University of Santo Tomas

Alfredo M. Velayo College of Accountancy

Hand-out in Basic Accounting
2012-2013

Name:______________________________________________Section:___________

I. Theory
True or False
1. The basic purpose of accounting is to provide qualitative information about an
entity that is useful in making rational economic condition.
2. Financial Accounting can be broadly defined as the area of accounting that
prepares general purpose financial statements to be used by parties both
internal and external to the entity.
3. Financial accounting is the area of accounting that emphasizes reporting to
regulatory bodies.
4. Accounting Standards Council is the accounting standard setting body created
by PRC upon the recommendation of the Board of Accountancy to assist the
BOA in carrying out its powers and functions under R.A. No. 9298.
5. As independent or external auditors, CPAs are primarily responsible for
expressing an opinion on as to the fairness of the financial statements.
6. Accrual and going concern are the two underlying assumptions specifically
mentioned in the conceptual framework.
7. The relative stable economic, political and social environment supports
timeliness.
8. The accounting concept going concern justifies the usage of accruals and
deferrals.
9. A conceptual framework of accounting should lead to uniformity of financial
statements among companies within the same industry.
10. The conceptual framework is intended to establish the objectives and
concepts for use in developing standards of financial accounting and reporting.
11. Generally Accepted Accounting Principles is not included in the scope of
conceptual framework.
12. The objectives of financial reporting for entities are based on Generally
Accepted Accounting Principles.
13. The purpose of International Financial Reporting Standards is to promote
uniform accounting standards among countries of the world.
14. Qualitative characteristics of financial statements are the attributes that
make the information provided in the financial statements useful to users.
15. In complying with the standard of adequate disclosure, accountants are
guided by the doctrine that more information is always better than less.
16. Assets are resources controlled by the entity as a result of present
transactions or events and from which future economic benefits are expected to
flow to the entity.
17. Income encompasses both revenue and gain.
18. Current cost is the most commonly adopted measurement basis by
entities in preparing financial statements.
19. Matching principle is being observed when an accountant charges to
expense a cost that contributed to revenue during the period.

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JPIA Aaron Joshua S. Bernardino, CPA
 20. The cost of selling and administration in a manufacturing firm are an
example of Direct Matching.

Multiple Choice

1. Which qualitative characteristics relate to the presentation of financial

statements?
a. Reliability and Comparability
b. Understandability and Comparability
c. Relevance and Reliability
d. Reliability and Understandability

2. In the event of conflict between the economic substance if a transaction and

its legal form, the economic substance shall prevail. This concept is known as
a. Completeness c. Substance over form
b. Form over substance d. Faithful Representation

3. Which one of the following enhances the reliability of accounting

information?
a. Time Period c. Accounting Entity
b. Verifiability d. Going Concern

4. Historical cost has been the evaluation basis most commonly used in
accounting because of its
a. Accuracy c. Reliability
b. Timeliness d. Conservatism

5. Accounting for inventories by applying the lower of cost or net realizable

value is an example of the application of
a. Conservatism c. Comparability
b. Materiality d. Consistency
6. The principle of objectivity includes the concept of
a. Conservatism c. Classification
b. Summarization d. Verifiability

7. It is the ability to bring together for the purpose of noting similarities and
dissimilarities.
a. Understandability c. Reliability
b. Relevance d. Comparability

8. The overriding criterion by which accounting information can be judged is

that of
a. Usefulness for decision making
b. Comparability
c. Verifiability
d. Neutrality

9. This arises in the course of ordinary regular activities of the entity and is
referred to by a variety of different names including sales, fees, interest,
dividends, royalties and rent.
a. Gain c. Income
b. Revenue d. Profit

10. It is proper to recognize revenue prior to the sale of merchandise when

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JPIA Aaron Joshua S. Bernardino, CPA
 I. The revenue will be reported as an installment sale
II. The revenue will be reported under the cost recovery method

a. Both I and II c. II only

b. I only d. Neither I or II

II. Problems

1. The liabilities of our establishment are equal to one third of our total assets. The
owner’s equity is P480,000. What is the amount of our liabilities?

2. Given the following data:

Capital, January 1 191,000
Additional Investment 20,000
Withdrawal ???
Income 43,000
Expenses 58,000
Capital, December 31 160,000

How much is the withdrawal made by the owner?

3. For a given year, beginning and ending total liabilities were P18,000 and
P20,400 respectively.
At year-end, owner’s equity was P40,200 and total assets were P4,000 larger
than at the beginning of the year.
If investments exceeded withdrawals by P4,800, what is the amount of net
income(loss)?

4. The ending Owner’s Equity amounts to P200,000. The beginning assets and
liabilities are P200,000 and P120,000 respectively.
During the year, the owner contributed additional investment worth P20,000.
The business incurred operating expenses of P30,000, paid in cash.

What would be the net income for the year?

5. Using the same data, how much is the total assets at the year-end?

6. Using the same data, how much is the total revenue for the year?

7. The total cash payments made by the business for the period amounted to
P205,000 as follows:

Taxes and Licenses of the business 10,000

Water used by the business 20,000
Wages of workers 70,000
Purchased Machine for business use 100,000
Advance payment for the rent 5,000

How much is the total expenses from these cash payments?

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JPIA Aaron Joshua S. Bernardino, CPA
 8. The business is engaged in selling merchandise to customers. On November 1,
2010, it purchased goods worth P150,000 from suppliers.
The goods were all sold on December 1, 2012 for a total price of P400,000. For
sale, only 10% was received as down payment, 70% were later collected after 1
week, and at the end of the year, 20% are still for collection.
How much is the total revenue for the year 2012?

9. Using the same date, how much is the net income or loss for the year?

10. If the owner’s equity at the start of the period is P500,000, how much is its
value at the end of the year 2012?

11. In year 2012, beginning and ending total liabilities were P8,400 and P10,000
respectively.

At the year-end, owner’s equity was P26,000 and total assets were P2,000 larger
than at the beginning of the year. If additional investment exceeded withdrawals
by P2,400, net income(loss) for the year was apparently?

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JPIA Aaron Joshua S. Bernardino, CPA