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MULTIPLE CHOICE QUESTIONS: EVALUATE each statement and its choices then, APPLY your knowledge
by selecting the best answer and write the letter only on the space provided before each number.
_______1.

When the owner deposits cash in an account in the name of the business, it is an increase to:
A. Cash and Accounts Receivable
C. Cash and Capital
B. Cash and Withdrawals
D. Cash and Accounts Payable

_______2.

Which of the following equations is the fundamental accounting equation?

A. Assets Liabilities = Owners Equity
C. Assets + Liabilities = Owners Equity
B. Assets = Liabilities + Owners Equity
D. Assets Owners Equity = Liabilities

_______3.

The rule that requires financial statements to reflect the assumption that business will continue
operating instead of being closed or sold, unless evidence shows that it will not continue, is
the:
A. Going-concern assumption
C. Objectivity principle
B. Business entity assumption
D. Accrual assumption

_______4.

If equity is P300,000 and liabilities are P192,000, then assets equal:

A. P 108,000
C. P 492,000
B. P 192,000
D. P 792,000

_______5.

If assets are P99,000 and liabilities are P32,000, then equity equals:
A. P 32,000
C. P 131.000
B. P 67,000
D. P 198,000

_______6.

The assets of a company total P700,000; the liabilities, P200,000. What are the claims of the
owners?
A. P 900,000
D. P200, 000
B. P 700,000
E. It is impossible to determine unless the
C. P 500,000
amount of this owners investment is
known.

_______7.

On June 30 of the current year, the assets and liabilities of Phoenix, Inc. are as follows: Cash
P20,500; Accounts Receivable, P7,250; Supplies, P650; Equipment, P12,000; Accounts Payable,
P9,300. What is the amount of owners equity as of July 1 of the current year?
A. P 8,300
C. P 31,100
B. P 13,050
D. P 40,400

_______8.

Photometer Company paid off P30,000 of its accounts payable in cash. What would be the
effect of this transaction on the accounting equation?
A. Assets, P30,000 increase; liabilities, no effect; equity P30,000 increase.
B. Assets, P30,000 decrease; liabilities, P30,000 decrease; equity no effect.
C. Assets, P30,000 decrease; liabilities, P30,000 increase; equity no effect.
D. Assets, P30,000 no effect; liabilities, P30,000 decrease; equity P30,000 increase.
E. Assets, P30,000 decrease; liabilities, no effect; equity P30,000 decrease.

_______9.

How would the accounting equation of Boston Company be affected by the billing of a client for
P10,000 of consulting work completed?
A. + P10,000 accounts receivable, - P10,000 accounts payable
B. + P10,000 accounts receivable, + P10,000 accounts payable
C. + P10,000 accounts receivable, + P10,000 cash
D. + P10,000 accounts receivable, + P10,000 revenue
E. + P10,000 accounts receivable, - P10,000 revenue

_______10.

Zion Company has assets of P600,000, liabilities of P250,000, and equity of P350,000. It buys
office equipment on credit for P75,000. What would be the effects of this transaction on the
accounting equation?
A. Assets increase by P75,000 and expenses increase by P75,000
B. Assets increase by P75,000 and expenses decrease by P75,000
C. Liabilities increase by P75,000 and expenses decrease by P75,000
D. Assets decrease by P75,000 and expenses decrease by P75,000
E. Assets increase by P75,000 and liabilities increase by P75,000

_______11.

If the liabilities of a business increased P75,000 during a period of time and the owners equity
in the business decreased P30,000 during the same period, the assets of the business must
have:
A. Decreased P105,000
D. Increased P45,000
B. Decreased P45,000
E. Increased P105,000
C. Increased P30,000

_______12.

If the assets of a business increased P89,000 during a period of time and its liabilities
increased P67,000 during the same period, equity in the business must have:
A. Increased P22,000
D. Decreased P156,000

B. Decreased P22,000
C. Increased P89,000

E. Increased P156,000

_______13.

If the liabilities of a company increased P74,000 during a period of time and equity in the
company decreased P19,000 during the same period, what was the effect on the assets?
A. Assets would have increased P55,000
D. Assets would have decreased P19,000
B. Assets would have decreased P55,000
E. None of these
C. Assets would have increased P19,000

_______14.

If assets are P365,000 and equity is P120,000, then liabilities are:

A. P 120,000
C. P 485,000
B. P 245,000
D. P 610,000

_______15.

At the beginning of the year, the liabilities of NAKAKAIRITA Service Station amounted to
P120,000 but it decreased by P50,000 during the year. The assets increased by P160,000
during the year and at the end of the year amounted to P360,000. The owners equity at the
start of the year is
A. P 160,000
C. P 260,000
B. P 80,000
D. P 200,000

TRUE OR FALSE. Read and UNDERSTAND each statement below carefully. Write True or False on the space
provided before each number.
_______1.
_______2.
_______3.
_______4.
_______5.

Revenues are an increase in equity from a companys earning activities.

Assets are the resources of a company and are expected to yield future benefits.
Owners withdrawals are expenses.
Every business transaction leaves the accounting equation in balance.
As a general rule, revenues should not be recognized in the accounting records until it is

received in cash.
CLASSES: The customary classification of accounts listed in the chart of accounts is listed below. CLASSIFY
each account by inserting the appropriate letter in the classification column and indicate the NORMAL
BALANCE by inserting a check mark in the debit column or the credit column.
CLASSES:

A. Assets
B. Liabilities
C. Owners Equity

Example: Cash
1. Notes Receivable
2. Supplies
3. Sales
4. Land
5. Prepaid Insurance
6. June Reynolds, Capital
7. Rent Expense
8. Office Equipment
9. Accounts Payable
10. Drawing

Classificati
on
A

D. Revenue
E. Expenses
Normal Balance
Debit
Credit

PROBLEM. Jean Howard established an insurance agency on July 1 of the current year and completed the
following transactions during July:
(a)
(b)
(c)
(d)
(e)
(f)
(g)
(h)

Opened a business bank account with a deposit of P50,000 from personal funds
Purchased supplies on account, P1,600
Paid creditors on account, P500
Received cash from fees earned on insurance commissions, P9,250
Paid rent on office and equipment for the month, P2,500
Paid automobile expenses for the month, P900, and miscellaneous expenses, P300
Paid office salaries, P1,900
Determined that the cost of supplies on hand was P550; therefore, the cost of supplies used was
P1,050
(i) Billed insurance companies for sales commissions earned, P11,150
(j) Withdrew cash for personal use, P2,700
Requirements:
1. Indicate the effect of each transaction on the elements of financial statement and its balances after
each transaction
2. How much is the cash balance at the end of July?