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Conceptual Framework – Post-Test

1. The conceptual framework (choose the incorrect one)

a. Sets out the concepts that underlie the preparation and presentation of financial
statement for external users.
b. Is not a Philippine Reporting Standard and hence does not define standard for any
particular measurement or disclosure issue.
c. Is concerned with special purpose financial statements, including consolidated financial
d. There is nothing in the conceptual framework that overrides any PFRS.

2. The basic purpose of the conceptual framework is (choose the incorrect one)
a. To assist the FRSC in developing accounting standards.
b. To assist prepares of financial statements in applying accounting standards.
c. To assist the FRSC in reviewing and adopting international accounting standards.
d. To assist the Board of Accountancy in promulgating rules and regulations affecting the
pratice of accountancy in the Philippines.

3. Financial accounting can be broadly defined as the area of accounting that prepares
a. General purpose financial statements to be used by parties internal to the entity only.
b. Financial statements to be used by investors only.
c. General purpose financial statements to be used by parties both internal and external
to the entity.
d. Financial statements to be used primarily by management.

4. Management accounting is the area of accounting that emphasizes

a. Reporting financial information to external users.
b. Reporting to SEC.
c. Combining accounting knowledge with an expertise in data processing.
d. Developing accounting information for use within an entity.

5. Which of the following statements best describes the term “financial position”?
a. The net income and expenses of an entity.
b. The net of financial assets less liabilities of an entity.
c. The potential to contribute to the flow of cash and cash equivalents to the entity.
d. The assets, liabilities, and equity of an entity.

6. Which is incorrect concerning financial statements?

a. Financial statements are prepared and presented at least annually and are directed
toward the common information needs of a wide range of users.
b. Financial statements do not provide all the information that users may need to make
economic decisions since they largely portray the financial effects of past events and do not
necessarily provide nonfinancial information.
c. Financial statements also show the results of the stewardship of management or the
accountability of management for the resources entrusted to it.
d. The external auditor of an entity has the primary responsibility for the preparation and
presentation of the financial statement of the entity.

7. The providers of risk capital (investors)

a. Are interested in information which enables them to assess the ability of the entity to
provide renumeration, retirement benefits and employment opportunities.
b. Are interested in information that enables them to determine whether their loans and
the interest attaching to them will be paid when due.
c. Have an interest in information about the continuance of an entity especially when
they have a long-term involvement with or are dependent on the entity.
d. Are concerned with the risk inherent in and return provided by their investments and
need information to help them determine whether they should bur or sell the investments.

8. The primary qualitative characteristics are

a. Relevance and reliability
b. Understandability and comparability
c. Relevance, reliability and understandability
d. Relevance, reliability, understandability and comparability

9. the ingredient of relevance include all of the following, except

a. Predictive value
b. Feedback value
c. Timeliness
d. Prudence

10. The overriding criterion by which accounting information can be judged is that of
a. Usefulness for decision making
b. Freedom from bias
c. Timeliness
d. Comparability

11. Which requires that information not be biased in favor of one group of users to the detriment
of others?
a. Relevance
b. Reliability
c. Verifiability
d. Neutrality

12. Conservatism is best described as selecting an accounting alternative that

a. Understates asset and net income
b. Has the least favorable impact on owner’s equity.
c. Overstates liability
d. Is least likely to mislead users of financial information

13. Which statement is incorrect concerning constraints on relevant and reliable information?
a. In achieving a balance between relevance and reliability, the overriding consideration
is how best to satisfy the economic decision-making needs of users.
b. The balance between benefit and cost is a pervasive constraint rather than a
qualitative characteristics.
c. The cost of providing information should exceed the benefits derived from the
d. To provide information on a timely basis, it may often be necessary to report before
all aspects of a transaction or event are known, thus impairing reliability.

14. Which statement is incorrect concerning materiality?

a. The relevance of information is affected by its nature and materiality.
b. Information is material if its omission or misstatement could influence the economic
decision of users taken on the basis of the financial statements.
c. Materiality depends on the size of the item or error judged in the particular
circumstances of its omission or misstatement.
d. Materiality provides a threshold or cutoff point for useful information and therefore a
primary qualitative characteristics.

15. 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.
a. Relevance
b. Reliability
c. Understandability
d. Comparability

16. Financial information exhibits the characteristic of consistency when

a. Expenses are reported as charges against revenue in the period in which they are
b. Accounting entities give accountable events the same accounting treatment from
period to period.
c. Gains or losses are not included on the income statement.
d. Accounting procedures are adopted which give a consistent rate of net income.

17. 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.
b. Features of accounting
c. Accounting constraints
d. Concepts of capital and capital maintenance

18. 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 all financial resources of the entity.

19. An asset is recognized in the statement of financial position when

I. It is probable that future economic benefits will flow to the entity.
II. The asset has a cost or value that can be measured reliably.
a. I only
b. II only
c. Both I and II
d. Neither I nor II

20. Which statement is correct concerning recognition of income and expense?

I. Income is recognized when an increase in future economic benefit related to an increase
in an asset or decrease in liability has arisen that can be measured reliably.
II. Expense is recognized when a decrease in future economic benefit related to a decrease
in an asset or an increase in liability has arisen that can be measured reliably.

a. I only
b. II only
c. Both I and II
d. Neither I nor II

21. Which statement is correct?

a. Income encompasses both revenue and gain.
b. Revenue encompasses both income and gain.
c. Gain encompasses both income and revenue.
d. Income encompasses revenue only.

22. 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

23. Which of the following is an example of an “expense”?

a. A loss on the disposal of a noncurrent asset.
b. A decrease in equity arising from a distribution to equity participants.
c. An increase in economic benefits during an accounting period..
d. A reduction in income from the accounting period.

24. Current 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.

25. 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 entity will
continue in operation for the foreseeable future.
c. Consolidated financial statements are prepared for the parent and its subsidiaries
under the concept of economic entity.
d. Accountants prepare financial statements at arbitrary points in time during an entity’s

Accounting Process

1. It is the means by which an entity records and stores the financial and managerial
information from its transactions so that it can retrieve and report the information in an
accounting statement.
a. Accounting control
b. Internal control
c. Accounting system
d. Double entry system

2. The use of computers in processing accounting data

a. Eliminates the need for accountants.
b. Eliminates the double entry system as a basis for analyzing transactions.
c. Eliminates the need for financial reporting standard.
d. May result in the elimination of document trails used to verify accounting records.

3. A chart of accounts is
a. A subsidiary ledger
b. A listing of all account titles
c. A general ledger
d. A general journal

4. Which of the following types of accounts measure economic flows over a period of time?
a. Real accounts
b. Nominal accounts
c. Mixed accounts
d. Control accounts

5. Which of the following is correct?

a. Retained earnings account normally has a debit balance.
b. Retained earnings account normally has a credit balance.
c. Retained earnings account is closed at the end of the fiscal year.
d. Retained earnings account is a nominal account.

6. Which of the following would typically be considered a source document?

a. Chart of accounts
b. General ledger
c. General journal
d. Invoice received from seller

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

8. At what step in the accounting cycle is GAAP typically applied?

a. Journalizing
b. Posting
c. Trial balance
d. Reversing

9. A journal entry that contains more than two accounts is called

a. An adjusting entry
b. A compound journal entry
c. An incorrect journal entry
d. A correcting entry

10. Which of the following must be met before an event should be recorded?
a. The event must be an arm’s length transaction.
b. The event must be repeatable in a future period.
c. The event must be measurable in financial terms.
d. The event must be disclosed in the reported notes.

11. It is defined as the entire group of accounts for an entity

a. General ledger
b. Subsidiary ledger
c. Trial balance
d. Financial statements

12. It is a working paper that lists all the entity’s general ledger accounts and their account
a. Trial balance
b. General ledger
c. Worksheet
d. Chart of accounts

13. A trial balance (choose the incorrect one)

a. Is a test of the equality of the debits and credits in the general ledger.
b. Is a list of open accounts in the ledger with their balances as of a given date.
c. Provides information that is helpful when making adjusting entries.
d. Proves that no errors of any kind have been made in the accounts during the accounting
14. Transposition is an
a. Error in interchanging the figures.
b. Error of placing the decimal point.
c. Error of not recording the transactions.
d. Error, which if not detected, is automatically compensated or corrected in the next accounting

15. which of the following errors would be detected when a trial balance is properly prepared?
a. An amount that was entered in the wrong account.
b. A transaction that was entered twice.
c. A transaction that was omitted.
d. None of the above.

16. The sum of either trial balance column represents

a. Total asses
b. Total liabilities
c. Total liabilities and equity
d. No meaningful amount

17. Under the voucher system, a voucher register is

a. The business document or written authorization for every cash disbursement.
b. The journal where all vouchers are recorded in numerical sequence.
c. The journal where all checks issued for payment are recorded.
d. The subsidiary for the vouchers payable account where the vouchers are arranged in the
order of required date of payment.

18. Which of the following would not be a correct form for an adjusting entry?
a. A debit to revenue and a credit to liability.
b. A debit to an expense and a credit to a liability.
c. A debit to a liability and a credit to a revenue.
d. A debit to an asset and a credit to a liability.

19. 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 expenses are recognized in the absence of cash flow.

20. 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

21. A prepaid expense can best be described as an amount

a. Paid and currently matched with earnings.
b. Paid and not currently matched with earnings.
c. Not paid and not currently matched with earnings.
d. Not paid and currently matched with earnings.

22. An unearned income can best be described as an amount

a. Collected and currently matched with expenses.
b. Collected and not currently matched with expenses.
c. Not collected and currently matched with expenses.
d. Not collected and not currently matched with expenses.

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

24. After the accounts have been closed

a. All the accounts have zero balances
b. The asset, liability and equity accounts have zero balances.
c. The revenue, expense, income summary and retained earnings accounts have zero
d. The revenue, expense, and income summary accounts have zero balances.
25. If income is greater than 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.