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Fundamentals of Accountancy, Business & Management 1

FIRST GRADING EXAMINATION

1. Accounting has been given various definitions, which of the following is not one of
those definitions
a. Accounting is a service activity. Its function is to provide quantitative
information, primarily financial in nature, about economic entities that is
intended to be useful in making economic decisions.
b. Accounting is the art of recording, classifying, and summarizing in a significant
manner and in terms of money, transactions and events which are, in part of at
least, of a financial character and interpreting the results thereof.
c. Accounting is a systematic process of objectively obtaining and evaluating
evidence regarding assertions about economic actions and events to ascertain
the degree of correspondence between these assertions and established criteria
and communicating the results to interested users.
d. Accounting is the process of identifying, measuring, and communicating
economic information to permit informed judgment and decisions by users of
information.

2. Under the accrual basis of accounting,

a. income is recorded only when cash is received and expenses are recorded only
when cash is paid.
b. liabilities, owner's capital, and drawings all have normal credit balances.
c. all real accounts have normal debit balances.
d. income is recorded in the period it is earned and expense is recorded in the
period it is incurred, irrespective of when cash is received or paid.

3. The branch of accounting that deals with providing financial information to external
decision makers is
a. Public accounting.
b. Government accounting.
c. Financial accounting.
d. Managerial accounting.

4. Financial accounting applies to which of the following:

a. Businesses
b. Non-profit organizations
c. Governments
d. All of the above

5. External users of general-purpose financial statements include all of the following

except
a. Creditors
b. Investors
c. Owners who are directly involved in managing the business
d. Lenders

6. The official accounting standard setting body in the Philippines is the

a. Accounting Standards Committee (ASC).
b. Financial Reporting Standards Council (FRSC).

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 c. Bureau of Internal Revenue (BIR).
d. Financial Accounting Standards Board (FASB).

7. The output of an accounting system is (are)

a. the accountable events.
b. recording, classifying and summarizing.
c. accounting reports.
d. accountant.

8. In which of the following instances is the going concern assumption valid?

a. The business expects to stop its operations and liquidate all of its assets in the
near term.
b. The business is mandated by the government to shut down its operations
because of violations of the law.
c. The business is in financial difficulty and does not have any other choice but to
end its operations.
d. The business has a history of profitable operations and does not expect to end
its operations in the foreseeable future.

9. Which of the following is one of the fundamental qualitative characteristics?

a. Relevance
b. Comparability
c. Timeliness
d. Understandability

10. Which of the following is not one of the enhancing qualitative characteristics?
a. Comparability
b. Faithful representation
c. Verifiability
d. Understandability

11. Mr. Van owns a butcher shop, a restaurant, and a catering business. Separate
financial statements are prepared for each business independent of the other
businesses. What accounting principle or assumption is being applied in this
situation?
a. Time period assumption
b. Separate entity assumption
c. Full-disclosure principle
d. Matching

12. A business exported goods and collected the sale price in U.S. dollars. When
financial statements are prepared, the business translates the dollars into pesos.
The business is applying which of the following accounting principles?
a. Stable monetary unit
b. Going concern
c. Matching
d. Materiality

13. A business acquires inventory and records it as an asset. When the inventory is
sold, the business recognizes the cost as an expense. This is an application of which
of the following accounting principles?
a. Stable monetary unit
b. Going concern
c. Matching
d. Materiality

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14. While making a delivery, the driver of Fastrac Courier collided with another vehicle
causing both property damage and personal injury. The party sued Fastrac for
damages which could exceed Fastrac's insurance coverage. Existence of the lawsuit
was reported in the notes to Fastrac's financial statements. What accounting
principle, assumption or constraint is being applied in this situation?
a. Full-disclosure principle
b. Conservatism constraint
c. Matching principle
d. Unit-of-measure assumption

15. When uncertainty exists, the convention of conservatism or prudence uses

estimates of a conservative nature in an attempt to ensure which of the following?
a. Assets, income, liabilities, and expenses are not overstated
b. Assets, income, liabilities, and expenses are not understated
c. Assets and income are not understated; liabilities and expenses are not
overstated
d. Assets and income are not overstated; liabilities and expenses are not
understated

16. Under this concept, the life of the business is divided into series of reporting
periods. Thus, businesses normally prepare financial statements at least annually.
a. Time period
b. Conservatism constraint
c. Matching principle
d. Unit-of-measure assumption

17. Under this concept, the cost of processing and communicating information should
not exceed the benefits to be derived from it.
a. Time period
b. Conservatism
c. Materiality
d. Cost-benefit

18. Which accounting principle charges low-cost capital items such as waste baskets
directly to an expense?
a. The historical cost principle
b. The materiality principle
c. The expense recognition principle
d. The matching principle

19. Which of the following is a result of applying the prudence or conservatism

principle?
a. Assets are minimized and liabilities are minimized.
b. Assets are minimized and liabilities are maximized.
c. Revenues are minimized and expenses are minimized.
d. Revenues are maximized and liabilities are maximized.

20. This government regulatory body is tasked with regulating corporations, including
partnerships. It requires corporations and partnerships to file audited financial
statements.
a. Securities and Exchange Commission
b. Cooperative Development Authority
c. Department of Trade and Industry
d. Department of Corporations and Partnerships

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21. The process of identifying, measuring, analyzing, and communicating financial
information needed by management to plan, evaluate, and control an organization’s
operations is called
a. financial accounting.
b. tax accounting.
c. management accounting.
d. auditing.

22. Accounting is often called the "language of business" because

a. it is easy to understand.
b. it is fundamental to the communication of financial information.
c. all business owners have a good understanding of accounting principles.
d. accountants in many companies share financial information.

23. The most common form of business organization is

a. corporation.
b. sole proprietorship.
c. partnership.
d. cell phone stand.

24. Sole proprietorship businesses are registered with the

a. Securities and Exchange Commission.
b. Cooperative Development Authority.
c. Department of Trade and Industry.
d. Department of Public Works and Highways.

25. What is the primary purpose of accounting?

a. To count money.
b. To provide accounts.
c. To provide information that is intended to be useful in making economic
decisions.
d. To produce accountants.

26. It refers to information that is expressed in numbers, quantities, or units.

a. Financial information
b. Qualitative information
c. Quantitative information
d. All of these

27. Entity A purchased inventories for ₱100,000. Entity A expects to sell the inventories
for ₱120,000 and therefore records the inventories at ₱120,000 rather than at
₱100,000. Which of the following accounting principles is violated?
a. Matching
b. Relevance
c. Historical cost
d. Materiality

28. Accounting is a body of knowledge which has been systematically gathered,

classified and organized.
a. Accounting as a practical art
b. Accounting as the language of business
c. Accounting as a social science
d. Accounting as an information system

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29. Which of the following statements is most likely to be incorrect?
a. Accounting is an indispensable tool for a business manager.
b. A business manager is tasked in motivating and guiding employees.
c. Fra Luca Pacioli is considered the daddy of modern accounting.
d. General purpose financial statements, the subject matter of financial
accounting, are those that cater to all the needs of both external and internal
users.

30. An advantage of a sole proprietorship business is

a. you are the boss and you keep all the profits.
b. greater capital compared to the other forms of business organization.
c. it is generally exempt from taxes.
d. it has an unlimited life.

31. Which of the following is not a service business?

a. Accounting firm
b. Hospital
c. Bank
d. Bakery

32. Which of the following is most likely not considered a merchandising business?
a. Pharmacy
b. Rice wholesaler
c. Movie theater
d. Department store

33. Which of the following is not considered a manufacturing business?

a. Banco de Oro
b. Toyota
c. Apple
d. San Miguel Pure Foods
34. Which of the following is an advantage of a service business?
a. You can take advantage of price fluctuations by increasing your stocks of goods
when prices temporarily go down.
b. Lower cost of quality.
c. You don’t need to worry about inventory costs, warehousing and distribution
costs.
d. You have a high growth potential because you can tap into a wider market and
can produce in large quantities.

35. Which of the following is a disadvantage of a manufacturing business?

a. You can have a better pricing policy because you can mass-produce goods.
b. You may not need to have a strategically located retail store to display your
products because you can sell directly to wholesalers rather than to end
consumers.
c. You have the opportunity to establish a brand that could last longer than your
lifetime.
d. You need a high start-up capital.

36. The accounting standards in the Philippines are called

a. Pinoy Financial Reporting Standards (PFRSs)
b. Generally Acceptable Accounting Pinoy (GAAP)
c. Philippine Financial Reporting Standards (PFRSs)
d. Financial Reporting Standards Council (FRSC)

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37. Which of the following does not form part of the accounting standards used in the
Philippines?
a. Philippine Financial Reporting Standards (PFRSs)
b. Philippine Accounting Standards (PASs)
c. Interpretations
d. Philippine Auditing Practice Statements

38. Mr. Juan Batumbakal is an accountant in the Philippines while Mr. John Stonesteel
is an accountant in a foreign country that uses the International Financial
Reporting Standards. Which of the following statements is correct?
a. Mr. John’s accounting standards are superior to those of Mr. Juan’s.
b. Mr. John is more intelligent than Mr. Juan because Mr. John uses better
accounting standards.
c. Mr. Juan is an inferior accountant compared to Mr. John because Mr. John is a
foreigner and Filipinos give higher regard to foreigners compared to their fellow
countrymen.
d. Mr. Juan and Mr. John use essentially the same accounting standards.

39. This type of business organization has the tendency to become monopolistic. It can
hamper a country’s development by restricting the entrance of other smaller
businesses but with much better products to the market; thereby, leaving members
of the society with no other choice but to buy the inferior products of those
monopolistic businesses.
a. Cooperative
b. Sole proprietorship
c. Partnership
d. Corporation

40. The mother of accounting is

a. Fra Luka Gaga
b. Accountant Mama
c. Mami Siopao
d. None of these

“He will have no fear of bad news; his heart is steadfast, trusting in the Lord. His heart
is secure, he will have no fear; in the end he will look in triumph on his foes.”
(Psalm 112:7-8)

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