CHAPTER 2

Question 1

The terms “accounting concepts” and “accouting 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 communicationg accounting information.

Answer 1

True

Question 2

There are numerous acconting concepts and principles that the accountant needs to consider when recording and communicating accounting information.

Answer 2

True

Question 3

The separate entity concept contributes to the objective evaluation of the financial strengths and weaknesses of a business.

Answer 3

True

Question 4

A business that is not a going concern is called a coming concern.

Answer 4

False

A business that is not a going concern is called a liquidating concern.

Question 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.

Answer 5

True

Question 6

An item that is considered material by one business is always considered material by all other businesses.

Answer 6

False

Not always

Question 7

The cost of providing financial information should exceed the expected benefits to be derived from the information’s use.

Answer 7

False

should not exceed

Question 8

The accounting standards used in the Philippines are represented by the PFRSs.

Answer 8

True

Question 9

The accounting standards used in the Philippines are the same as the standards used internationally.

Answer 9

True

Question 10

The Conceptual Framework is not a Standard. Rather, it serves as guide in developing, understanding or analyzing the Standards.

Answer 10

True

Question 11

The assumption that a business entity will not cease its operations in the near future refers to the concept of Consistency.

Answer 11

False

Going concern assumption

Question 12

Using the same accounting treatment for identitcal items from one period to another is an application of the concept of Time Period.

Answer 12

False

It is an application of the concept of Consistency

Question 13

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.

Answer 13

True

Question 14

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 didn’t expect that the customer will be able to pay you anymore. You are applying the concept of Cost-benefit.

Answer 14

False

You are applying the concept of Prudence (or Conservatism).

Question 15

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.

Answer 15

True

Question 16

Corporate and partnership businesses in the Philippines are regulated by the Department of Trade and Industry (DTI).

Answer 16

False

Regulated by the Securities Exchange and Commission (SEC).

Question 17

After becoming a Certified Pulic Accountant (CPA), Mr. A worked as an external auditor in one of the biggest auditing firms in our country. Two years later, an international auditing firm offered Mr. A an external audit job abroad, which Mr. A acepted. Mr. A will be applying different accounting standards in his new job compared to those that he applied in his previous job.

Answer 17

False

Mr. A will be applying the same accounting standards.

Question 18

The term Standards is used in practice to refer to both the PFRSs and the Conceptual Framework.

Answer 18

False

Question 19

Qualitative characteristics are the traits that determine whether an item of information is useful to users, and therefore included in the financial statements.

Answer 19

True

Question 20

Information has the qualitative characteristic of relevance if it is capable of making difference in the decisions of users.

Answer 20

True