No. 125 Brgy.

San Sebastian
Lipa City, Batangas, Philippines
Mobile : 0927 283 8234
Telephone : (043) 723 8412
Gmail : icarecpareview@gmail.com

FINANCIAL ACCOUNTING AND REPORTING November 25, 2023

Reviewer: Brian Christian S. Villaluz, CPA, MBA

ACCOUNTING PROCESS

1. Presented to you are the different steps in the accounting cycle:

I. Journalizing and posting closing entries
II. Preparation of the adjusting entries
III. Journalizing and posting the reversing entries
IV. Analyzing transactions from source documents
V. Preparation of the post-closing trial balance
VI. Post journal entries to general ledger accounts
VII. Preparation of the financial statements
VIII. Record transactions in a journal
IX. Preparation of the unadjusted trial balance

What is the correct order in the accounting cycle?

A. IV, VIII, VI, IX, II, I, V, VII, III
B. IV, VIII, VI, IX, II, VII, I, III, V
C. IV, VIII, VI, IX, II, VII, I, V, III
D. IV, VIII, VI, IX, II, I, VII, V, III

2. The accounting record where a transaction is initially recorded is

A. Ledger
B. Account
C. Trial balance
D. Journal

3. The book of original entry is known as

A. Ledger
B. Journal
C. Trial balance
D. Diary

4. A simple journal entry

A. Consists of one debit and one credit
B. Consists of two debits and one credit
C. Consists of one debit and two credits
D. Is a memorandum entry

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

A. Simple journal entry
B. Compound journal entry
C. Complicated journal entry
D. Adjusting journal entry

6. Which is false concerning the rules of debit and credit?

A. The left side of an account is always the debit side and the right side is always the
credit side.
B. Increases in assets and expenses are debit entries, and increases in liabilities, equity
and income are credit entries.
C. The normal balance of any account appears on the side for recording increases.
D. The word “debit” means to increase and the word “credit” means to decrease.

1|P a g e RSORIANO/BVILLALUZ/JBAUTISTA/JABIERA
 No. 125 Brgy. San Sebastian
Lipa City, Batangas, Philippines
Mobile : 0927 283 8234
Telephone : (043) 723 8412
Gmail : icarecpareview@gmail.com

7. The double entry accounting system means

A. Each transaction is recorded with two journal entries.
B. Each item is recorded in a journal entry and then in a ledger account.
C. The dual effect of each transaction is recorded with a debit and a credit.
D. All of these describe the double entry system.

8. The debit and credit analysis of a transaction normally takes place

A. Before an entry is recorded in a journal.
B. When the entry is posted to the ledger.
C. When the trial balance is prepared.
D. At some other point in the accounting cycle.

9. A general ledger is defined as

A. A group of transactions
B. A group of all statement of financial position accounts
C. A group of all income statement accounts
D. The entire group of accounts

10. It is an accounting device used in summarizing the effects of transactions.

A. Journal
B. Ledger
C. Account
D. Trial balance

11. Which accounts measure economic flows over a period of time?

A. Real accounts
B. Nominal accounts
C. Mixed accounts
D. Contra accounts

12. Nominal accounts are also known as

A. Temporary accounts
B. Permanent accounts
C. Real accounts
D. Mixed accounts

13. Real accounts are also known as

A. Temporary accounts
B. Permanent accounts
C. Nominal accounts
D. Mixed accounts

14. A chart of accounts is

A. A flowchart of all transactions
B. An accounting procedures manual
C. A journal
D. A list of all account titles in the general ledger.

15. The trial balance

A. A listing of ledger accounts with their respective balances.
B. Can be used to uncover errors in journalizing and posting.
C. Is a test of the equality of the debit and credit balances in the ledger.
D. All of these statements are correct concerning the trial balance.

16. Which of the following is not a principal purpose of an unadjusted trial balance?
A. It proves that debits and credits of equal amounts are in the ledger.
B. It is the basis for any adjustments to the account balances.
C. It supplies a listing of open accounts and their balances.
D. It proves that debits and credits were properly entered in the ledger accounts.

2|P a g e RSORIANO/BVILLALUZ/JBAUTISTA/JABIERA
 No. 125 Brgy. San Sebastian
Lipa City, Batangas, Philippines
Mobile : 0927 283 8234
Telephone : (043) 723 8412
Gmail : icarecpareview@gmail.com

17. The following transactions for ABC Co. have been journalized and posted to the proper
accounts:
a) The owner invested P8,000 cash in ABC.
b) ABC paid the first months’ rent with P300 cash.
c) Purchased equipment by paying P2,000 cash and issuing a note payable for P3,000.
d) Purchased supplies for P200 cash.
e) ABC billed clients for a total of P1,000 for services rendered.
f) Received P750 cash from clients for services rendered above.
g) The owner withdrew P2,000 for personal use.

What is the correct trial balance total?

A. P5,000
B. P6,000
C. P7,000
D. P8,000

18. Adjusting entries

A. Are often prepared after the end of reporting period but dated as of the end of reporting
period.
B. Are necessary to conform with standards.
C. Include both accruals and deferrals.
D. All choices are correct about adjusting entries.

19. Presented to you are the following statements about adjusting entries:
I. Revenue is earned before cash is received.
II. Cash is received before revenue is earned.
III. Expense is incurred before cash is paid.
IV. Cash is paid before expense is incurred.

Which of the foregoing statements properly describe accruals?

A. I and III
B. II and IV
C. I and IV
D. II and III

20. An accrued 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 currently matched with earnings
D. Not paid and not currently matched with earnings

21. An accrued revenue 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

22. 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 currently matched with earnings
D. Not paid and not currently matched with earnings

23. An unearned revenue 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

3|P a g e RSORIANO/BVILLALUZ/JBAUTISTA/JABIERA
 No. 125 Brgy. San Sebastian
Lipa City, Batangas, Philippines
Mobile : 0927 283 8234
Telephone : (043) 723 8412
Gmail : icarecpareview@gmail.com

Use the following information for the next three items:

The unadjusted trial balance of Paratha Co. appear as follows:

Paratha Co.
Unadjusted Trial Balance
December 31, 2023

Debit Credit
Cash P400,000
Accounts receivable 160,000
Allowance for doubtful P4,000
accounts
Prepaid insurance 24,000
Office supplies 36,000
Equipment 432,000
Accumulated depreciation 86,400
Accounts payable 50,000
Paratha, capital 792,000
Professional service 600,000
revenue
Salaries expense 240,000
Rent expense 240,400
1,532,400 1,532,400

Additional information:
• 3% of the accounts receivable are doubtful of collection.
• The equipment was acquired two years ago and has no salvage value.
• The remaining office supplies on December 31, 2023, amounted to P8,000.
• The one-year insurance was purchased on May 1, 2023.
• The P600,000 professional service revenue was received on September 30, 2023, which
was a payment of a client for one-year bookkeeping services for the period October 1,
2023 until September 30, 2024.
• The rent expense of P240,400 paid by the company to the lessor covers the months of
September 1, 2023, to January 31, 2024.

24. The adjusting entry on December 31, 2023, for doubtful accounts would include a:
A. Credit doubtful accounts expense, P800.
B. Debit allowance for doubtful accounts, P4,800.
C. Credit allowance for doubtful accounts, P800.
D. Debit doubtful accounts expense, P4,800.

25. The adjusting entry for depreciation on December 31, 2023, includes:
A. Debit depreciation expense, P86,400.
B. Credit depreciation expense, P21,600.
C. Credit accumulated depreciation, P43,200.
D. Debit accumulated depreciation, P36,000.

26. The adjusting entry on December 31, 2023, for office supplies would include a:
A. Debit office supplies, P8,000.
B. Debit office supplies expense, P28,000.
C. Credit office supplies, P8,000.
D. Credit office supplies expense, P28,000.

27. The adjusting entry on December 31, 2023, for insurance would include a:
A. Credit insurance expense, P8,000.
B. Debit prepaid insurance, P16,000.
C. Credit prepaid insurance, P16,000.
D. Debit insurance expense, P8,000.

4|P a g e RSORIANO/BVILLALUZ/JBAUTISTA/JABIERA
 No. 125 Brgy. San Sebastian
Lipa City, Batangas, Philippines
Mobile : 0927 283 8234
Telephone : (043) 723 8412
Gmail : icarecpareview@gmail.com

28. The adjusting entry on December 31, 2023, for professional service revenue would include
a:
A. Credit professional service revenue, P450,000.
B. Debit unearned professional service revenue, P150,000.
C. Debit professional service revenue, P150,000.
D. Credit unearned professional service revenue, P450,000.

29. The adjusting entry on December 31, 2023, for rent would include a:
A. Debit unearned rent, P192,320.
B. Credit rent income, P48,080.
C. Credit rent expense, P192,320.
D. Debit prepaid rent, P48,080.

30. Which of the following statements concerning the worksheet are true?
I. On the income statement columns, if its total credits exceed the total debits, there
is profit.
II. On the income statement columns, if its total debits exceed the total credits, there
is profit.
III. On the balance sheet columns, if its total debits exceed the total credits, there is
profit.
IV. On the balance sheet columns, if its total credits exceed the total debits, there is
profit.

A. I and III
B. I and IV
C. II and III
D. II and IV

31. The subtotals of the income statement columns of worksheet are P12,400 debit and
P9,800 credit. If the subtotal of the balance sheet debit column is P38,000, then the
subtotal of the balance sheet credit column should be:
A. P2,600
B. P28,800
C. P35,400
D. P40,600

32. Which statement best describes the purpose of closing entries?

A. To facilitate posting and taking a trial balance.
B. To determine the amount of net income or net loss for the period.
C. To reduce the balances of temporary accounts to zero so that these are used to
accumulate the revenue, expenses and dividends of the next period.
D. To complete the record of various transactions that were started in a prior period.

33. If income is greater than expenses, the income summary account will be closed by
A. Crediting income summary and debiting retained earnings/capital.
B. Debiting income summary and crediting retained earnings/capital.
C. Debiting cash and crediting income summary.
D. Debiting income summary and crediting cash.

5|P a g e RSORIANO/BVILLALUZ/JBAUTISTA/JABIERA
 No. 125 Brgy. San Sebastian
Lipa City, Batangas, Philippines
Mobile : 0927 283 8234
Telephone : (043) 723 8412
Gmail : icarecpareview@gmail.com

Use the following information for the next four items:

The income statement of Claro Company, a sole proprietorship, for the year ended December 31,
2023, shows the following:

Service revenue P175,000

Expenses:
Salaries expense P50,000
Rent expense 25,000
Supplies expense 7,500
Advertising expense 7,500 90,000
Profit P85,000

34. The entry to close the service revenue account includes which of the following?
A. Debit income summary, P175,000.
B. Credit income summary, P175,000.
C. Credit service revenue, P175,000.
D. Debit service revenue, 85,000.
E. Credit income summary, P85,000.

35. The entry to close the expense accounts include which of the following?
A. Debit income summary, P90,000.
B. Credit income summary, P90,000.
C. Debit owner’s capital, P90,000.
D. Credit owner’s capital, P90,000.

36. The balance of the income summary account after closing all the income and
expense accounts will be:
A. Zero. C. 85,000 credit balance
B. 85,000 debit balance D. 175,000 credit balance

37. The entry to close the income summary to capital account will include which of the
following?
A. Debit income summary, P85,000.
B. Debit income summary, P175,000.
C. Credit income summary, P85,000.
D. Debit owner’s capital, P85,000.

38. The post-closing trial balance

A. Consists of statement of financial position accounts only.
B. Will balance if a transaction is not journalized and posted or if a transaction is
journalized and posted twice.
C. Shows that the accounting equation is in balance at the end of the accounting period.
D. All of these are correct regarding the post-closing trial balance.

39. Adjusting entries that may be reversed include:

A. All accrued revenue.
B. All accrued expenses.
C. Those that debit an asset or credit a liability.
D. All of these adjusting entries may be reversed.

6|P a g e RSORIANO/BVILLALUZ/JBAUTISTA/JABIERA
 No. 125 Brgy. San Sebastian
Lipa City, Batangas, Philippines
Mobile : 0927 283 8234
Telephone : (043) 723 8412
Gmail : icarecpareview@gmail.com

40. Reversing entries apply to

I. Accrued expense
II. Accrued income
III. Prepayments under the expense method
IV. Prepayments under the asset method
V. Advance collections under the income method
VI. Advance collections under the liability method
VII. Depreciation
VIII. Uncollectible accounts

A. I, II, III and V only

B. I, II, VII and VIII only
C. I, II, III, V, VII and VIII only
D. I, II, III, IV, V, II, VII and VIII

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7|P a g e RSORIANO/BVILLALUZ/JBAUTISTA/JABIERA