I. True or False. Write T if true, F if false.

______________ 1. The preparation of financial statements is the summarization of accounting.

______________ 2. An exercise of profession is more appropriate to a partnership form of business organization than to a
corporation.
______________ 3. Unlimited liability makes the owners responsible to business liability up to the extent of their personal
properties.
______________ 4. Cosmetics dealers are examples of business in manufacturing concern.
______________ 5. Accounting is considered the “language of business” because it is used as a medium of communication in the
word of business.
______________ 6. The knowledge of accounting is important and beneficial to those who are engaged in business only.
______________ 7. The objectivity principle maintains that transactions are recorded with supporting documents to make them
verifiable.
______________ 8. It becomes compulsory to all business establishments to maintain and keep business records as required by
laws.
______________ 9. The financial statements are intended to provide relevant information both to internal and external parties.
______________ 10. Business owners are external users of financial information.
______________ 11. The primary function of accounting is to provide quantitative financial information intended to guide
management in arriving at economic decisions.
______________ 12. Bookkeepers prepare and interpret financial statements.
______________ 13. The cost of an inexpensive calculator which has an estimated life of five years was treated as an expense of
the period when purchased. It is an example of the application of the cost principle.
______________ 14. Generally accepted accounting principles are formulated by the Accounting Standards Council, not by the
Board of Accountancy.
______________ 15. A business transaction is the occurrence of an event or of a condition that must be recorded.

II. Fill in the Blanks. Fill in the blank with the correct answers to complete the given statement.
______________ 1. Is the residual interest in the assets of the enterprise after deducting all of its liabilities.
______________ 2. Are present obligation of an enterprise arising from past transactions or events, the settlement of which is
expected to result in an outflow of resources embodying economic benefit.
______________ 3. Are resources controlled by enterprise as a result of past transactions or events and from which future
economic benefits are expected to flow to the enterprise.
______________ 4. Refers to the amount of cash or value of the property that the owner has invested in the enterprise but was
later withdrawn for personal use.
______________ 5. Is a financial statement that summarizes the changes in equity for a given period of time.
______________ 6. Is a financial statement which shows the performances of an enterprise for a given period of time.
______________ 7. Is a financial statement which directly relates to the measurement of a financial position of an enterprise as of
a given date.
______________ 8. Is a financial statement that provides information about cash inflows and cash outflows of an entity for a
given period of time.
______________ 9. Are the gross outflow of economic benefits during the period arising in the course of ordinary activities of an
enterprise when those outflows result in decrease in equity, other than those relation to distributions to owners.
______________ 10. Are the gross inflow of economic benefits during the period arising in the course of ordinary activities of an
enterprise when those outflows result in decreases in increases in equity, other than those relating to contributions from owners.

III. Identification. Identify the following.

______________ 1. An external user of financial information that concerns himself among others, the security and assurance of
fair return to his investment.
______________ 2. The time period that divides the life of business.
______________ 3. The accumulated profit of a corporation.
______________ 4. A type of business organizations which includes schools, clinics, theaters, hotels and the likes.
______________ 5. Are uniform sets of accounting rules, procedures, practices and standards that are followed in preparing
financial statements.
______________ 6. The person responsible for keeping the financial records of the business and whose work is clerical in nature.
______________ 7. Another term for production concern.
______________ 8. The term referring to the sequence of business transactions as they occur in time.
______________ 9. Another term for trading concern.
______________ 10. Is the combination of personnel, records and procedures that a business uses to meet its need for financial
information.
______________ 11. The recording aspect of accounting.
______________ 12. The group of individuals to whom management of the corporation is entrusted.
______________ 13. A type of business organization which buys raw materials and converts them to finish good.
______________ 14. The buy-and-sell type of business organization.
______________ 15. An accounting concept which considers our Philippine peso to have a stable value regardless of fluctuation
in prices.
IV. On the space provided, write the type of business activities (Service, Merchandising, or Manufacturing) that is being
described by the statements below.
______________ 1. SM Mega Mall ______________ 6. Trading
______________ 2. Sari-sari store ______________ 7. Consultancy firm
______________ 3. Medical and Dental Clinic ______________ 8. Dole Company
______________ 4. Raw materials to finished products ______________ 9. Professional fees
______________ 5. Shoe-making ______________ 10. Universities, schools

V. Enumeration. Enumerate the following.

A. What are the five (5) basic financial statements as mentioned in SFAS (revised 2000)?
B. What are the five (5) underlying assumptions in accounting?
C. What are the three (3) annual reporting?
D. What are the five (5) elements of financial statements?
E. What are the four (4) forms of business organization?
F. What are the four (4) types of business activities?

VI. Encircle the best answer.

1.) Which of the statement is valid?
a. Accounting is the language of business c. Accounting is service activity
b. The objective of accounting is to provide quantitative information to its users. d. All of the above

2.) Who in the following is a user of accounting information?

a. Manager c. Creditors
b. Owner d. All of the above

3.) Which of the following accounting concepts is violated when a sole proprietor uses the same bank account for his business and
personal affairs?
a. Accounting Period b. Going Concern c. Entity concept d. Matching
principle

4.) A partnership
a. can be easily dissolved c. gives a partner unlimited liability
b. owned by two or more persons d. all of the responses

5.) In corporation
a. the management is entrusted to the BOD c. the stockholders have a limited liability
b. the ownership is divided into shares of stocks d. all of the above

6.) Which of the following is an important reason for studying accounting?

a. Accounting provided information to make an intelligent assessment of the business.
b. Accounting is a rewarding and interesting career.
c. Accounting serves various interested parties.
d. All of the above

7.) Generally Accepted Accounting Principles

a. Defined accounting practice at a particular time.
b. Are developed by accountants and people of business acumen.
c. can be changed when called for
d. All of the responses

8.) Mr. Sandy is engaged in buying and selling of corn, copra, rice and agricultural products. How do you classify his activity?
a. Service concern b. Agri-business c. Trading concern d. Manufacturing

9.) It is the ability of the enterprise to meet currently maturing obligations

a. Liquidity b. Solvency c. Flexibility d. Financial Structure
10.) The principle requires relevant information to form part of financial statements for decision-making purposes?
a. Objectivity b. Accounting entity c. Materiality d. Adequate disclosure

11.) Stating assets and liabilities and changes in them in terms of a common financial denominator is a prerequisite in measuring
financial position and periodic net income.
a. Unit of measure b. Exchange price c. Accrual d. Adequate disclosure

12.) The principle of objectivity includes the concept of

a. Conservatism b. Classification c. Verifiability d. Summarization

13.) The process of recording business transaction is one of the

a. Interpretative aspect of accounting c. Mechanical aspect of accounting
b. Analytical aspect of accounting d. All of the above

14.) Accounting changes are often made and the monetary impact is reflected in the financial statements of a company even
though, in theory, this may be a violation of the accounting concept of:
a. Conservatism b. Consistency c. Objectivity d. Materiality

15.) The basic components of financial statements do not include

a. Balance sheet b. Income statement c. Statement of Goods Sold d. Statement of Changes in Equity