toa-m01(conceptual framework and accounting process)

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TSU-CBA Theory of Accounts

Conceptual Framework for Financial Reporting and Accounting Process

1. The basic objective 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 an entity that is useful in making rational

economic decision. 2. The communicating process of accounting includes all of the following, except

a. Recording b. Classifying c. Summarizing d. Interpreting

3. Which statement is true concerning the Conceptual Framework for Financial Reporting? I. The Conceptual Framework is not a reporting standard and therefore does not define standard

for any particular measurement or disclosure issue. II. The Conceptual Framework is concerned with general purpose financial statements including

consolidated financial statements III. Is cases of conflict, the requirements of the Conceptual Framework prevail over those of the

relevant PFRS a. I only b. I and II only c. II and III only d. I, II, and III

4. The primary users of financial information include I. Existing and potential investors II. Existing and potential lenders and other creditors III. User group such as employees, customers, government and their agencies and the public

a. I only b. I and II only c. I and III only d. I, II and III

5. Which statement is true in relation to information needs? I. Information that meets the needs of primary users is likely to meet the needs of other users,

such as employees, customers, government, and their agencies, and the public II. The management id also interested in financial information but it need not rely on general

purpose financial reports because it can access additional information internally a. I only b. II only c. Both I and II d. Neither I nor II

6. What is not a basic purpose of the Conceptual Framework? a. To assist FRSC in developing accounting standards that represent GAAP in the Philippines b. To assist FRSC in reviewing and adopting existing international accounting standards c. To promulgate rules and regulations affecting the practice of the accountancy profession in the

Philippines d. To assist auditors in forming an opinion as to whether financial statements conform with

accounting standards 7. Which of the following is not normally an objective of financial reporting?

a. To provide information about an entitys assets, claims against those assets and changes in them b. To provide information that is useful in assessing an entitys sources and uses of cash c. To provide information in lending and investing decisions d. To provide information about an entitys liquidation value

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8. Which of the following is not an underlying assumption of financial statements? a. Going concern b. Accounting entity c. Time period d. Accrual

9. Which of the following terms best describes financial statements whose basis of accounting recognizes transactions and other events when they occur? a. Accrual basis b. Going concern basis c. Cash basis d. Invoice basis

10. Which of the following describes the going concern? a. When current liabilities exceed current assets b. The financial statements are normally prepared on the assumption that an entity will continue in

operation for the foreseeable future c. The potential to contribute to the flow of cash and cash equivalents to the entity d. The expenses exceed income

11. When a parent and subsidiary relationship exists, consolidated financial statements are prepared in recognition of a. Legal entity b. Economic entity c. Stable monetary unit d. Time period

12. During the lifetime of an entity, accountants prepare financial statements at arbitrary points in time a. Accrual b. Time period c. Unit of measure d. Continuity

13. In the Conceptual Framework for Financial Reporting, what provides the why of accounting? a. Measurement and recognition concept b. Qualitative characteristic of accounting information c. Element of financial statement d. Objective of financial statement

14. The underlying theme of the Conceptual Framework is a. Decision usefulness b. Understandability c. Timeliness d. Comparability

15. Fiduciary accounting is an application of a. Entity theory b. Proprietary theory c. Residual equity theory d. Fund theory

16. The four phases of accounting are recording, summarizing and interpreting. The phase whereby the liquidity, solvency and profitability of an entity are significantly portrayed is known as a. Summarizing b. Classifying c. Recording d. Interpreting

17. External events include all of the following, except a. Sale of merchandise b. Borrowing from a bank c. Donation received from a shareholder d. Casualty loss caused by flood, earthquake or other natural disaster

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18. The fundamental qualitative characteristics are a. Relevance and reliability b. Relevance and materiality c. Relevance, faithful representation and materiality d. Relevance and faithful representation 19. Which statement s true in relation to relevance?

I. Relevant financial information is capable of making a difference in the decision made by users II. Financial information is capable of making a difference in decisions if it has predictive value or

confirmatory value or both. a. I only b. II only c. Both I and II d. Neither I nor II

20. It is the inclusion of a degree of caution in the exercise of judgment needed in making estimates under conditions of uncertainty such that assets and income are not overstated , or liabilities and expenses are not understated. a. Prudence b. Materiality c. Objectivity d. Relevance

21. The enhancing qualitative characteristics are a. Comparative and understandability b. Verifiability and timeliness c. Comparability, understandability and verifiability d. Comparability, understandability, verifiability and timeliness

22. What are the ingredients of a perfectly faithful representation? a. Completeness and neutrality b. Completeness, fee from error and substance over form c. Completeness, neutrality, free form error and prudence d. Completeness, neutrality and free form error

23. It is the enhancing qualitative characteristic that enables users to identify and understand similarities and differences among items. a. Comparability b. Consistency c. Verifiability d. Timeliness

24. Classifying, characterizing and presenting information clearly and concisely makes it a. Comparable b. Understandable c. Verifiable d. Timely

25. This enhancing qualitative characteristic is demonstrated when a high degree of consensus can be secured among independent measurers using the same measurement method. a. Comparability b. Understandability c. Verifiability d. Timeliness

26. This means having information available to decision-makers in time to be able of influencing their decisions a. Comparability b. Understandability c. Verifiability d. Timeliness

27. It is the pervasive constraint on the information that can be provided by financial reporting. a. Cost constraint b. Materiality c. Timeliness d. Substance over form

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28. An item that meets the definition of an element should be recognized when I.It is probable that any future economic benefit associated with the item will flow to or from the entity II. The item has a cost or value that can be measure with reliability

a. I only b. II only c. Either I or II d. Both I and II

29. An asset is a. A resource controlled by the entity as a result of past events and from which future economic

benefits are expected to flow to the entity b. A present obligation of the entity arising from past events the settlement of which is expected to

result in an outflow from the entity of resources embodying economic benefits c. The residual interest in the assets of the entity after deducting all of its liabilities. d. Equivalent to comprehensive income of the entity

30. Which of the following statements best describes the term liability? a. An excess of equity over current assets b. Resources to meet financial commitments as they fall due c. The residual interest in the assets of the entity after deducting all of its liabilities d. A present obligation of the entity arising from past events

31. It is the increase in economic benefit during an accounting period in the form of an inflow or increase in asset or decrease in liability that results in increase in equity, other that contribution from owners in their capacity as owners a. Income b. Revenue c. Profit d. Gain

32. When economic benefits are expected to arise over several accounting periods and the association with income can only be broadly or indirectly determined, expenses are recognized on the basis of a. Strict matching b. Systematic and rational allocation c. Immediate recognition d. Realization

33. It is the process that involves the simultaneous or combined recognition of revenue and expense that result directly and jointly from the same transactions and other events. a. Matching of cost with revenue b. Matching of revenue with cost c. Systematic and rational allocation d. Immediate recognition

34. Which of the following is an example of expense recognition principle of associating cause and effect? a. Allocation of insurance cost b. Sales commission c. Depreciation d. Officers salaries

35. The writeoff of worthless patent is an example of which expense recognition principle? a. Cause and effect b. Immediate recognition c. Systematic and rational allocation d. Objectivity

36. Which of the following is not an acceptable basis for the recognition of expense? a. Systematic and rational allocation b. Direct marching c. Immediate recognition d. Cash disbursement

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37. Historical cost is the a. Amount of cash or cash equivalent paid or the fair value of the consideration given at the time of

acquisition b. Amount of cash or cash equivalent that would have to be paid if the same or an equivalent asset

was acquired currently c. Amount of cash or cash equivalent that could currently be obtained by selling the asset in an

orderly disposal d. Discounted value of the future net cash inflows that an item is expected to generate in the normal

course of business 38. Which of the following terms best describes assets recorded at the amount that represents the

immediate purchase cost of an equivalent asset? a. Historical cost b. Realizable value c. Present value d. Current cost

39. The physical capital concept requires the adoption of which measurement basis? a. Historical cost b. Current cost c. Realizable value d. Present value

40. The allowance for doubtful accounts which appears as a deduction from accounts receivable is an application of a. Going concern assumption b. Revenue recognition principle c. Matching principle d. Materiality constraint

41. Which of the following is not amount the first five steps in the accounting cycle? a. Record transactions in journals b. Record closing entries c. Adjust the general ledger accounts d. Post entries to general ledger

42. Which is the correct sequence for recording transactions and preparing financial statements? a. Journal, ledger, trial balance, financial statements b. Ledger, trial balance, journal, financial statements c. Financial statements, trial balance, ledger, journal d. Ledger, journal, trial balance, financial statements

43. It is the basic summary device of accounting that is used to store the recorded monetary information from the entitys transactions and events. a. Account b. Journal c. Ledger d. Source document

44. Accumulated depreciation is an example of a. Nominal and adjunct account b. Real and adjunct account c. Nominal and contra account d. Real and contra account

45. Which is an example of nominal and contra account a. Freight in b. Sales discount c. Purchases d. Allowance for doubtful accounts

46. Which of the following is not considered a book of original entry? a. General journal b. General ledger c. Sales journal d. Purchase journal

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47. Which of the following is not a possible combination of a journal entry? a. Increase in asset and increase in liability b. Decrease in equity and increase in liability c. Decrease in liability and decrease in asset d. Increase in asset and decrease in equity

48. When special journals are used, which of the following is true? a. A general journal is not used b. All sales transactions should be recorded in sales journal c. All cash receipts should be recorded in cash receipts journal d. All purchase transactions should be recorded in purchase journal

49. Which of the following is not a principal purpose of an unadjusted trial balance? a. It proves that debits and credits of equal amounts are in the ledger b. It is the basis for any adjustments to the account balances c. It supplies a listing of open accounts and their balances d. It proves that debits and credits were properly entered in the ledger accounts

50. Transposition is an a. Error on interchanging the figures b. Error of placing the decimal point c. Error of not recording the transaction d. Error, which of not detected, is automatically compensated or corrected in the next accounting

period 51. The error of posting 100,000 as 10,000 can be detected by

a. Dividing the out-of-balance amount by 2 b. Totaling each accounts balance in the ledger c. Dividing the out-of-balance amount by 9 d. Examining the chart of accounts

52. A control device that helps minimize and localize accounting errors is known as a. Subsidiary ledger b. Worksheet c. Trial balance d. Chart of accounts

53. The trial balance debit or credit amount of each account is combined with the amount of any debit or credit adjustment to that account to determine the new balance of the account. This process is known as a. Footing b. Cross footing c. Balancing d. Totaling

54. Adjusting entries affect a. One nominal account and one real account b. Two nominal accounts c. Two real accounts d. No particular combination of nominal and real accounts

55. Recording the adjusting entry for depreciation has the same effect as recording the adjusting entry for a. An unearned revenue b. A prepaid expense c. An accrued revenue d. An accrued expense

56. If an expense has been incurred but not yet recorded, the year-end adjusting entry would involve a. A liability and an asset b. A liability and a revenue c. An expense and an asset d. A receivable and a revenue

57. If income is greater that expenses of a corporation, the income summary account will be closed by a. Debiting retained earnings and crediting income summary b. Debiting cash and crediting income summary c. Debiting income summary and crediting retained earnings d. Debiting income summary and crediting cash

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58. Reversing entries a. Are normally prepared for accrued, prepaid and estimated items b. Are necessary to achieve a proper matching of revenue and expense c. Are desirable to exercise consistency and establish standardized procedure d. Must be made at year-end

59. Before 2003, Droit Co. used the cash basis of accounting. As of December 31, 2003, Droit changed to the accrual basis. Droit cannot determine the beginning balance of supplies inventory. What is the effect of Droits inability to determine beginning supplies inventory on its 2003 accrual basis net income and December 31, 2003 accrual-basis owners equity? 2003 net income 12/31/03 owners equity a. No effect No effect b. No effect Overstated c. Overstated No effect d. Overstated Overstated

60. Reversing entries apply to a. All adjusting entries b. All deferrals c. All accruals d. All closing entries

61. The debit and credit analysis of a transaction normally takes place a. Before an entry is recorded in a journal b. When the entry is posted to the ledger c. When the trial balance is prepared d. At some other point in the accounting cycle

62. Debits a. Increase assets and decrease expenses, liabilities, revenue and equity b. Increase assets and equity, and decrease liabilities, expenses and equity c. Decrease assets and expenses, and increase liabilities, revenue and equity d. Increase assets and expenses, and decrease liabilities, equity and revenue

63. Why are adjusting entries necessary a. Transactions take place over more than one accounting period b. To make debits equal credits c. To close nominal accounts at year-end d. To correct erroneous balances in accounts

64. Which of the following best defines an accrual a. Adjusting entries where cash flow precedes revenue or expense recognition b. Adjusting entries where revenue or expense recognition precedes cash flow c. Adjusting entries where cash flow and revenue or expense recognition are simultaneous d. Adjusting entries where revenue and expense are recognized in the absence of cash flow

65. The adjusting entry for income earned but not yet collected will a. Increase liability b. Increase asset c. Decrease asset d. Decrease liability

66. If an expense has been incurred but not yet recorded the year-end adjusting entry would involve a. A liability and an asset b. A liability and a revenue c. An expense and an asset d. A receivable and a revenue

67. The dividends declared account is a nominal account and a. Carried forward to the next accounting period b. Closed directly to retained earnings c. Closed directly to income summary d. Closed directly to share capital

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68. If income is greater expense, the income summary account will be closed by a. Debiting retained earnings and crediting income summary b. Debiting cash and crediting income summary c. Debiting income summary and crediting retained earnings d. Debiting income summary and crediting cash

69. The postclosing trial balance a. Provides a convenient listing of account balances that can be used to prepare the financial

statements b. Does not include nominal accounts c. Is identical to the statement of financial position d. Proves that accounts have been closed properly

70. Reversing entries a. Are normally prepared for accrued, prepaid and estimated items b. Are necessary to achieve a proper matching of revenue and expense c. Are desirable to exercise consistency and establish standardized procedures d. Must be made at year-end

1 A B C D 21 A B C D 41 A B C D 61 A B C D




















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toa-m01(conceptual framework and accounting process)

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