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Basic Financial Accounting and Reporting > Chapter 1: Accounting and Its Environment > Flashcards

Chapter 1: Accounting and Its Environment Flashcards

1
Q

Accounting is a process of recording, ______, analyzing, ______, and reporting of financial information to the stakeholders of the businesses.

A

Identifying

Summarizing

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2
Q

An activity carried out by a business to provide goods and services in exchange for money is known as a ______.

A

Economic Activities

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3
Q

Only business activities that can be measured in dollars and cents are recorded. This is in accordance with the _______ concept.

A

Stable Monetary Unit / Monetary Unit Assumption

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4
Q

Personal financial activities of the owner of a business are not record in the books of the business. This complies with the _______ concept.

A

Entity or Economic Entity

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5
Q

Transactions are recorded based on reliable and verifiable information. This is in accordance with the _______ concept.

A

Materiality

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6
Q

Transactions should be recorded in the accounts at their original cost shown in the source documents. This practice complies with the ______ concept.

A

Historical Cost or Accounting Cost

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7
Q

True or False

An audit is the independent examination that ensures the fairness and reliability of the reports that management submits to users outside the business entity.

A

True

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8
Q

True or False

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

A

True

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9
Q

True or False

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

A

False

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10
Q

True or False

The set guidelines and procedures that constitute acceptable accounting practice at a given time is GAAP, which stands for generally accepted accounting process.

A

True

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11
Q

True or False

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

A

True

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12
Q

True or False

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

A

True

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13
Q

True or False

The terms bookkeeping and accounting are synonymous.

A

False

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14
Q

True or False

Most members of the accountancy profession are Certified Public Accountants.

A

True

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15
Q

True or False

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

A

True

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16
Q

True or False

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

A

False

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17
Q

True or False

Manufacturing companies buy raw materials, convert them into products and the sell the products to other companies or finals consumers.

A

True

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18
Q

True or False

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

A

True

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19
Q

True or False

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

A

True

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20
Q

True or False

A partnership is a business owned and operated by two or more persons who bind themselves to contribute money, property or industry to common fund, with the intention of dividing the profits among themselves.

A

True

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21
Q

True or False

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

A

True

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22
Q

True or False

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

A

False

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23
Q

True or False

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

A

True

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24
Q

True or False

A partnership is always owned by two individuals.

A

False

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25
Q

True or False

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

A

False

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26
Q

True or False

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

A

True

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27
Q

True or False

All members of the accountancy profession are Certified Public Accountants.

A

False

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28
Q

True or False

Accounting is a service activity whose function is to provide quantitative information, about economic entities that is intended to be useful in making economic decisions.

A

True

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29
Q

True or False

A corporation is business owned by its stockholders.

A

True

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30
Q

True or False

A separate legal entity organized in accordance with codes and laws and in which ownership is divided into shares of stock is referred to as a corporation.

A

True

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31
Q

Which of the following processes is considered bookkeeping?

a. Analyzing
b. Reporting
c. Recording
d. Summarizing

A

c. Recording

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32
Q

Krishna started a speech therapy center. He also sells professional books on speech development. What is the nature of his business? Support your answer with a reason.

a. manufacturing
b. service
c. trading
d. service and trading

A

d. service and trading

Reason:

Service - Speech therapy sessions
Trading - Selling of professional books

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33
Q

Which of the following is a trading business?

a. a clinic
b. a law firm
c. a pharmacy
d. a telecommunication company

A

c. a pharmacy

34
Q

Which of the following statements is false?

a. A sole proprietor has limited risk with respect to the amount of resources he invests in his business.
b. A sole proprietorship has only one owner.
c. A sole proprietorship is easy to set up.
d. A sole proprietorship may not be able to obtain loans easily.

A

d. A sole proprietorship may not be able to obtain loans easily.

35
Q

A business which prepares financial statements every year is following the ________ concept.

a. accounting entity
b. periodicity
c. going concern
d. objectivity

A

b. periodicity

36
Q

The _______ concept assumes that the business has an indefinite economic life.

a. accounting entity
b. accounting period
c. going concern
d. objectivity

A

c. going concern

37
Q

Which form of business organization is characterized by limited liability?

a. Sole Proprietorship
b. Partnership
c. Corporation
d. Both sole proprietorship and partnership

A

c. Corporation

38
Q

Which of the following processes best defines accounting?

a. Measuring economic activities
b. Communicating results to interested parties
c. Preventing fraud
d. Both a and b.

A

d. Both a and b.

39
Q

To which area of accounting are generally accepted accounting principles primarily relevant?

a. Managerial Accounting
b. Financial Accounting
c. Tax Accounting
d. Financial Reporting To all Regulatory Agencies

A

b. Financial Accounting

40
Q

Which of the following is not one of the three types of business activities?

a. Investing
b. Financing
c. Marketing
d. Operating

A

c. Marketing

41
Q

Which of the following are true of partnerships?

  1. The partners’ individual exposure to debt is limited.
  2. Financial Statements for the partnership by law must be produced and made public.
  3. A partnership is not a separate legal entity from the partners themselves.

a. 1 and 2 only
b. 2 only
c. 3 only
d. 1 and 3 only

A

a. 1 and 2 only

42
Q

Which accounting concept should be considered if the owner of a business takes goods from inventory for his personal use?

a. The substance over form concept
b. The accrual concept
c. the going concern concept
d. The business entity concept

A

d. The business entity concept

43
Q

Which accounting concept states that omitting or misstating this information could influence users of the financial statements?

a. The consistency concept
b. The accrual concept
c. The materiality concept
d. The going concern concept

A

c. The materiality concept

44
Q

Which of the following accounting concepts means that similar items should receive a similar accounting treatment?

a. Going concern
b. Accrual
c. Substance over form
d. Consistency

A

d. Consistency

45
Q

Assets are usually undervalued under which basis?

a. Replacement cost
b. Historical cost
c. Net realisable value

A

b. Historical cost

46
Q

Which of the following best explain the feature of consistency of presentation?

a. When preparing the accounts of a firm, one should normally account for similar items in the same way from one accounting period to the next.
b. Firms in the same industry must account for similar items in the same way.
c. Firms must comply with accounting standards and regulations.
d. None of the above.

A

a. When preparing the accounts of a firm, one should normally account for similar items in the same way from one accounting period to the next.

47
Q

Which of the following statements about accounting concepts and the characteristics of financial reporting information is not correct?

(i) Entities may exclude information that is relevant in financial statements because it is too difficult for the users to understand.
(ii) The historical cost concept means that only items capable of being measured in monetary terms can be recognized in the financial statements.
(iii) Consistency in use of the same accounting policies for the same or similar items from one period to the next is essential to enhance comparability among the entities.

a. (i) and (ii)
b. (i) and (iii)
c. (ii) and (iii)
d. All of the above

A

a. (i) and (ii)

48
Q

Which type of business organization is owned by its stockholders?

a. Corporation
b. Partnership
c. Proprietorship
d. All of the above are owned by stockholders

A

a. Corporation

49
Q

Which of the following is an appropriate definition of accounting?

a. The measurement, processing, and communication of financial information about an identifiable economic entity
b. A means of recording transactions and keeping records
c. The interconnected network of subsystems necessary to operate a business
d. Electronic collection, organization, and communication of vast amounts of information

A

a. The measurement, processing, and communication of financial information about an identifiable economic entity

50
Q

Accountants employed by a particular business firm or not-for-profit organization, perhaps as chief accountant, controller, or financial vice president, are said to be engaged in

a. general accounting.
b. public accounting.
c. practice in commerce and industry.
d. independent accounting.

A

d. independent accounting.

51
Q

The entity concept means that

a. Because a firm is separate and distinct from its owners, those owners cannot have access to its assets unless the firm ceases to trade.
b. Accounts must be prepared for every firm.
c. The financial affairs of a firm and its owner are always kept separate for the purpose of preparing accounts.
d. None of the above.

A

c. The financial affairs of a firm and its owner are always kept separate for the purpose of preparing accounts.

52
Q

THe financial accounting process provides information about economic activities of an enterprise for a specified accounting period that is shorter than the life of the enterprise.

a. time period
b. going concern
c. measurement of economic resources and obligations
d. measurement in terms of money.

A

a. time period

53
Q

The consistency concept means that

a. When preparing the accounts of a firm, one should normally account for similar items in the same way from one accounting period to the next.
b. Firms in the same industry must account for similar items in the same way.
c. Firms may never change the way in which they prepare their accounts.
d. None of the above.

A

a. When preparing the accounts of a firm, one should normally account for similar items in the same way from one accounting period to the next.

54
Q

The consistency standard of reporting requires that

a. expenses be reported as charges against the period in which they are incurred.
b. the effect of changes in accounting upon income be properly disclosed.
c. extraordinary gains and losses should not appear on the income statement.
d. accounting procedures be adopted which give a consistent rate of return.

A

c. extraordinary gains and losses should not appear on the income statement.

55
Q

Which accounting process is the recognition or non-recognition of business activities as accountable events?

a. Identifying
b. Communicating
c. Recording
d. Measuring

A

a. Identifying

56
Q

The following documents shall be submitted in support of the requirements in the previous question except the

a. Certificate of Live Birth in National Statistics Office (NSO) security paper.
b. Marriage Contract in NSO security paper for married female applicants.
c. College diploma with date of graduation and Special Order Number.
d. School Identification Card.
e. Baccalaureate Transcript of Records with date of graduation and Special Order Number.
f. National Bureau of Investigation (NBI) Clearance

A

d. School Identification Card.

57
Q

The basic purpose of accounting is

a. To provide the information that the managers of an economic entity need to control its operations.
b. To provide information that the creditors of an economic entity can use in deciding whether to make additional loans to the entity.
c. To measure the periodic income of the economic entity.
d. To provide quantitative financial information about a business enterprise that is useful in making rational economic decision.

A

d. To provide quantitative financial information about a business enterprise that is useful in making rational economic decision.

58
Q

During the lifetime of an entity, accountants produce financial statements arbitrary points in time in accordance with which basic accounting concept?

a. objectivity
b. periodicity
c. conservatism
d. matching

A

b. periodicity

59
Q

The skills needed to be developed by Filipino accountants include the following

a. Intellectual skills.
b. Interpersonal skills.
c. Communication skills.
d. “a” and “c” only.
e. “a”, “b” and “c”.

A

e. “a”, “b” and “c”.

60
Q

Which of the following accounting concepts states that an accounting transaction should be supported by sufficient evidence to allow two or more qualified individuals to arrive at essentially similar conclusion?

a. matching
b. objectivity
c. periodicity
d. stable monetary unit

A

a. matching

61
Q

The financial statements should be stated in terms of a common financial denominator.

a. Accrual
b. Going concern
c. Time period
d. Stable monetary unit

A

d. Stable monetary unit

62
Q

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. measurement of economic resources and obligations
c. exchange price
d. accrual

A

a. unit of measure

63
Q

Carrying out professional responsibilities diligently and in accordance with applicable technical and professional standards is descriptive of the principle of

a. professional competence and due care.
b. objectivity.
c. independence.
d. integrity.

A

a. professional competence and due care.

64
Q

A professional accountant should be straightforward and honest in all professional and business relationships. This is in consonance with the fundamental principle of

a. integrity.
b. objectivity.
c. confidentiality.
d. professional competence and due care.

A

a. integrity.

65
Q

Proponents of historical costs maintain that in comparison with all other valuation alternatives for general purpose financial reporting, statements prepared using historical costs are more

a. objective.
b. relevant.
c. indicative of the entity’s purchasing power.
d. conservative.

A

d. conservative.

66
Q

The records of properties acquires and services availed of by a business are maintained in accordance with the

a. business entity concept.
b. cost principle.
c. proprietorship principle.
d. matching principle.

A

c. proprietorship principle.

67
Q

This principle requires relevant information to form part of financial statements for decision-making purposes.

a. objectivity
b. materiality
c. adequate disclosure
d. accounting entity

A

c. adequate disclosure

68
Q

The principle of objectivity includes the concept of

a. summarization.
b. verifiability.
c. classification.
d. conservatism.

A

b. verifiability.

69
Q

The concept of matching is best demonstrated by

a. not recognizing any expense unless some revenue is realized.
b. recognizing prepaid rent received as revenue.
c. associating effort with accomplishment.
d. establishing an allowance for possible market decline in inventory account.

A

a. not recognizing any expense unless some revenue is realized.

70
Q

Accounting changes are often made and the monetary impact is reflected in the financial statements of an entity even though, in theory, this may be a violation of the accounting concept of

a. materiality.
b. objectivity.
c. conservatism.
d. consistency.

A

d. consistency.

71
Q

The measurement phase of accounting is accomplished bby

a. storing data.
b. reporting to decision makers.
c. recording data.
d. processing data.

A

c. recording data.

72
Q

A person applying for examination shall establish the following requisites to the satisfaction of the Board that he:

a. is a Filipino citizen;
b. is of good moral character;
c. is a holder of the degree of Bachelor of Science in Accountancy conferred by a school, college, academy or institute duly recognized and/or accredited by the Commission on Higher Education (CHED) or other authorized government offices; and
d. has not been convicted of any criminal offense involving moral turpitude.
e. “a” and “c” only.
f. “a”, “b” and “c”
g. All of the above.

A

g. All of the above.

73
Q

The main function is to establish and improve accounting standards that will be generally accepted in the Philippines.

a. Financial Reporting Standards Council
b. Professional Regulation Commission
c. Philippine Institute of CPAs
d. Board of Accountancy

A

a. Financial Reporting Standards Council

74
Q

Which area of public accounting means the examination of financial statements by a CPA for the purpose of expressing an opinion as to the fairness of the statements?

a. Management advisory services
b. Taxation
c. Internal auditing
d. External auditing

A

d. External auditing

75
Q

Accountants do not recognize that the value of the peso changes over time. This concept is called the

a. stable monetary unit concept.
b. going concern concept.
c. cost principle.
d. entity concept.

A

a. stable monetary unit concept.

76
Q

The periodicity concept

a. requires that all companies prepare monthly, quarterly and annual financial statements.
b. results from the Bureau of Internal Revenue requirement that taxable income be reported on an annual basis.
c. c. Requires all companies to use a fiscal year ending December 31.
d. Involves dividing the life of a business entity into accounting periods of equal length thus enabling the financial users to periodically evaluate the results of business operation.

A

a. requires that all companies prepare monthly, quarterly and annual financial statements.

77
Q

They encompass the conventions, rules, and procedures necessary to define what is accepted accounting practice.

a. Accounting assumptions
b. Accounting concepts
c. Conceptual frameworks
d. Generally accepted accounting principles

A

d. Generally accepted accounting principles

78
Q
  1. The Filipino accountants should possess knowledge to enable them to compete internationally, they are:

a. General knowledge
b. Organizational and Business Knowledge
c. Information Technology Knowledge
d. Accounting Knowledge

A

a. General knowledge

79
Q

Which of the following best describes the attributes of a partnership?

a. Limited liability to raise capital; unlimited personal liability of owners.
b. Limited liability to raise capital; limited personal liability of owners.
c. Ability to raise to raise large capital; unlimited personal liability of owners.
d. Ability to raise large amounts of capital; limited personal liability of owners.

A

a. Limited liability to raise capital; unlimited personal liability of owners.

80
Q

The concept of the accounting entity is applicable

a. Only to the legal aspects of business organizations.
b. Only to the economic aspects of business organizations.
c. Only to business organizations.
d. Whenever accounting is involved.

A

d. Whenever accounting is involved.

Basic Financial Accounting and Reporting (4 decks)

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