CHAPTER 1: INTRODUCTION TO ACCOUNTING

PROBLEMS

PROBLEM 1: TRUE OR FALSE

1. The main purpose of accounting is to provide information that is useful in making economic decisions.

2. All business transactions are recorded in the books of accounts.

3. Accounting information is expressed both in numbers (e.g., monetary amount) and in the words (e.g.,
descriptions and explanatory information.

4. Accounting is considered a practical art because it requires the use of creative skills and judgement.

5. Accounting, as an information system, consists of an input, a process and an output.

6. Although bookkeeping is a part of accounting, the two are not the same.

7. Entity A buys goods and sells them at a mark-up. Entity A is a merchandising business.

8. Entity B required to file audited annual fiinancial statements with the SEC. Entity B can either be a
corporations or a partnership, but not a sole proprietorship or cooperative.

9. A school is most likely to be considered a manufacturing business - the raw materials are the students and
the finished products are responsible and competent business professionals.

10. A business that procedures goods in large quantities can save on fixed costs. This is called economies of
scale.

PROBLEM 2: TRUE OR FALSE

1. Only accountable events are recorded in the books of accounts. Accountable events are those that affect
the accountant.

2. General purpose financial statements are the end product of the financial accounting process. These
statements are intended for internal users.

3. Accounting is the major facet of a business that is responsible in generating funds needed to support the
business operations.

4. A business transaction is considered an accountable event if it affects the assets, liabilities, equity, income
or expense of the business.

5. You and your friend are members in a cooperativ. You hold 1 share, while your friend holds 10,000
shares. During members’ meetings, your friend can cast 10,000 votes, whereas you can only cast 1 vote.

6. Mr. A owns and manages a sole proprietorship business. The financial reports prepared tailored to Mr.
A’s financial information needs are not general purpose financial statements.

7. Mr. A (in #6 above) accepts Mr. B as co-owner his business. The business is now called A&B Co. The
business of Mr. A and Mr. B is a partnership.
8. Mrs. C is a taxi and jeepney operator. Mrs. C has three taxis and five jeepneys. Mrs. C’s business is
registered with the DTI. Mrs. C’s business is corporation.

9. Mr. A and Mr. B in #7 above decide to acquire the business of Mrs. C in #8. The newly formed business
is called ABC, Inc. ABC, Inc. is owned by Mr. A, Mr. B, Mrs. C and two drivers of Mrs. C. ABC, Inc.
issued shares of stocks in the owners representing their ownership interest in the business. The newly
formed business is a partnership.

10. The word “Inc.” in ABC, Inc. (see #9 above) is the abbreviation for incorporated , which connotes a
corporate business.

PROBLEM 3: FOR CLASSROOM DISCUSSION

Definition, nature and function of Accounting

1. Which of the following does not properly describe accounting?

a. It is process uby which useful information is generated.
b. It is a social science.
c. It requires the application of creative skills and judgement.
d. It is often referred to as the “language of the soul”.

Users of accounting information

2. Which of the following is considered an internal user of financial information?

a. Rank and file employees of the reporting entity.
b. Stockholders of the entity who are not directly involved in managing the entity.
c. Lenders and other creditors.
d. The entity’s management.

3. What type of the information needs of needs of ussers do general purpose financial statements cater to?
a. Common needs
b. Specific needs
c. A and B
d. Caring needs

4. Which of the following is least likely to be a decision made by an external user of the financial
information of an entity?
a. Wether to buy, hold or sell investment in stocks
b. Wether to extend loan or other forms of credit
c. Wether to obtain additional financing
d. All of these are decisions that external users make

Branches of accounting

5. This bramch of the accounting deals with the preparation of general purpose financial statements.
a. General accounting
b. Management accounting
c. Financial accounting
d. Auditing

6. General purpose financial statements are intended to meet

a. All the information needs of all users - external and internal alike.
b. The common needs of both external and internal users
c. The common needs of external users, primarily investors, lenders and other creditors
d. Both the common and specific needs of external users.
Forms of business organizations

7. This type of business organization is created by a contractual agreement between two or more individuals.
a. Corporation
b. Cooperative
c. Partnership
d. Sole proprietorship

Types of business according to activities

8. Which of the following refers to a manufacturing business?

a. Buying and selling of goods in their original form
b. Sale of skill-set and not necessarily a physical object
c. Ability or potential to mass-produce
d. Absemce of ability to stock goods for future sale

Advantages and disadvantages of the different types of business

9. A disadvantages of a partnership is
a. Better decisions - “two heads are better than one.”
b. Business risk is assumed by more than one owner.
c. Unlimited life.
d. Unlimited liabilities of the partners.

10. This type of business organization has the tendency to become monopolistic. It can be hamper the
economy by funneling wealth to only few individuals (i.e., the organization’s top owners) restricting the
redistribution of wealth to the majority of the members of the society.
a. Cooperative
b. Sole proprietorship
c. Partnership
d. Corporation

PROBLEM 4: MULTIPLE CHOICE

1. Which of the following statements is correct?
a. Accounting is not a service activity.
b. Both accountable and non-accountable events are recorded in the books of accounts.
c. Recording is the accounting process in which in financial statemennts are prepared.
d. Posting is the process of classifying the effects of recorded events on the accounts.

2. It is the basic storage of information in accounting,

a. Account
b. Journal
c. Memory card
d. USB

3. The terms”record” and “recording” are most synonymous with

a. Identifying
b. Journalizing
c. Posting
d. Communicating

4. Imagine you are an accountant. Which of the following would most like describe your basic purpose?
a. To be use by unscrupluos persons in embezzling funds.
b. To account money, cows and sheep.
 c. To provide objective information about a reporting entity that is intended to be usefu to
interested users in making different types of economic ddecisions.
d. To chitchat with officemate, regularly check facebook, drink coffee, kill time, wait for 5PM
then go home.

5. Which of the following statemens is incorrect?

a. The basic purpose of accounting is to provide information that is useful in making economic
decisions.
b. Although bookkeeping annd accounting are interested, they are not the same.
c. Accounting is often referred to as the “language of business” because it is fundamental to the
communication.
d. Fra Luca Pacioli is the mother of modern accounting.

6. Which of the following statements is correct regarding financial accounting?

a. Financial accounting is mainly intended to provide financial information tailored to the needs of
the entity’s management.
b. Information processed in financial accounting is not used in the other branches of accounting.
c. Financial accounting is the branch of accounting that deals with the inspection of an entity’s an
opinion thereon.
d. Compared to the other branches of accounting, financial accounting necessarily needs to
conform to the philippine fiancial reporting standards (PFRSs) for it to able to produce useful
information.

7. Without this branch of accounting there will be no accountants.

a. Tax accounting
b. Auditing
c. Accounting education
d. Daddy accounting

8. You are planning on investing in the stock of market. You have your eyes on ABC Corporationg. Being
an accounting student, you know that “haste makes waste”. Accordinglly, you downloaded ABC
Corporation’s financial statements from the internet to help you analyze wether the current market price of
ABC Corporation’s shares of stocks are undervalued or overvalued. In this regard, what type of financial
statemnt user are you?
a. External user
b. Internal user
c. Wi-fi user
d. User name and password

9. ABC Co. Is a car dealer, It buys car from companies like Toyota, Mitsubishi and Ford and resells the cars
to end consumers. What type of a business is ABC Co. According to the type of activity it undertakes?
a. Corporation
b. Partnership
c. Merchandising
d. Manufacturing

10. It is the form of the business organizaton that provides the highest degree of continuity.
a. Sole proprietorship
b. Partenership
c. Cooperative
d. Corporation

PROBLEM 5: MULTIPLE CHOICE

1. You are the accountant of a business. Your company entered into a transaction. After identifying that the
transaction is an accountable event, what should you do next?
a. Record it.
b. Communicate it.
c. Ignore it.
d. Tell your boss about it.

2. Users of financial information are broadly classified into external and internal users based on
a. Their relationship with the reporting entity.
b. The extent of their ability to affect the internal affairs of the reporting entity.
c. Wether they reside inside or outside of the company’s main office building.
d. The first letter of their surnames.

3. It is the branch of accounting that supports virtually all the other branches of accounting.
a. Management accounting.
b. Financial accounting.
c. Government accounting.
d. General accounting.

4. Although financial accounting and financial reeporting are similar ad are frequently interchanged in
practice, there is a subtle difference between them. Which of the following is correct regarding this
difference?
a. Financial accounting involves accounting, while financial reporting does not.
b. Financial accounting involves the process of identifying, recording, classifying and
summarizing, while financial reporting involves only the process of communicatig.
c. Financial accounting governed by U.S standards, while financial reporting is governed by
international standards.
d. Financial accoounting focuses on general purpose financial statements, while financial reporting
focuses on general purpose financial statements plus “other financial reporting”

5. Your friend says he is a stockholder. This means that your friend is

a. a part owner of a corporation.
b. A co-owner of a partnership.
c. An owner of a sole proprietorship
d. Raising chickens and other livestock.

6. Sole proprietorship businesses are registered with the

a. DTI
b. SEC.
c. CDA.
d. All of these.

Use the following information for the next two questions:

You want a new laptop computer and a good internet connectionso you can market your products on
Facebook. The problem is you are short of cash. You went to Papa to get loan but he said, “No way, Jose!”

7. Which of the following would most likely persuade Papa to give you the loan?
a. Cry like a spoiled brat while running up and down the stairs.
b. Look at Papa with teary eyes while wiping the liquid dripping from your nose.
c. Get Mama on your side.
d. Show Papa your projected financial statements, explain to him your business plan and
confidently assure him that you will pay back the loan.
8. Papa's decision on whether to extend you a loan is a decision made by a(an)
a. External users
b. Internal users
c. Wise man
d. Kuripot man

9. You are a business owner. It came to your attention that some of your products are overstocked, while
some are frequently out-of-stock. Warehousing costs have been increasing and you are losing potential sales.
To come up with a right mix of products to store in your warehouse, what should you do?
a. Fire your sales personnel.
b. Fire your warehouse custodian
c. Cry like a little baby; face pressed on a pillow.
d. Obtain an accounting record of your sales per product line and identify which products are sold
faster than the others. Stock more of those products and stock less of the products that take longer
to sell.

10. Your friend offered you a business proposal. According to your friend, the initial investment is 10,000.
You will get some products - 2 skin whitening soaps and 1 bottle of dishwashing liquid. If you get other
investors to invest and those other investors get other investors and those "other" other investors get some
more investors, you will receive a house and lot! (Wow!) As a business learner, you should do any of the
following except
a. give your parent's hard earned money to your friend.
b. ask if your friend's business is properly registered with government regulatory agencies, e.g.,
Securities and Exchange Commission 'SEC'. Ask if you can examine the related registration
documents.
c. obtain an objective understanding of your friend's business and his or her ability to give you a
house and lot. Ask if your friend owns a house and lot. If he or she answers "No," there is a small
chance that he or she could give you one.
d. say LOL. In your mind, you are thinking "I am an accounting student. You cannot fool me with
your scam."

PROBLEM 7: ESSAY
If you have the opportunity to put up a business, what would it be
and why?

*NOTE: Disregard any financial restrictions that you may have. Imagine you have the money you need to
put up any business you like. However, you need to consider any skills that you currently have or skills you
are willing to acquire. Such skills can be technical (e.g., cooking skills, computer programming, art, music,
mathematics, gardening, carpentry, etc.) or non-technical (e.g.,communication skills, people skills or
'charisma', street smart,etc.). Also, you need to consider the things or activities that make you happy - those
that motivate you, those that you find fulfilling.
Final note: Be honest to yourself! You will be graded based on your honesty, so don't write things just to
impress your teacher.
Enjoy.....

CHAPTER 2: ACCOUNTING CONCEPTS AND PRINCIPLES

PROBLEMS
PROBLEM 1: TRUE OR FALSE
1. The terms "accounting concepts" and "accounting principles (and other similar terms) are usually used
interchangeably in practice. Collectively, these refer to a generally accepted set of logical notions and
procedures that serve as guide in recording and communicating accounting information.
2. There are numerous accounting concepts and principles that the accountant needs to consider when
recording and communicating accounting information.
3. The separate entity concept contributes to the objective evaluation of the financial strengths and
weaknesses of a business.
4. A business that is not a going concern is called a coming concern.
5. A reporting period that starts on May 1 of the current year and ends on April 30 of the following year is
called a fiscal year period.
6. An item that is considered material by one business is always considered material by all other businesses.
7. The cost of providing financial information should exceed the expected benefits to be derived from the
information's use.
8. The accounting standards used in the Philippines are represented by the PFRSS
9. The accounting standards used in the Philippines are the same as the standards used internationally.
10. The Conceptual Framework is not a Standard. Rather, it serves as guide in developing, understanding or
analyzing the Standards.

PROBLEM 2: TRUE OR FALSE

1. The assumption that a business entity will not cease its operations in the near future refers to the concept
of Consistency.
2. Using the same accounting treatment for identical items from one period to another is an application of
the concept of Time Period.
3. Entity A acquires a regular ballpen. Instead of recognizing the cost of the ballpen as an asset to be
subsequently depreciated, Entity A immediately charges it as expense. This is an application of the concepts
of materiality and cost-benefit.
4. You own a business. Your business extends credit to various customers. One day, you found out that one
of your customers became bankrupt. You immediately charged that customer's account as loss because you
don't expect that the customer will be able to pay you anymore. You are applying the concept of Cost-
benefit.
5. Under the Accrual basis of accounting, income is recognized when earned, not when cash is collected,
and expenses are recognized when incurred, not when cash is disbursed.
6. Corporate and partnership businesses in the Philippines are regulated by the Department of Trade and
Industry (DTI).
7. After becoming a Certified Public Accountant (CPA), Mr. A worked as an external auditor in one of the
biggest auditing firms in our country. Two years later, an irnternational auditing firm offered Mr. A an
external audit job abroad, accounting standards in his new job compared to those that he which Mr. A
accepted. Mr. A will be applying diferent has applied in his previous job.
8. The term "Standards" is used in practice to refer to both the PFRSS and the Coneptual Framework.
9. Qualitative characteristics are the traits that determine whether an item of information is useful to users.
therefore included in the financial statements.
10. Information has the qualitative characteristic of relevance if a is capable of making a difference in the
decisions of users.

PROBLEM 3: FOR CLASSROOM DISCUSSION

Basic Accounting Concepts

1. These are guidelines that accountants follow when recording and communicating accounting information.
a. Accounting concepts and principles
b. Accounting laws and regulations
c. Accounting memos and guidelines
d. Accounting walkthrough, guides and cheats
2. Treating a business and its owner as one and the same violates which of the following principles?
a. Verifiability
b. Separate entity
c. Materiality
d. Going concern
3. This concept requires the preparation of financial statements at least annually.
a. Reporting period
b. Accrual basis
c. Materiality
d. Separate entity
4. What concept justifies the use of the accrual basis and historical cost concepts?
a. Going concern
b. Materiality
c. Monetary unit
d. Full disclosure
5. Under the accrual basis of accounting, a business records a
a. whern the sale occurs.
b. when the sale price is collected.
c. at the point in time when (a) and (b) above are satisfied
d. a or b, as an accounting policy choice
6. Providing and using information entail cost. Accordingly, there should be a balance between the cost of
providing and using information and the information's usefulness, such that the information's usefulness
justifies its cost. This relates to which of the following concepts?
a. Reporting period
b. Cost-benefit
c. Stable monetary unit
d. Prudence
7. Under this concept, amounts in the financial statements are stated in Philippine pesos and changes in the
purchasing power of the Philippine peso due to inflation are generally ignored.
a. Prudence
b. Materiality
c. Stable monetary unit
d. Ignoring concept

Accounting Standards
8. Which of the following statements is incorrect regarding the accounting standards used in the Philippines?
a. The accounting standards used in the Philippines consist of the Philippine Financial Reporting Standards
(PFRS).
b. The PFRSS are derived from the International Financial Reporting Standards (FRS).
c. The acounting standards used in the Philippines are similar to those used in other countries worldwide.
d. The accounting standards used in the Philippines are inferior compared to international standards.
9. Which branch of accounting is governed by the Plilippine Financial Reporting Standards?
a. Management accounting
b. Cost accounting
c. Financial accounting
d. Tax accounting

The Conceptual Framework for Financial Reporting

10. Information has this qualitative characteristic if it provides; true, correct, and complete depiction of what
it intends to represent.
a.Relevance
b.Faithful representation
c. Comparability
d. Understandability
11. Information has this qualitative characteristic if two different users could reach a general agreement as to
what the information intends to represent.
a. Relevance
b. Faithful representation
c. Comparability
d. Verifiability

PROBLEM 4: MULTIPLE CHOICE

1. Which of the following is least likely to be a source of an accounting concept?
a. The Standards (i.e., PFRS or IFRS)
b. The Conceptual Framevork for Financial Reporting
c. The general acceptance and long-time use in practie.
d. Laws enacted by the Congress.
2. Which of the following is incorrect regarding accounting concepts and principles?
a. They are practicable, meaning they can be applied to real-life situations
b. They are intended to make financial reports useful to users in making economic decisions about an entity.
c. There are only twelve (12) accounting concepts and principles used in practice
d. There are numerous accounting concepts and principles and it is not practicable to make a complete list of
them all.
3. Which of the following statements in not correct regarding the basic accounting concepts?
a. An entity that is going out of business is a going concern.
b. Rounding-off of large amounts when presenting financial statements is acceptable under the concept of
materiality.
c. Applying the separate entity concept allows the reporting of a true and fair picture of business financial
affairs.
d. Applying the same accounting treatment for similar items from one period to another relates to
'Consistency'.
4. Which of the following statements in not correct regarding the basic accounting concepts?
a. Under the cost-benefit con cept, the information's costs of processing and communication should exceed
the benefits expected to be derived from its use.
b. Information is material if its omission or misstatement could influence the decisions of users.
c. The concepts of historical cost, going concern, matching, accrual basis, and reporting period are all
interrelated. The application of one necessarily results from, or results to, the application of the other.
d. The simultaneous recognition of income and expenses is referred to as 'Matching'.
5. When making judgments and estimates under conditions of uncertainty, the accountant chooses the
potentially unfavorable outcome over the favorable one. This concept refers to
a. Separate entity.
b. Going concern.
c. Prudence/Conservatism.
d. Reporting period.
6. When reporting information in its financial statements, an entity strives for a balance between detail and
conciseness because neither loo much detail nor too little intormation helps users make good decisions, This
is an applcation of which of the following concepts?
a. Accrual basis
b. Cost-benetit
c. Full disclosure
d. Going Concern

7. The official accounting standard-setting body in the Philippines, as promulgated by law, is the
a. Philippine nstitute of Certified Public Acountants (PICPA).
b. Financial Reporting Standards Council (FRSC).
c. Accounting Standards Council (ASC).
d. Kapisanan ng mga Kontador sa Pilipinas (KKP).
8. The process by which accounting standards are established is by nature,
a. bureaucratic because only a group of privileged accountants decides on whether a standard is to be
implemented.
b. democratic because a majority of the members of the Congress need to concur before a standard becomes
implemented, and those representatives are elected by the people.
c. democratic because a majority of practicing accountants worldwide must agree with a standard before it
becomes 'implemented.
d. authoritarian because only one accountant dictates the standards to be used throughout the world.
9. This accounting concept is 'entity-specific, meaning it depends on the facts and circumstances
surrounding a specific entity.
a. Matching
b. Separate entity
c. Materiality
d. Going concern
10. The punctuality of information to be able to affect the decisions of users refers to the qualitalive
characteristic of
a. Relevance.
b. Faithful representation
c. Timeliness
d. Verifiability

PROBLEM 5: MULTIPLE CHOICE

1. You own a fish ball business. When you get fish ball from your business for your personal consumption,
you pay for it, even though you are the business owner. You are applying which of the following accounting
concepts?
a. Cost-benefit
b. Separate entity
c. Going concern
d. Fishy business
2. Mr. X and Ms. Y are co-owners of Entity A. Which of the following transactions does not violate the
separate entity concept and therefore is appropriately recorded in Entity A's accounting records?
a. Mr. X buys Ms. Y a cake on her birthday.
b. Mr. X purchases a car for his personal use. The car is registered to Mr. X.
c. Ms. Y provides capital to Entity B, another business entity.
d. Ms. Y provides capital to Entity A.
3. You acquired goods with normal selling price of P10,000 at a discounted price of P8,000. You recorded
the goods at P8,000. You are applying which of the following concepts?
a. Discounted price concept
b. Materiality
c. Historical cost
d. Accrual basis
4. Your business is engaged in the buying and selling of goods. You initially treat the cost of goods
purchased as asset and
recognize it as an expense only when the goods are sold. You are applying which of the following concepts?
a. Matching
b. Seperate entity
c. Historical cost
d. Accrual basis
5. Today, you went to Kina Roger's Canteen and ordered "halo-halo." You told Mang Roger, the canteen
Owner, that you will him next week. Mang Roger records immediately the sale today, rather than next week
after collecting your due. Mang Roger is applying the accounting principle of
a. Historical Cost.
b. Accrual basis.
c. Cost-benefit
d. Stable-monetary unit
6. You went abroad and forgot to pay Mang Roger (see at #5 above). Mang Roger contacted you 10,000
times on your Messenger reminding you of your debt but you repeatedy ignored him; you even blocked him
(very bad ). Feeling hopeless and with teary eyes and stuffy nose, Mang Roger reluctantly crossed-out your
dues in his accounting records. Mang Roger is applying which of the following accounting concepts?
a. Separate entity
b. Materiality
c. Prudence
d. No conscience concept
7. Entity A, an established business, purchases two staplers costing P300 each. Entity A charges the cost of
one of the staplers as expense but recognizes the cost of the other stapler as asset. Which of the following
concepts is violated?
a. Materiality
b. Historical cost
c. Consistency
d. Stapler concept
8. These are the qualitative haracteristics that only increase the usefulness of information that is already
useful, but cannot make information that is not useful to be useful.
a. Fundamental qualitative characteristics
b. Enhancing qualitative characteristics
c. Materiality
d. Usefulness traits
9. Entity A, a big corporation, purchases a calcuator for P500. Entity A immediately charges the cost as
expense. This is acceptable under which of tge following concept?
a. Prudence
b. Cost-benefit
c. Materiality
d. b and c
10. "Look it's Supeman," he says. "No, it's just a little bird," she says. The information lacks
a. Faithful representation.
b. Timeliness.
c. Comparability
d. Verifiability

CHAPTER 3: THE ACCOUNTING EQUATION

PROBLEMS
PROBLEM 1: TRUE OR FALSE

1. All the processes in an accounting system must observe the equality of the accounting equation.
2. The basic accounting equation is Assets + Liabilities = Equity.
3. The terms 'economic resource and 'present obligation' refer to 'income' and 'expenses', respectively.
4. When determining the existence of an asset, legal ownership is always a necessary factor to consider.
5. Control is an essential aspect in the definition of an asset. Control means legal ownership.
6. An entity controls an economic resource ifit has the exclusive right to enjoy the economic benefits from
the resource, including the ability to prevent others from enjoying those benefits.
7. A property that you do not have the right to use, sell, lease,transfer, or other similar rights may not be
your asset, even if you are the legal owner of that property.
8. Legal obligations arise only from law.
9. A present obligation can result from a future event.
10. Equity is defined as a residual amount - being the difference between total assets and total liabilities.

PROBLEM 2: TRUE OR FALSE

1. Income is defined as increases in assets or decreases in liabilities that result in an increase in equity, other
than those that relate to contributions by the business owner(s).
2. Both the definitions of income and expenses encompass changes in assets and liabilities but excluding
those changes that relate to business owner's investments to, or withdrawals from, the business.
3. You own a business. Your business lacks capital so you provided additional cash. This transaction would
result to income by your business.
4. The difterence between income and expenses is profit o or loss
5. Physical possession is a neessary condition in order for control over an asset to exist.
6. An economic resource can produce economic benefits in many ways, including the potential of the
resource to provide the entity, directly or indirectly, with cash.
7. The settlement of a liability requires the transfer of economic resource.
8. An intention to obtain control over an economic resource at a future time does not result to the recognition
of an asset at present.
9. Your business has total assets of P1OM, total liabilities of P6M and total equity of P4M. This means that
out of the total P10M resources, you have provided P6M.
10. Income decreases equity, while expenses increase equity.

PROBLEM 3: TRUE OR FALSE

1. Total assets are P10. Total liabilities are P6. Therefore, total equity is P4.
2. Total assets are P20. Total liabilities are P16. Therefore, total equity is P36.
3. Total assets are P80. Total equity is P60. Therefore, total liabilities are P20.
4. Total liabilities are P60. Total equity is P30. Therefore, total assets are P30.
5. Total income is PI00. Total expenses are P40. Therefore, the difference of P60 is profit.
6. Total income is P50. Total expenses are P60. Therefore, the difference of P10 is loss.
7. Beginning equity is P100. Profit during the period is P20 there are no other changes in equity, the ending
balance equity must be P120.
8. Beginning equity is P10. Loss during the period is P4. If there are no other changes in equity, the ending
balance of equity must be P6.
9 Total assets are P100. Total liabilities are P40. Total equity, before income and expenses, are
P40.Therefore, profit is P20.
10. Total assets are P100. Total liabilities are P60. Total equity, before income and expenses, is P30. If total
income is P50, total expenses must be P30.

PROBLEM 4: FOR CLASSROOM DISCUSSION

The Basic Accounting Equation
1. Which of the following is incorrect regarding the basic accounting equation?
a. Essentially all aspects of financial accounting, from recording to communicating financial information,
involve the observance of the equality of the basic accounting equation.
b. The basic accounting equation is 'Assets = Liabilities + Equity'.
c. The basic accounting equation is an algebraic equation. Hence, other variations or relationships can be
derived from it.
d. The basic accounting equation is applicable only in basic accounting but not in higher accounting.
Asset
2. Which of the following is not an essential factor in determining the existence of an asset?
a. the presence of an economic resource that resulted from past events
b. control over the economic resource
c. potential of the economic resource to produce economic benefits for the entity
d. present obligation
Liability
3. For a liability to exist, there must be a present obligation, along with the other aspects of a liability. A
present obligation exists if
a. the entity has already obtained economic benefits or taken an action, and as a consequence, the entity will
or may have to transfer an economic resource that it would not otherwise have had to transfer.
b. the entity is required by law to pay either the government or another party.
c. the entity has incurred a duty or responsibility, even if settling that duty or responsibility would not in any
way require the transfer of an economic resource.
d. the entity expects to enter into a future transaction wherein the entity would be required to pay cash or to
transfer other resources.
Equity
4. Which of the following is incorrect concerning equity?
a. It is equal to Assets minus Liabilities.
b. It is a residual amount.
c. It represents the business owner's claim against the total economic resources of the business.
d. It is diferent from capital, net assets or net worth.
The Expanded Accounting Equation
5. Which of the following is not a correct variation of the expanded accounting equation?
a. Assets = Liabilities + Equity + Income - Expenses
b. Assets - Liabilities= Equity + Income- Expenses
C. Assets + Expenses =Liabilities + Equity + Income
d. Assets = Liabilities + Equity - Income + Expenses
Income and Expenses
6. Which of the following statements about income is incorrect?
a. It results from increases in assets or decreases in liabilities that result in increases in equity, except those
that pertain to the business owner's contributions to the business.
b. It results to profit if it is greater than expenses.
C. It cannot result from decreases in assets or increases in liabilities.
d. It results in decreases in equity.
Applications of the Basic and Expanded Accounting Equations
7. An entity has total liabilities of P360,000 and total equity of P90,000. How much are the total assets?
a. 270,000
b. 450,000
c. 360,000
d. None of these
8. An entity has total assets of P360,000 and total equity of P90,000. How much are the total liabilities?
a. 270,000
b. 450,000
c. 360,000
d. None of these
9. An entity had a beginning equity of P123,000. If the total income for the period is P59,000, while the total
expenses are P81,000, how much is the ending balance of equity?
a. 130,000
b. 110,000
c. 101,000
d. None of these
10. An entity had total liabilities of P340,000 at the end of the year. The beginning equity is P280,000. If
during the year, the entity earned income of P420,000 and incurred expenses of P390,000, how much is the
ending balance of total assets?
a. 560,000
b. 650,000
c. 780,000
d. 960,000

PROBLEM 5: COMPUTATIONS - BASIC EQUATION

Instructons: Complete for the missing accounts.

ASSETS = LIABILITIES + EQUITY

1. P460,000 P190,000 ?
2. P230,000 ? P70,000
3. ? P990,000 P130,000
4. P1,020,000 ? P410,000
5. P820,000 P580,000 ?

PROBLEM 6: COMPUTATION - BASIC EQUATION

Instructons: Complete for the missing accounts.
 ASSETS = LIABILITIES + EQUITY
1. P780,000 P290,000 ?
2. P990,000 ? P270,000
3. ? P890,000 P170,000
4. P1,420,000 ? P360,000
5. P1,920,000 P890,000 ?

PROBLEM 7: COMPUTATION - EXPANDED EQUATION

Instructons: Complete for the missing accounts.

ASSETS = LIABILITIES + EQUITY + INCOME - EXPENSES

1. P590,000 P380,000 P130,000 P210,000 ?
2. P490,000 P280,000 P40,000 ? P180,000
3. P860,000 P220,000 ? P360,000 P80,000
4. P360,000 ? P90,000 P180,000 P70,000
5. ? P410,000 P170,000 P480,000 P190,000

PROBLEM 8: COMPUTATION - EXPANDED EQUATION

Instructons: Complete for the missing accounts.

ASSETS = LIABILITIES + EQUITY + INCOME - EXPENSES

1. P920,000 P710,000 P290,000 P440,000 ?
2. P870,000 P310,000 P240,000 ? P150,000
3. P890,000 P220,000 ? P360,000 P80,000
4, P360,000 ? P90,000 P180,000 P70,000
5. ? P410,000 P170,000 P480,000 P190,000

PROBLEM 9: COMPUTATION - ACCOUNTING EQUATION

Instructons: Determine the effects of the transactions or events described below on the basic accounting
equation.

Example: You invested P100 cash from your personal savings to your business

ASSETS = LIABILITIES + EQUITY

P100 0 P100

1. You found additional P20 underneath your pillow. You also invested this amount to your business.
2. Your business obtained a loan of P500.
3. Your business carned income of P2,000 during the period. The income did not affect your liabilities.
4. Your business incurred expenses of P800 during the period. The expenses did not affect your liabilities.
5. Get the totals of the assets, liabilities and equity, INCLUDING the effects of the given example. Check if
the accounting equation is balanced.
*Hints:
If you don't know the effects of these transactions, go back to the definitions of income and expense. See
what else do these items affect other than liabilities.

Show decreases in the elemernts of the accounting equation as negative

values, i.e, amounts in parentheses.

PROBLEM 10: MULTIPLE CHOICE

1. Which of the following is not an essentiai element of an asset?
a. Legal ownership over the resource
b. Control over the resource
c. Past event resulting to control
d. Potential to produce economic benefits
2. In which of the following would you most likely have asset?
a. You own a building that you rent to rentals not to you but to the guard. However, every time you visit the
building, the security guard shoots at you, So the tenants are actually remitting to buy that computer.
b. You own an old computer that is obsolete. Nobody wants various
c. You have clothing that you do not need. However, these can be sold online as secondhand or donated to
the less fortunate.
d. Your Grandma promised to give you her jewelry if you get good grades in First Year College. You
dropped your accounting subject because you found it very difficult.
3. Which of the following is not an essential element of a liability?
a. Present obligation
b. Past event resulting to a present obligation
c Potential to cause the transfer of an economic resource
d. Intention to obligate oneself in the future
4. A liability does not result from
a. a contract that an entity has entered into.
b. an intention to acquire assets in the future.
c. a legal obligation resulting from a requirement of the law.
d. a past practice that has created valid expectation on others that the entity will accept and discharge certain
responsibilities.
5. An entity obtained a loan. What is the effect of this transaction on the entity's financial statement
elements?
a. Total assets increased
b. Total liabilities increased
c Total equity increased
d. a and b
6. Which financial statement element is defined as a residual amount?
a. Asset
b. Liability
c. Equity
d. Income
7. The claims of creditors on the total assets of an entity are also
a. Asset
b. Liability
c. Equity
d. Income
8. Which of the following is correct about income and expenses?
a. Income decreases equity, while expenses increase equity.
b. Income plus expenses equals profit or loss.
c. Income is increases in assets or decreases in liabilities, while expenses are decreases in assets or increases
in liabilities.
d. Income includes investments by the owner to the business, while expenses include distributions by the
business to the owner.

9. Which financial statement element is defined in terms of changes in assets and liabilities?
a. Income
b. Expenses
c. Equity
d. a and b
10. Which of the following increases equity?
a. incurring a liability
b. income
c. Incurring a loss
d. b and c

PROBLEM 11: MULTIPLE CHOICE

1. Which of the following is not a correct variation of the basic accounting equation?
a. Assets = Liabilities + Equity
b. Assets - Liabilities = Equity
c. Assets- Equity = Liabilities
d. Assets + Liabilities = Equity
2. Which of the following is an essential aspect in the definition of a liability?
a. a present right over the economic benefits that the economic resource may produce
b. potential of the economic resource to produce economic benefits for the entity
c. a present obligation that may arise from a future event
d. potential of the present obligation to cause a transter of an economic resource from the entity
3. You acquired a cellphone through a monthly installment plan. According to your contract, you are
required to return the cellphone to the supplier if you miss out on two installment
payments. Upon signing the contract, the supplier gave you the cellphone. You immediately took
photographs of your face and uploaded them to the internet. Which of the following statements is true?
a. The cellphone becomes your asset only after you have fully paid the instaliment price.
b. The cellphone is already your asset because you control the economic benefits from it. Legal ownership is
not a necessary criterion when deternmining the existence of an asset - control is!
c. The cellphone is the supplier's asset until you have fully paid the installment price.
d. The cellphone looks nice but the selfie is not.
4 Upon taking possession of the cellphone in #3 above, you will record it as
a. an asset and a liability.
b. an asset and equity.
c. an asset only.
d. To be recorded only upon full payment of the purchase price.
5. Several months before your birthday, you repeatedly posted on Facebook that you will be throwing a
party. You invited all your classmates, neighbors, strangers, friends and "netizens" from all over the world to
come. On your birthday, you will be obligated to throw a party because of a
a. legal obligation.
b. constructive obligation.
c. Facebook post
d. life event
6. An expense could not possibly result
a. in a decrease in equity.
b. from an increase in assets
c. from an increase in liabilities
d. from a decrease in assets
7. Which of the following is a correct computation?
a. Liabilities - Equity = Assets
b. Income + Expenses = Profit or loss
c. Equity, beg. + Profit - Equity, end.
d. Equity, beg. - Income + Expenses = Equity, end.
8. Which of the following statements is correct regarding income and expenses?
a. Income results in decreases in equity, while expenses result in increases in equity.
b. If income exceeds expenses, the excess represents loss.
c. Contributions and distributions between the business owner and the business are not income and expenses
d. If expenses exceed income, the excess represents s profit.
9. What is the effect on an entity's financial statement elements when an owner invests money to the
business?
a. Total assets increase
b. Total equity increases
c. Total assets and total liabilities both increase
d. Total assets and total equity both increase
10. In the expanded basic accounting equation, why is income added to equity?
a. because income increases equity
b. because income decreases equity
c. because income are increases in assets
d. because income are decreases in liabilities

PROBLEM 12: MULTIPLE CHOICE

1. Entity A's total liabilities are P50M, while its total equity is P10. Entity A's total assets are
a. P60M.
b. P50M.
c. P40M.
d. Any of these
2. Entity A's total assets are P120M, while its total liabilities are P90. Entity A's total equity is
a. P210M.
b. P30M.
c. P9OM.
d. P50M.
3. Entity A's total assets are P40M, while its P9M total equity is
a. P31M
b. P49M
c. P40M
d. 94M
4. Entity A earned total income of P40M and incurred total expenses of P9. Entity A's profit (loss) is
a. P31M.
b. (P31M).
c. P49M.
d. (P49M).
5. Entity A earned total income of p40M and incurred total expenses of P59. Entity A's profit (loss) is
a. P49M.
b. P19M.
c. (P19M).
d. (P99M).
6. Entity A earned total income of P60M and reported a profit of P16M. Entity A's total expenses were
a. P44M.
b. P76M.
c. P12M.
d. P16M.
7. Entity A earned total income of P50M and reported a loss of P8M. Entity A's total expenses were
a. P42M.
b. P58M.
c. P16M.
d. Sorry, I don't know.
8. EntityA incurred total expenses of P60M and reported a profit of P16M. Entity A's total income was
a. P72M.
b. P44M.
c. P76M.
d. I'm tired and I want to sleep.
9. Entity A incurred total expenses of P40M and reported a loss of P12M. Entity A's total income was
a. P42M.
b. P28M.
c. P52M.
d. Stop making me solve problems.
10. Entity A's beginning equity was P60M. If during the year, Entity A earned total income of P16M and
incurred total expenses of P8M, how much is Entity A's ending equity?
a. P68M.
b. P76M.
c. P84M.
d. I'll ask my classmate later.

PROBLEM 13: MULTIPLE CHOICE

1. Entity A's beginning equity was P80M. If during the year, Entity A earned total income of P10M and
incurred total expenses of P18M, how much is Entity A's ending e equity?
a. P88M.
b. P72M.
c. P90M.
d. P52M.
2. Entity A's equity had beginning and l ending balances of P80M and P100M, respectively. If there were no
contributions from, or distributions to, the owner during the period, which of the following is most likely to
be true?
a. Entity A earned profit of P2OM.
b. Entity A incurred loss of P20M.
C. Entity A earned total income of P20M.
d. Entity A incurred total expenses of P20M.
3. Entity A had total assets, liabilities, and equity of P120M. P75M and P45M, respectively, at the beginning
of the period. During the period, Entity A's total liabilities decreased by P20M, while its profit was P25M.
There were no other transactions or events that affected equity during the period. How much is Entity A's
ending total assets?
a. P70M
b. P85M
c. P95M
d. P125M
4. Entity A had total assets, liabilities, and equity of P140M, P90M and 50M, respectively, at the beginning
of the period. During the period, Entity A's total liabilities decreased to P40M, while its profit was P25M.
There were no other transactions or events that affected equity during the period. How much is Entity A's
ending total assets?
a. P75M
b. P95M
c. P115M
d. P125M
5. Entity A had total assets of P100M and total liabilities of P6OM total at the beginning of the period. If at
the of the period, total assets increased by P3OM, while total liabilities remained the same, Entity A's total
equity at the end of the period would be
a. P70M
b. P6OM
c. P90M
d. P80M
6 Entity A had total assets and total liabilities of P120M and P75M, respectively, at the beginning of the
period. During the period, Entity A earned total income of P60 and incurred total expenses of P45. How
much is Entity A's ending total equity?
a. P60M
b. P80M
c. P90M
d. P120M
7. Entity A had total assets and total liabilities of P120M and P70M, respectively, at the beginning of the
period. During the period, Entity A earned total income of P60 and incurred total expenses of P40. Entity
A's total assets increased to P130M by year-end. There were no additional contributions by, or distributions
to, the owner during the period. How much is Entity A's ending total liabilities?
a. P60M
b. P70M
c. P80M
d. P90M
8. Entity A has ending total assets of P60M and ending total liabilities of P45M. Entity A had a beginning
equity of P10M. If Entity A earned total income of P25M during the year, how much were the total
expenses?
a. P0M
b. P15M
c. P20M
d. P25M
9. Entity A has ending total assets of P160M and ending total liabilities of P9OM. Entity A had a beginning
equity of P30M. If Entity A incurred total expenses of P50M during the year, how much was the total
income?
a. P70M
b. P80M
c. P90M
d. P120M
10. At yearend, Entity A's total assets and total liabilties are P180M and P75M, respectively. If Entity A had
beginning equity of P75M and there were no contributions from, or distributions to, the owner during tlhe
period, how much protit (loss) did Entity A earn (incur) during the year?
a. P35M
b. (P35M)
c. P25M
d. (P25M)

PROBLEM 14: MULTIPLE CHOICE

1. Yesterday, you cooked siopao asado for a total cost of P40 The total cost consists of the costs of the
ingredients, including transportation costs trom the market, and allocated overhead costs for liquefied
petroleum gas, electricity, and depreciation of steamer and other kitchen utensils. Today, you sold all the
siopaos to your classmates for a total sales price of P15,00, on credit. Your classmates promised to pay next
week. You incurred additional PI00 in transporting the siopaos from your house to the school. If you prepare
financial statements today, how much would be your profit (loss) under the accrual basis of accounting?
a. 10,900
b. (4,100)
c. 11,000
d. 0
2. Manong Magba Balut sells balut. At the beginning of the day, Manong Balut had P1,000 cash. Manong
used that amount to buy "balut" (uncooked), cook the "balut" and sell the "baluť online. At the end of the
day, Manong Balut had P1,700 cash. Assuming all other expenses were accounted for and Manong Balut did
not incur any liabilities during the day, which of the following is most likely to be a valid statement?
a. Manong Balut earned profit of P700, representing increase in Manong's assets (i.e., cash) resulting to an
increase in his equity.
b. Manong Balut earned profit of P1,700, representing the increase in Manong's assets (i.e., cash) resulting
to an increase in his equity.
c. Sorry I can't solve this because I dont know what a "balut" is.
d. I don't know. I think ld better ask Manong Balut to teach me accounting.

Use the following information for the next eight questions:

Papa gives you a weekly allowance of P20. In the next questions, we will treat your weekly allowance as
your weekly income and the amount you spend out of the allowance as your expenses. Any unspent amount
(i.e., savings) represents your profit.
3. You spent P18. Which of the following statements is correct?
a. Your profit for the week is P20.
b. You incurred a loss P18.
c. Your profit for the week is P2.
d. Papa is kuripot.
4. To earn a profit of P10 in a month, your weekly spending should be (use 4 weeks per month)
a. P175
b. P715
c. P70.
d. That is impossible! I would starve myself first before I can earn that profit.
5. You spent all your allowance for the week. In addition, you purchased 1 "balut" worth P16 from Manong
Balut (see #2), on credit. You told Manong Balut you will pay him next week. Under the accrual basis of
accounting, your profit (loss) for the current week is
a. P16.
b. 0.
c. (P16).
d. 1 balut.
6. If your total spending for the year was P936, your profit (loss) would be (use 52 weeks per year)
a. P0
b. P104.
c. P1,040.
d. I don't know. Accounting is so complicated!
7. On Day 1 of the first week of the year, your accounting equation will show which of the following?
(Note: The allowance is nonrefundable to Papa.)

ASSETS = LIABILITIES + EQUITY

A. P20 0 P20
B. P20 P20 0
C. P20 P20 P20
D. 0 0 0

8. You spent all your allowance for the first week. Your accounting equation at the end of Week 1 will show
which of the following?

ASSETS = LIABILITIES + EQUITY

A. P20 0 P20
B. P20 P20 0
C. P20 P20 P20
D. 0 0 0
8. You spent only P18 of your allowance for the first week. Your accounting equation at the end of Week 1
show which of the following?

ASSETS = LIABILITIES + EQUITY

A. P20 0 P20
B. P18 0 P18
C. P2 0 P2
D. 0 0 0

9. Your accounting equation at the end of the week for #5 above (‘balut’) will show which of the following?
(Note: You already ate the ‘balut’ and now it’s gone.)

ASSETS = LIABILITIES + EQUITY

A. P16 P16 P0
B. P16 0 P16
C. P0 P16 (P16)
D. 0 0 0

CHAPTER 4: TYPES OF MAJOR ACCOUNTS

PROBLEMS
PROBLEM 1: TRUE OR FALSE

1. Chart of acOunts is the basic storage of information accounting.

2. Debit means the left side of fan account, while credit means the right.
3. The ditterence between the total debits and total credits in an account represents the balance of that
account.
4. An account has total debits of P80 and total credits of P20. This account has a balance of P60.
5. The balance of the account in #4 above is referred to as a credit balance.
6. If the total debits in an account exceed the total credits, the account would have a debit balance.
7. There are five major types of accounts used in accounting.
8. Income and expenses are the balance sheet accounts.
9. The "used up" portion of a prepayment (e.g, prepaid rent) is an expense, while the "unused" portion is an
asset.
10. The "used up" portion of supplies bought during the period is called "Prepaid supplies."

PROBLEM 2: TRUE OR FALSE

1. The right side of an account is called credit.
2. Accounts payable and accounts receivable are opposites, meaning if I have an account payable to you,
you, in turn have an account receivable from me.
3. You are selling banana cue. If I buy your banana cue and informally promise to pay for it tomorrow, your
'accounts payable' will increase.
4. In conjunction with #3 above, my 'accounts receivable' will increase.
5. If after sometime, I haven't paid yet my d dues to you in #3 above, and you don't expect that I can pay
you, you will recognize an expense called bad debt expense.
6. An entity that borrows money from the bank would most likely present interest income in its income
statement.
7. The terms "receivable" and "prepaid" connote an asset, while the terms "payable" and "unearned" connote
a liability.
8. Collectively, land, building and equipment are referred to as "Property, plant and equipment."
9. Gains are income that arises in the ordinary course of business activities.
10. Mr. Monkey's main business activity involves selling bananas. One time, Mr. Monkey sold an iPhone
with carrying amount of P17 for P20. Mr. Monkey recognizes a gain of P3 on this transaction rather than
revenue.

PROBLEM 3: FORCLASSROOM DISCUSSION

The Account
1. Account is the basic storage of information in accounting. An account may be depicted through a "T-
account'. Which of the following is not one of the parts of a T-account?
a. Account title
b. Left side or debit side
c. Right side or credit side
d. Upside down or bottoms up
The Five Major Accounts
2. Which of the following is not one of the five major accounts?
a. Assets
b. Income
c. Equity
d. Losses
3. Which of the following is not one of balance sheet (statement of finanial position) accounts?
a. Assets
b. Liabilities
c. Equity
d. Income
Chart of Accounts
4. It is a list of all the accounts used by a business.
a. Trial balance
b. Contact list
c. Chart of accounts
d. Organizational chart
5. An account with the following account numbering '2100' is most likely to be a(an)
a. asset account.
b. liability account.
c. equity account.
d. expense account.
Common Account Titles
6. The money held by a business, incuding the increases or decreases thereto, is recorded in this account.
a. Cash
b. Accounts receivable
c. Owner's equity
d. Sales
7. Receivables that are supported only by oral or informal promises to pay.
a. Cash
b. Accounts receivable
c. Accounts payable
d. Notes receivable
8. Contributions by the business owner to the business and profits or losses of the business are recorded in
this account.
a. Owner's equity
b. Owner's drawings
c. Sales
d. Salaries expense
9. Revenues earned from the sale of goods are recorded in this account.
a. Inventory income
b. Goods income
c. Sales
d. Service fees
10. This represents the value of inventories that have been sold, and consequently charged as expense,
during the accounting period.
a. Inventory
b. Cost of sales (Cost of goods sold)
c. Supplies expense
d. Freight-out

PROBLEM 4: IDENTIFICATION
Instruction: Indicate the classifications of the accounts listed below as either an ASSET, LIABILITY,
EQUITY, INCOME or EXPENSE account under COLUMN A and as either a BALANCE SHEET account
or an INCOME STATEMENT account under COLUMN B.

Account Titles COLUMN A COLUMN B

1. Accounts receivable
2. Bad debt expense
3. Building
4. Notes payable
5. Rent expense
6. Owner’s equity
7. Interest income
8. Cash
9. Gain
10. Computer equipment
11. Depreciation
12. Utilities payable
13. Freight-out
14. Rent income
15. Unearned income

PROBLEM 5: IDENTIFICATION
Instruction: Indicate the classifications of the accounts listed below as either an ASSET, LIABILITY,
EQUITY, INCOME or EXPENSE account under COLUMN A and as either a BALANCE SHEET account
or an INCOME STATEMENT account under COLUMN B.

Account Titles COLUMN A COLUMN B

1. Taxes and licenses
2. Furnitures & fixtures
3. Supplies expense
4. Interest expense
5. Inventory
6. Land
7. Accounts payable
8. Notes receivable
9. Prepaid insurance
10. Loss
11. Prepaid supplies
12. Rent payable
13. Sales
14. Interest receivable
15. Transportation equipment

PROBLEM 6: IDENTIFICATION
Instruction: Identify the account title/accounting term referred to in each of the statements below.
1. Increases in assets or decreases in liabilities resulting in increases in equity, other than those relating to
transactions with the business owner.
2. These represent claims for cash that are supported by oral or informal promises to pay by a customer.
3. This represents the goods that are held for sale by a business.
4. This account is used to record the costs incurred in marketing or promoting the products or services of a
business.
5. The financial statement that presents the assets, liabilities and equity of a business.
6. The expense account used to record the uncollectible portion of accounts receivable.
7. The revenue earned from the sale of goods is recorded in this account.
8. The cost of inventories sold is charged as expense using this account.
9. This is used to record the cost of supplies used during the period.
10. This account pertains to obligations supported by written or formal promises to pay by the debtor.

PROBLEM 7: IDENTIFICATION
Instruction: Same as PROBLEM 6 above.
1. The financial statement that presents the income and expenses, and consequently the profit or loss, of a
business.
2. Transport costs of delivering goods to customers are recorded in this account.
3. Obligations supported by oral or informal promises to pay.
4 This account is used to record the cost of unused supplies.
5. It is a liability account that is used to record amounts received from customers in advance of providing
goods or services.
6. This represents various small expenditures that do not warrant separate presentation.
7. This account may be used to describe expenses for water, electricity, internet, telephone, and the like.
8. This represents the aggregate amount of estimated losses from uncollectible accounts receivable.
9. This represents the portion of the cost of a depreciable asset (e.g. building or equipment) that has been
charged as expense in the current accounting period.
10.The aggregate cost of a depreciable asset that has been charged as expenses since the asset was made
available for use.

PROBLEM 8: MULTIPLE CHOICE

1. Receivables that are supported by written or formal promises to pay in the form of promisorry notes
a. Inventory
b. Accounts receivable
c. Notes payable
d. Notes receivable
2. Goods that are held for sale by a business.
a. Cash
b. Accounts receivable
c. Accounts payable
d. Inventory
3. The unused portion of rent paid in advance.
a. Prepaid rent
b. Rent expense
c. Cash
d. Inventory
4. Salaries earned by employees but not yet paid.
a. Salaries expense
b. Salaries payable
c. Employee points
d. Employee credits
5. Salaries earned by employees, whether paid or not.
a. Salaries expense
b. Salaries payable
c. Employee points
d. Employee credits
6. Temporary withdrawals of the owner from the business during the period are recorded in this account.
a. Owner's equity
b. Owner's drawings
c. Withdrawal expense
d. Salaries expense
7. Income collected in advance but not yet earned.
a. Unearned income
b. Early income
c. Sales
d. Service fees
8. Obligations supported by oral or informal promises to pay by the debtor.
a. Cash
b. Accounts receivable
c. Accounts payable
d. Notes payable
9. The cost of inventories that have been sold during, the period.
a. Cost of sales
b. Cost of inventories
c. Inventory
d. Selling expense
10. The amount of estimated losses from uncollectible accounts receivable during the period.
a. Good expense
b. Bad expense
c. Ugly expense
d. Bad debts expense

PROBLEM 9: MULTIPLE CHOICE

1. A merchandising or manufacturing business uses this account to record revenues earned from primary
business activities.
a. Sales
b. Service fees
c. Gains
d. Seals
2. Obligations supported by written or formal promises to pay by the debtor in the form of promissory notes.
a. Notes receivable
b. Accounts receivable
c. Accounts payable
d. Notes payable
3. The structure owned and being used by a business in its operations
a. Building
b. Base
c. Castle
d. Kingdom
4. The portion of the cost of a building that is already recognized as expenses since the building was
acquired and made available for use.
a. Accumulated depreciation - building
b. Upkeep
c. Accumulated upkeep
d. Repairs and maintenance expense
5. The cost of unused office and other supplies.
a. Prepaid rent
b. Prepaid supplies
c. Cash
d. Accounts receivable
6. Interest incurred by a borrower but not yet paid.
a. Interest payable
b. Interest expense
c. Notes payable
d. Notes receivable
7. Interest incurred by a borrower, whether paid or not.
a. Interest payable
b. Interest expense
c. Notes payable
d. Notes receivable
8. The seller's cost of delivering goods to customers.
a. Freight-out
b. Freight-in
c. Freight-good
d. Freight-bad
9. The cost of promotional or marketing activities during the period.
a. Market expense
b. Advertising expense
c. Groceries
d. Insurance expense
10. The cost of gasoline, hotel accommodation, taxi fare, and similar expenditures.
a. Transportation and travel expense
b. Interest expense
c. Taxi expense
d. Gas expense

PROBLEM 10: MULTIPLE CHOICE

1. The cost of the lot on which the building of a business has been constructed is recorded in an account
described as
a. Realm
b. Ground
c. Land.
d. Earth.
2. Entity A sells an asset that is not an inventory for P100. The carrying amount of the asset is P180. The
P80 difference represents a
a. gain.
b. loss.
c. revenue
d. interest income
3. Interest earned by a lender but not yet collected.
a. Interest receivable
b. Interest income
c. Notes payable
d. Notes receivable
4. Interest earned by a lender, whether collected or not.
a. Interest receivable
b. Interest income
c. Notes payable
d. Notes receivable
5. Revenues earned from rendering services.
a. Unearned income
b. Rendering income
c. Sales
d. Service fees
6. The cost of supplies used in an accounting period.
a. Prepaid supplies
b. Supplies cost
c. Supplies expense
d. Surprise expense
7. The portion of the cost of a building or equipment that has been charged as expense in the current
accounting period.
a. Accumulated deduction
b. Deduction expense
c. Accumulated depreciation
d. Depreciation expense
8. You opened up a business. Your initial investment to the business will be recorded in which of the
following accounts?
a. Owner's payable
b. Owner's equity
c. Notes payable
d. Accounts payable
9. In conjunction with #8 above, which of the following would most likely be your first expense?
a. Equipment
b. Inventory
c. Taxes and licenses
d. Utilities expenses
10. You purchased goods that will be held for sale in t the ordinary course of your business activities. You
will record the goods as
a. Expense.
b. Income.
c. Accounts receivable.
d. Inventory.

PROBLEM 11: MULTIPLE CHOICE

1. You are a business owner. Your business needed additional capital so you obtained a loan from a bank.
The bank made you sign a contract promising to repay the loan after a year. Which of the following accounts
is increased by transaction?
a. Accounts payable
b. Notes payable
c. Accounts receivable
d. Notes receivable
2. From the point of view of the bank who lent you the loan in #1above, which of the following accounts is
increased?
a. Accounts payable
b. Notes payable
c. Accounts receivable
d. Notes receivable
3. 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 by this transaction?
a. Accounts payable
b. Notes payable
c. Accounts receivable
d. Notes receivable
4. From the point of view of the customer who bought goods from your business in #3 above. which of the
following accounts is increased?
a. Accounts payable
b. Notes payable
c. Accounts receivable
d. Notes receivable
5. When you collected the dues of the customer in #3 above, which of the following accounts is increased?
a. Accounts payable
b. Cash
c. Accounts receivable
d. Notes receivable
6. From the point of view of the customer who paid you in #5 above, which of the following accounts is
decreased?
a. Inventory
b. Cash
c. Accounts receivable
d. Notes receivable
7. You purchased a computer for P100,000. Which of the following accounts is increased by this
transaction?
a. Cash
b. Owner's equity
c. Computer equipment
d. Inventory
8. You expect to use the computer in #7 above over the next 5 years. How much is the depreciation expense
per year?
a. 10,000
b. 20,000
c. 7,143
d. 100,000
9. After using the computer in #'s7 and 8 above for three years, how much is the balance of the
"Accumulated depreciation - Computer equipment" account?
a. 60,000
b. 30,000
c. 20,000
d. 90,000
10. At the end of Year 2, how much is the carrying amount of the computer equipment in #'s 7 and 8 above?
a. 50,000
b. 40,000
c. 60,000
d. 0