Theory of Accounts with Answers PDF

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FIRST PRE-BOARD EXAMINATIONTHEORY OF ACCOUNTSInstructions: Select the best answer to each of the following questions. Mark your answer in the answer sheet provided to you. NO ERASURE IS ALLOWED. Accounting is I. A service activity and its function is to provide quantitative information, primarily fi...

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Visit:http://www.cebu-CPAR.com or call tel. (032) 345-0553 FIRST PRE-BOARD EXAMINATION THEORY OF ACCOUNTS Instructions: Select the best answer to each of the following questions. Mark your answer in the answer sheet provided to you. NO ERASURE IS ALLOWED. 1

Accounting is I. A service activity and its function is to provide quantitative information, primarily financial in nature, about economic entities, that is intended to be useful in making economic decision. II. The art of recording, classifying, and summarizing in a significant manner and in terms of money, transactions and events which are in part at least of a financial character and interpreting the results thereof. III. The process of identifying, measuring and communicating economic information to permit informed judgment and decision by users of the information. a. I, II and III b. I only c. II only d. III only

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Financial accounting a. Is the examination of financial statements by an independent CPA for the purpose of expressing an opinion as to the fairness of the financial statements. b. Focuses on the preparation and presentation of general purpose reports known as financial statements. c. Has no precise coverage but is used generally to refer to services to clients on matters of accounting, finance, business policies, organization procedures, product costs, distribution and many other phases of business conduct and operations. d. Is the preparation of annual income tax returns and determination of tax consequences of certain proposed business venture.

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Which is not a purpose of the ASC framework? a. To assist the ASC in developing accounting standards that represent generally accepted accounting principles in the Philippines. b. To assist the ASC in its review and adoption of existing International Accounting Standards. c. To assist auditors in forming an opinion as to whether financial statements conform with Philippine GAAP. d. To assist the Board of Accountancy in promulgating rules and regulations affecting the practice of accountancy in the Philippines.

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The ASC framework deals with (choose the incorrect one) a. Objective of financial statements b. Qualitative characteristics c. Definition, recognition and measurement of the basic elements of financial statements d. Generally accepted accounting principles

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These users are interested in the allocation of resources and activities of enterprises, and therefore require information to regulate the activities of enterprises, determine taxation policies and as a basis for national income and similar statistics. a. Suppliers and trade creditors c. Public b. Customers d. Governments and their agencies

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Information about the performance of an enterprise is required in order to assess potential changes in the economic resources that it is likely to control in the future. This information is primarily pictured in the a. Cash flow statement c. Balance sheet b. Statement of retained earnings d. Income statement

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The accrual basis means that a. The effects of transactions and other events are recognized when they occur and not as cash or its equivalent is received or paid and they are recorded in the accounting records and reported in the financial statements of the periods to which they relate. b. The financial statements are normally prepared on the assumption that an enterprise will continue in operation for the foreseeable future. c. Where parent and subsidiary relationship exists, consolidated statements for the affiliates are prepared because the parent and the subsidiary are a “single economic entity”. d. The financial statements should be stated in terms of a common financial denominator.

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Qualitative characteristics a. Are the attributes that make the information provided in financial statements useful to users. b. Are the generally accepted accounting principles. c. Are the basic notions and fundamental premises on which the accounting process is based. d. Refer to the definition, recognition and measurement of the elements from which financial statements are constructed.

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What are the primary qualities of financial accounting information that pertain to the content rather than to the presentation of financial information? a. Relevance and reliability c. Relevance and comparability b. Understandability and comparability d. Reliability and understandability

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. Information has the quality of relevance when a. It influences the economic decisions of users by helping them evaluate past, present or future events or confirming or correcting their past evaluations. b. It is free from bias and error and can be depended upon by users to represent faithfully that which it either purports to represent or could reasonably be expected to represent. c. Users are assumed to have a reasonable knowledge of business and economic activities and accounting and a willingness to study the information with reasonable diligence. d. Users are informed of the accounting policies employed, any changes in those policies and the effects of such changes.

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. Financial statements portray the financial effects of transactions and other events by grouping them into broad classes according to their economic characteristics. These broad classes are termed as the a. Elements of financial statements c. Accounting constraints b. Features of accounting d. Concepts of capital and capital maintenance

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. The elements directly related to the measurement of financial position are a. Assets, liabilities, equity, revenue and expenses b. Assets, liabilities, equity and revenue c. Assets, liabilities and equity d. Revenue and expenses

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. Asset is a. A resource controlled by the enterprise as a result of past events and from which future economic benefits are expected to flow to the enterprise. b. A present obligation of the enterprise arising from past events the settlement of which is expected to result in an outflow from the enterprise of resources embodying economic benefits. c. The residual interest in the assets of the enterprise after deducting all its liabilities. d. Equivalent to all financial resources of the enterprise.

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. It is the process of incorporating in the balance sheet or income statement an item that meets the definition of an element of financial statements. a. Recognition b. Allocation c. Realization d. Summarization

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. It is the process of determining the monetary amounts at which the elements are to be recognized and carried in the balance sheet and income statement. a. Measurement b. Recognition c. Reporting d. Interpreting

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. Technically, this arises in the course of the ordinary activities of an enterprise and is referred to by a variety of different names including sales, interest, dividends, royalties and rent. a. Income b. Gain c. Profit d. Revenue

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. This process involves the simultaneous or combined recognition of revenues and expenses that result directly and jointly from the same transactions or other events on the basis of direct association between the costs incurred and the earning of specific items of income. a. Matching of revenues with costs c. Systematic and rational allocation d. Immediate recognition b. Matching of costs with revenues

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. All cash receipts are deposited intact and all cash disbursements are made by means of check. This internal control is known as a. Administrative control c. Accounting control b. Imprest system d. Auditing control

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. Entries to record the replenishment of petty cash fund result in a debit to various expense accounts and a credit to cash in bank. This accounting procedure typically exemplifies the c. Internal control a. Imprest petty cash system b. Fluctuating petty cash system d. Administrative control

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. What is the major purpose of an imprest petty cash fund? a. To effectively plan cash inflows and outflows b. To ease the payment of cash to vendors c. To determine the honesty of the employees d. To effectively control cash disbursements

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. A cash over or short account a. Is not generally accepted b. Is debited when the petty cash fund proves out over c. Is debited when the petty cash fund proves out short d. Is a contra account to cash

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. The payments of accounts payable made subsequent to the close of the accounting period are recorded as if they were made at the end of the current period. b. Kiting c. Lapping d. Imprest system a. Window dressing

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. Bank reconciliation a. Is the process of transferring money in or out of a bank account. b. Requires that every transaction which will result in a cash payment be verified, approved and recorded before a bank check is prepared. c. Is an analysis that reflects the bank transactions made by a depositor. d. Explains the difference between the bank balance and the balance shown in the depositor’s records.

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. If the cash balance shown in a company’s accounting records is less than the correct cash balance and neither the company nor the bank has made any errors, there must be a. Deposits credited by the bank but not yet recorded by the company b. Deposits in transit c. Outstanding checks d. Bank charges not yet recorded by the company

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. If the cash balance in a company’s bank statement is less than the correct cash balance and neither the company nor the bank has made any errors, there must be a. Deposits credited by the bank but not yet recorded by the company b. Outstanding checks c. Bank charges not yet recorded by the company d. Deposits in transit

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. The journal entries for a bank reconciliation a. Are taken from the balance per bank only b. May include a debit to office expense for bank service charges c. May include a credit to accounts receivable for an NSF check d. May include a debit to accounts payable for an NSF check

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. When preparing a bank reconciliation, bank credits are a. Added to the bank statement balance b. Deducted from the bank statement balance c. Added to the balance per book d. Deducted from the balance per book

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. Bank overdrafts, if material, should a. Be reported as a deduction from the current asset section. b. Be reported as a deduction from cash. c. Be netted against cash and a net cash amount reported. d. Be reported as a current liability.

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. Receivables denominated in a foreign currency should be a. Translated to local currency using the exchange rate at the time the receivables arise b. Shown at face value of the foreign currency

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Visit:http://www.cebu-CPAR.com or call tel. (032) 345-0553 c. Translated to local currency using the exchange rate at balance sheet date d. Translated to local currency using the exchange rate when the balance sheet is issued 30

. Trade receivables are classified as current assets when they are reasonably expected to be collected a. Within one year b. Within the normal operating cycle c. Within one year or within the normal operating cycle whichever is shorter d. Within one year or within the normal operating cycle whichever is longer

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. Nontrade receivables are classified as current assets only if they are reasonably expected to be realized in cash a. Within one year or normal operating cycle, whichever is shorter. b. Within the normal operating cycle c. Within one year or the normal operating cycle, whichever is longer d. Within one year, the length of the operating cycle notwithstanding

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. Installments receivable arising from sales of household appliances should be classified as a. Current assets b. Noncurrent assets c. Current assets; however, the amount not realizable within one year should be disclosed, if material d. None of these

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. In the case of long-term installments receivable (real estate installment sales) where a major portion of the receivables will be collected beyond the normal operating cycle a. The entire receivables are classified as current without disclosure of the amount not currently due b. The entire receivables are classified as noncurrent c. Only the portion currently due is classified as current and the balance as noncurrent d. The entire receivables are classified as current with disclosure of the amount not currently due

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. Receivables from subsidiaries and affiliates, if significant should be classified as a. Current assets b. Noncurrent assets c. Either as noncurrent or current depending on the expectation of realizing them within one year or over one year d. Intangible assets

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. Receivables from officers, directors and employees for goods sold or services rendered in the ordinary course of business a. Are considered current if proper control is exercised in granting credit and the accounts are currently collectible b. Are not included in trade accounts receivable c. Are included in current assets even if the receivables are actually loans and advances and the collection is unlikely within a year d. Are always classified as noncurrent

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. Credit balances in accounts receivable should be classified as a. Current liability b. Part of accounts payable c. Noncurrent liability d. Deduction from accounts receivable

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. A method of estimating doubtful accounts that focuses on the income statement rather the balance sheet is the allowance method based on a. Direct writeoff c. Credit sales b. Aging of trade accounts receivable d. Balance of accounts receivable

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. A method of estimating doubtful accounts that emphasizes asset valuation rather than income measurement is the allowance method based on a. Aging of receivables b. Direct writeoff

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Visit:http://www.cebu-CPAR.com or call tel. (032) 345-0553 c. Gross sales d. Credit sales less sales returns and allowances 39

. A company uses the allowance method for recognizing doubtful accounts. The entry to record the write off of a specific uncollectible account a. Affects neither net income nor working capital b. Affects neither net income nor accounts receivable c. Decreases both net income and working capital d. Decreases both net income and accounts receivable

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. When the allowance method of recognizing bad debt expense is used, the entries at the time of collection of an account previously written off would a. Decrease the allowance for doubtful accounts b. Increase net income c. Have no effect on the allowance for doubtful accounts d. Have no effect on net income

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. When a specific customer’s account receivable is written off as uncollectible, what will be the effect on net income under each of the following methods of recognizing bad debt expense?

a. b. c. d.

Allowance None Decrease Decrease None

Direct writeoff Decrease None Decrease None

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. If receivables are hypothecated against borrowings, the amount of receivables involved should be a. Disclosed in the statements or notes b. Excluded from the total receivables, with disclosure c. Excluded from the total receivables, with no disclosure d. Excluded from the total receivables and a gain or loss is recognized between the face value and the amount of borrowings

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. It is a predetermined amount withheld by a factor as a protection against customer returns, allowances and other special adjustments. a. Equity in assigned accounts c. Commission b. Service charge d. Factor’s holdback

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. Which of the following is true when accounts receivable are factored without recourse? a. The transaction may be accounted for as either a secured borrowing or as a sale. b. The receivables are used as collateral for a promissory note issued to the factor by the owner of the receivables. c. The factor assumes the risk of collectibility and absorbs any credit losses in collecting the receivables. d. The financing cost should be recognized ratably over the collection period of the receivables.

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. Notes receivable discounted with recourse should be a. Included in total receivables with disclosure of contingent liability b. Included in total receivables without disclosure of contingent liability c. Excluded from total receivables with disclosure of contingent liability d. Excluded from total receivables without disclosure of contingent liability

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. Which of the following items should be included in a company’s inventory at the balance sheet date? a. Goods in transit which were purchased FOB destination. b. Goods received from another company for sale on consignment. c. Goods sold to a customer which are being held for the customer to call for at the customer’s convenience. d. Goods in transit which were purchased FOB shipping point.

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. Which statement is incorrect with respect to inventories under PAS No. 2? a. Inventories should be measured at the lower of cost and net realizable value.

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Visit:http://www.cebu-CPAR.com or call tel. (032) 345-0553 b. The cost of inventories should comprise all costs of purchase, costs of conversion and other costs incurred in bringing the inventories to their present location and condition. c. The cost of inventories of a service provider consists primarily of labor and other costs of personnel directly engaged in providing the service, including supervising personnel and attributable overhead. d. The costs of conversion of inventories include costs directly related to the units of production such as direct labor, and a systematic allocation of variable production overhead. 48

. The inventories of a service provider may simply be described as a. Work in progress c. Unbilled receivables b. Billed receivables d. Deferred costs

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. The cost of purchase of inventory does not include a. Purchase price b. Import duties and taxes c. Freight, handling and other cost directly attributable to acquisition d. Trade discount, rebate and other similar item

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. The cost of inventories that are not ordinarily interchangeable and goods or services produced and segregated for specific projects should be assigned by using d. Specific identification a. LIFO b. FIFO c. Average method

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. Which costs may be capitalized as cost of inventories? a. Normal shrinkage and scrap incurred for the manufacture of a product in ending inventory. b. Storage costs c. Selling costs d. Foreign exchange differences which arises directly on the recent acquisition of inventories invoiced in a foreign currency.

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. Net realizable value is a. Current replacement cost b. Estimated selling price c. Estimated selling price less estimated cost to complete d. Estimated selling price less estimated cost to complete and estimated cost to sell

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. The cost of inventories in applying the valuation at lower of cost or net realizable value should be assigned by using a. FIFO only c. Average method only b. LIFO only d. Either FIFO or average method

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. Reporting inventory at the LCM is a departure from the accounting principle of a. Historical cost b. Conservatism c. Consistency d. Full disclos...