Introduction, Accounting System and the Double-Entry System

Question 1

True or False

Owners’ claims to total business assets take precedence over the claims of creditors because owners invest assets in the business and are liable for losses.

Answer 1

True

Question 2

True or False

Financial statements are the major means of communicating accounting information to interested parties.

Answer 2

True

Question 3

True or False

Accounting communicates financial information about a business enterprise to both internal and external users.

Answer 3

True

Question 4

True or False

Bookkeeping and accounting are one and the same because the bookkeeping function includes the accounting process.

Answer 4

True

Question 5

True or False

The economic entity assumption requires that the activities of an entity be kept separate and distinct from the activities of its owner and all other economic entities.

Answer 5

True

Question 6

True or False

Management consulting includes examining the financial statements of companies and expressing an opinion as to the fairness of their presentation.

Answer 6

True

Question 7

True or False

The basic accounting equation is in balance when the creditor and ownership claims against the business equal the assets.

Answer 7

True

Question 8

True or False

External transactions involve economic events between the company and some other enterprise or party.

Answer 8

True

Question 9

True or False

Internal transactions do not affect the basic accounting equation because they are economic events that occur entirely within one company.

Answer 9

True

Question 10

True or False

In order to possess future service potential, an asset must have physical substance.

Answer 10

True

Question 11

Multiple Choice (Theory)

Which of the following is a qualitative characteristic of financial information in general purpose financial reports if it is to be useful?

a. All of these are qualitative characteristic
b. Understandability
c. Comparability
d. Reliability

Answer 11

a. All of these are qualitative characteristic

Question 12

Multiple Choice (Theory)

According to the conceptual framework, which of the following is an enhancing quality that relates to both relevance and faithful representation?

a. Freedom from error
b. Confirmatory value
c. Comparability
d. Predictive value

Answer 12

c. Comparability

Question 13

Multiple Choice (Theory)

Which of the following organizations is responsible for setting International Financial Reporting Standards?

a. Financial Accounting Committee
b. International Accounting Standards Board
c. Financial Accounting Standards Board
d. International Accounting Standards Committee

Answer 13

b. International Accounting Standards Board

Question 14

Multiple Choice (Theory)

The double-entry accounting system means

a. Each item is recorded in a journal entry, then in a general ledger account.
b. The dual effect of each transaction is recorded with a debit and a credit.
c. Each transaction is recorded with two journal entries.
d. All of these are correct.

Answer 14

b. The dual effect of each transaction is recorded with a debit and a credit.

Question 15

Multiple Choice (Theory)

The accounting equation must remain in balance

a. only when formal financial statements are prepared.
b. only at the time the trial balance is prepared.
c. only when journal entries are recorded.
d. throughout each step in the accounting cycle.

Answer 15

d. throughout each step in the accounting cycle.

Question 16

Multiple Choice (Theory)

Which of the following is true about the double-entry system?

a. Each Transaction should be entered into two accounts in a ledger.
b. Each transaction involves two-person/parties.
c. The total debits should be equal to the total credits.
d. Each transaction involves a debit entry and a corresponding credit entry

Answer 16

d. Each transaction involves a debit entry and a corresponding credit entry

Question 17

Multiple Choice (Theory)

Liabilities

a. are future economic benefits.
b. are things of value used by the business in its operation.
c. are existing debts and obligations.
d. possess service potential.

Answer 17

c. are existing debts and obligations.

Question 18

Multiple Choice (Problem)

If total liabilities increased by P4,000, then

a. assets must have increased by P4,000, or owner’s equity must have decreased by P4,000.
b. assets and owner’s equity each increased by P2,000.
c. are things of value used by the business in its operation.
d. owner’s equity must have increased by P4,000.

Answer 18

a. assets must have increased by P4,000, or owner’s equity must have decreased by P4,000.

Question 19

Multiple Choice (Problem)

If total liabilities increased by P14,000 during a period of time and owner’s equity decreased by P6,000 during the same period, then the amount and direction (increase or decrease) of the period’s change in total assets is a(n)

a. 8,000 increase.
b. 14,000 increase.
c. 20,000 increase.
d. 8,000 decrease.

Answer 19

a. 8,000 increase.

Question 20

Multiple Choice (Problem)

If total liabilities decreased by P15,000 and owner’s equity increased by P5,000 during a period of time, then total assets must change by what amount and direction during that same period?

a. 15,000 decrease
b. 20,000 increase
c. 10,000 increase
d. 10,000 decrease

Answer 20

d. 10,000 decrease

Question 21

Multiple Choice (Problem)

As of December 31, 2008, Wangshu Inn has assets of 35,000 and owner’s equity of 20,000. What are the liabilities for Wangshu Inn as of December 31, 2008?

a. 15,000
b. 25,000
c. 10,000
d. 20,000

Answer 21

a. 15,000

Question 22

Multiple Choice (Problem)

The Yae Publishing House has five plants across Inazuma that cost P100 million. The current market value of the plants is P500 million. The plants will be recorded and reported as assets at

a. 600 million
b. 500 million
c. 100 million
d. 400 million

Answer 22

c. 100 million