Chapter 1

Question 1

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

Answer 1

True

Question 2

All business transactions are recorded in the books of accounts.

Answer 2

False

Only accountable events

Question 3

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

Answer 3

True

Question 4

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

Answer 4

True

Question 5

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

Answer 5

True

Question 6

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

Answer 6

True

Question 7

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

Answer 7

True

Question 8

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

Answer 8

True

Question 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.

Answer 9

False

School is a service business

Question 10

A business that produces goods in large quantities can save on fixed costs. This is called economies of scales.

Answer 10

True

Question 11

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

Answer 11

False

Accountable events are those affect the accounting equation of the busin

Question 12

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

Answer 12

False

These statements are intended for external users.

Question 13

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

Answer 13

False

Finace is the responsible for generating funds.

Question 14

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

Answer 14

True

Question 15

You and your friend are members in a cooperative. 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.

Answer 15

False

You and your friend are members in a corporation.

Question 16

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

Answer 16

True

Not general = specific

Question 17

Mr. A (in #16 above) accepts Mr. B as co-owner to his business. The business is now called A&B Co. The business of Mr. A and Mr. B is a partnership.

Answer 17

True

Question 18

Mrs. C 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 a corporation.

Answer 18

False

Mrs. C’s business is a sole proprietorship.

Question 19

Mr. A and Mr. B in #17 above decided 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 to the owners representing their ownership interest in the business. The newly formed business is a partnership.

Answer 19

False

The newly formed business is a corporation.

Question 20

The word “Inc.” in ABC, Inc. (see #19 above) is the abbrevation for incorporated, which connotes a corporate business.

Answer 20

True