end of the period revealed that P20,000 was still on hand. The cost of goods available for
sale was
a. P164,000. b. P156,000. c. P176,000. d. P184,000.
103. Which one of the following transactions is recorded with the same entry in a perpetual and a periodic inventory system?
a. Cash received on account with a discount b. Payment of freight costs on a purchase
c. Return of merchandise sold d. Sale of merchandise on credit
104. Which of the following accounts has a normal credit balance?
a. Purchases b. Sales Returns and Allowances c. Freight-in d. Purchase Discounts
105. The respective normal account balances of Purchases, Purchase Discounts, and Freight-in are
a. credit, credit, debit. b. debit, credit, credit. c. debit, credit, debit. d. debit, debit, debit.
106. The accounting process involves all of the following except
a. identifying economic transactions that are relevant to the business.
b. communicating financial information to users by preparing financial reports.
c. recording nonquantifiable economic events.
d. analyzing and interpreting financial reports.
107. The accounting process is correctly sequenced as
a. identification, communication, recording. b. recording, communication, identification.
c. identification, recording, communication. d. communication, recording, identification.
108. The economic entity assumption requires that the activities
a. of different entities can be combined if all the entities are corporations.
b. must be reported to the Securities and Exchange Commission.
c. of a sole proprietorship cannot be distinguished from the personal economic events of its owners.
d. of an entity be kept separate from the activities of its owner.
109. The assumption that the unit of measure remains sufficiently constant over time is part of the
a. economic entity assumption. b. cost principle. c. historical cost principle. d. monetary unit assumption.
110. The common characteristic possessed by all assets is
a. long life. b. great monetary value. c. tangible nature. d. future economic benefit.
111. Sources of increases to owner's equity are
a. additional investments by owners. b. purchases of merchandise . c. withdrawals by the owner. d. expenses.
113. Collection of a P500 Accounts Receivable
a. increases an asset P500; decreases an asset P500. b. increases an asset P500; decreases a liability P500. \
c. decreases a liability P500; increases owner's equity P500. d. decreases an asset P500; decreases a liability P500.
114. Revenues are
a. the cost of assets consumed during the period. b. gross increases in owner's equity resulting from business activities.
c. the cost of services used during the period. d. actual or expected cash outflows.
115. If an owner makes a withdrawal of cash from a proprietorship, then
a. there has been a violation of accounting principles. b. owner's equity will increase.
c. owner's equity will decrease. d. there will be a new liability showing the owner owes money to the business.
116. Which of the following events is not a business transaction?
a. Investment of cash by the owner b. Hired employees
c. Incurred utility expenses for the month d. Earned revenue for services provided
117. Grayton Industries purchased supplies for P1,000. They paid P500 in cash and agreed to pay the balance in 30 days. The journal entry to record
this transaction would include a debit to an asset account for P1,000, a credit to a liability account for P500. Which of the following would be the
correct way to complete the recording of the transaction?
a. Credit an asset account for P500. b. Credit another liability account for P500.
c. Credit the Grayton, Capital account for P500. d. Debit the Grayton, Capital account for P500.
118. At January 1, 2008, Burton Industries reported owner’s equity of P130,000. During 2008, Burton had a net loss of P30,000 and owner drawings
of P20,000. At December 31, 2008, the amount of owner’s equity is
a. P130,000. b. P140,000. c. P100,000. d. P80,000.
119. The usual sequence of steps in the recording process is to analyze each transaction, enter the transaction in the
a. journal, and transfer the information to the ledger accounts. b. ledger, and transfer the information to the journal.
c. book of accounts, and transfer the information to the journal. d. book of original entry, and transfer the information to the journal.
120. When three or more accounts are required in one journal entry, the entry is referred to as a
a. compound entry. b. triple entry. c. multiple entry. d. simple entry.
121. Another name for journal is
a. listing. b. book of original entry. c. book of accounts. d. book of source documents.
122 A journal is not useful for
a. disclosing in one place the complete effect of a transaction. b. preparing financial statements.
c. providing a record of transactions. d. locating and preventing errors.
123. Which of the following statements about the primary purpose of financial reporting is the most correct?
a. Provides information that can help with decision making.
b. The individual needs of users can be satisfied by tailoring of financial reports.
c. Enables accountability since managers would have to account for resources used.
d Identifies a range of existing and potential users dependent on financial statements to make decisions.
124 Which of the following would not be an example of a user who may rely on general purpose financial reports?
a. Henry who is given P5 000 on his 18th birthday by his grandfather to invest in the share market.
b. Singh who manufactures sugar free muesli bars hopes to secure long term sales contracts with school canteens all over the county.
c. Milly who runs a successful organic food café is keen to expand into the food truck industry by obtaining finance via crowd-funding.
d. Van who owns a fishing and camping store is keen to expand his product range by approaching his suppliers to ask about increasing his
credit limit.