Holy Name University

City of Tagbilaran
College of Business and Accountancy
HANDOUTS FOR CAT REVIEW

General Instructions: Please read the problem carefully and choose the
letter of your answer.
BASIC PRINCIPLES OF DOUBLE ENTRY ACCOUNTING

1. Business transactions are analyzed from the viewpoint of the

a. Creditor c. Owner
b. Business d. Investors

2. The series of activities by the business is referred to as business transactions and

events when, except
a. they affect the assets, liabilities and owner’s equity
b. they affect the accounting elements
c. they affect the accounting values
d. none of the above

3. A business activity that cannot be quantified or expressed in terms of unit of

measure, thus cannot be recorded in the book of business is an
a. accountable transaction c. external transaction
b. non-accountable transaction d. internal transaction

4. Chronological recording of transactions and events is very essential in Bookkeeping.

Chronological means
a. recording transactions and events using calendar days
b. recording transactions and events on time without delay
c. recording transactions and events based on the date of occurrence
d. recording transactions based on accountable documents

5. The word “debere” is a Latin word which means

a. to owe c. to partake
b. to receive d. to entrust

6. The right-hand side of an account refers to

a. Debit entry c. Credit side – right hand
b. Credit entry d. Debit side – left hand

Dr Cash xxx
Cr Capital xxx

7. The amount entered on the left-hand of an account is called

a. Debit entry c. Credit side
b. Credit entry d. Debit side

8. Debit means
I. Increase in asset IV. Decrease in liabilities
II. Decrease in asset V. Increase in equity
III. Increase in liabilities VI. Decrease in equity
a. I, III and VI c. II, IV and VI
b. I, IV and VI d. none of these

9. Based on the equation A = L + E, when asset decreases and liability remains the same
a. capital decreased c. no effect on capital
b. capital increase d. cannot be determined

10. Based on the accounting equation A = L + E, when asset increases and capital also
increases by the same amount
a. liability is not affected c. liability decreases
b. liability increases d. cannot be determined

A = L + E
Increase asset = 10,000
Increase liab = 4,000
Increase equity = 6,000

11. A liability account has a normal balance of

a. debit balance c. debit entry
b. credit balance d. credit entry
12. The accounts that are used to effect reduction of capital other than drawing are
a. income and expense account c. only expense accounts
b. only income accounts d. None of these

A = L + (INVESTMENT – DRAWING + INCOME – EXPENSE)

13. An owner’s equity will be increased by (choose the incorrect one)

a. investment c. withdrawal
b. revenue d. none of these

14. A debit entry may signify an increase in

a. revenue c. asset
b. owner’s equity d. liability

15. A credit may signify an increase in

a. asset c. expense
b. drawing d. owner’s equity

JOURNALIZING TRANSACTIONS AND POSTING

16. The business derives its business from the sale of goods to its customers.
a. Merchandising company c. Sole proprietorship
b. Service concern d. Corporation

17. What is the appropriate account title for money that has been received in advance but
services are to be rendered in the future?
a. Unearned income c. Income
b. Accrued income d. Accrued expense

18. The anticipated loss that the business may incur arising from uncollectible accounts
a. Uncollectible accounts bad debts c. Provision for doubtful accounts
b. Accounts receivable d. Allowance for doubtful accounts

19. This refers to the allocated portion of the cost of fixed assets or property and
equipment
a. Depreciation expense c. Accumulated depreciation
b. Amortization expense d. None of the above

20. It constitutes an oral or verbal promise to pay arising from service rendered or sale
of goods on credit
a. Accounts payable c. Accounts receivable why????
b. Notes payable d. Service income

21. The account title for money placed and set aside for petty or small expenses.
a. Cash equivalent c. Check
b. Petty cash d. None of these

22. It is the expense incurred for borrowing money.

a. Interest expense c. Insurance expense
b. Rent expense d. Uncollectible accounts

23. The following statement is correct, except

a. Regardless of the nature of business, the sole proprietor’s payment of taxes will
be represented by an appropriate expense account
SERVICE CONCERN

Dr Taxes and licenses xxx

Cr Cash xxx

b. Only under merchandising concern will there be a use of sales discount account
c. Only under service concern will there be a use of service discount account
d. None of these

24. The following transactions are unique to a merchandising concern except

a. Purchase of inventory on account
b. Return of goods sold
c. Purchase of supplies
d. None of these

25. The following transactions may occur to either a merchandising or service concern
except
a. Payment of purchase on account within the discount period
b. Payment of salaries
c. Prepayment for insurance coverage
 d. None of these

26. Which of the following accounts is only used under a merchandising concern?
a. Capital C. Merchandise Inventory
b. Drawing D. Accounts Receivable

27. The following accounts will not be seen in the chart of accounts of an entity under
the service concern, except *the rest are seen in merchandising*
a. Purchase discount c. Sales return and allowances
b. Accrued expenses d. Freight in

28. Both Purchase Discount and Sales Discount are terms used for
a. trade discounts c. purchased returns
b. cash discounts d. sales returns

Dr. Purchase (net of trade discount) xxx

Cr. Cash xxx

Dr. Purchase (gross of cash discount) xxx

Cr. Accounts Payable xxx

29. The account used when a goods previously purchased due to bad order is returned
a. Sales return c. Purchase discount
b. Purchase return d. Sales discount

30. A method of inventory keeping where it is characterized by the use of stock card
a. periodic inventory c. calendar inventory
b. perpetual inventory d. merchandise inventory

31. Which of the following accounts is not used under periodic inventory system?
a. Purchases c. Cost of sales used in perpetual inventory system
b. Freight in d. Purchase discount

32. Expenses incurred in shipping out the merchandise inventory to a buyer will be
recorded as
a. freight out only if the entity uses perpetual inventory method
b. merchandise inventory if the entity uses perpetual inventory method
c. freight out regardless if the entity uses perpetual or periodic inventory method
d. freight in if the entity uses periodic inventory method

33. The following statement is incorrect, except

a. Cash is debited when the business receives cash from customers.
b. Notes receivable is credited when the business issues a note as payment for
purchase of equipment. (Debited)
c. When the purchase of supplies made previously on account is paid by the business,
accounts payable increases therefore must be credited.(decreases, debited)
d. When the business pays insurance in advance, prepaid insurance increases, hence
must be credited.(debited)

34. The following statement is not correct, except

a. The business purchases office equipment and pays it with cash; this results into
decrease in cash and must debit cash. (must credit cash)
b. When the owner invests money to the business, capital increases, hence such
account must be credited
c. Rent expense is credited when the business incurs rent. (rent expenses =
debited)
d. Office equipment is debited when the company purchases equipment on account.
????

35. The owner of the business invested office equipment, P75,000 into the business. The
entry to record the transaction will include
a. a credit to cash for 75,000
b. a credit to office equipment for 75,000
c. a credit to capital for 75,000
d. none of these

36. The business purchased office supplies for P50,000. The entity uses the real method
for recording prepaid expenses. The entry to record the transaction will include
a. debit to Office Supplies, P50,000
b. credit to Supplies Expense, P50,000
c. debit to Supplies Expense, P50,000
d. Debit to cash for P50,000

37. The entity received cash amounting to P20,000 as payment for services rendered on
account. The entry to record the transaction will include
a. debit to accounts receivable, P20,000
 b. credit to accounts receivable, P20,000
c. credit to service revenue, P20,000
d. credit to cash, P20,000

38. A non-VAT company buys merchandise costing P25,000 and returned P5,000 cost of
merchandise. If the discount term is 2/10, N/30 and the company pays within the
discount period, how much amount should be paid to the vendor?
a. P19,600 c. P21,000
b. P20,000 d. P24,500
Net purchase (25,000 – 5000) 20,000
Discount (20,000 x 2%) 400
Cash payment 19,600

Dr. Purchase 25,000

Cr. A/P 25,000
Dr. A/P 5,000
Cr. PRA 5,000
Dr. A/P 20,000
Cr. PD 400
Cr. Cash 19,600

39. Tailor Sweeft, a non-VAT company sold merchandise on account for P37,000 and received
cash payment of P35,705 after deducting the sales discount. What was the percent of
sales discount?
a. 2% c. 3%
b. 2.5% d. 3.5%
37,000 x (100% - D )= 35705
35,705 / 37,000 = 0.965

40. We Are Never Ever Company (non-VAT company) made an account purchases of P30,000 from
Getting Back Together Corporation and was given a 10% trade discount and 5% purchase
discount upon payment. The journal entry to record the payment of the account
purchase will include (Note: Entity uses periodic inventory system)
a. Debit to Purchases, P30,000
b. Credit to Purchase discount, P1,500
c. Credit to Cash, 25,650
d. None of these
(30,000-(30,000*10%))* 5% = 25,650
Dr. Purchase 27,000
Cr. A/P 27,000
Dr. A/P 27,000
Cr. PD 1,350
Cr. Cash 25,650

41. On July 10, 2021, All Too Well Company collects its sales on account from Begin Again
Corporation in the amount of P48,750 after giving a discount term of 2.5%/10, N/30.
The journal entry on June 30, 2021 to record the sales on account will include (Note:
Entity is a non-VAT business and uses periodic inventory system)
a. Debit to Accounts Receivable, P48,750
b. Credit to Sales, P48,750
c. Debit to Accounts Receivable, P50,000
d. Credit to Cash, P50,000

Upon sale
Dr. AR 50,000
Cr. Sales 50,000

Upon collection
Dr. Cash 48,750 (97.5%)
Dr. SD (2.5%)
Cr. A/R 50,000

42. On October 7, Joy Company, a VAT-subject company purchased merchandise on account from Sadness Inc.,
P47,000, terms, 3/10, n/30 FOB destination, freight collect. Freight charges amounted to P2,000. On October
11, Joy returned P18,000 of merchandise to Sadness from the October 7 purchase. On October 15, Joy paid the
purchase. The entry to record the transaction will include (Note: Amounts are exclusive of VAT and entity
uses periodic inventory system) *needs more explanation*
a. Debit to Accounts payable, P32,480
b. Credit to Purchase discount, P870
c. Credit to Input tax, P169
d. None of these
Dr. Purchase 47,000
Dr. Input tax 5,640 (47,000*12&)
Cr. A/P 52,640
Dr. A/P 2,240
Cr. Cash 2,240 (giunsa ni pagkuha?)
Dr. A/P 20,160
 Cr. Purchase return 18,000
Cr. Input tax 2,160
Dr. A/P 30,240
Cr. Purchase discount 870
Cr. Input tax 104
Cr. Cash 29,266

43. In October 14, Rivadelo Company a VAT-subject entity sold merchandise on credit to
Pabelico Co., terms 2/10, eom, FOB shipping point, P24,000. Freight charges amounted
to P2,000, freight prepaid. In October 24, Rivadelo accepted from Pabelico Co. a
return of merchandise, P4,000. How much will be the amount collected from Pabelico
Company upon payment on October 25? (Note: Amounts are exclusive of VAT and entity
uses periodic inventory system)*needs explanation*
a. P21,952 c. P26,432
b. P24,192 d. P24,160

Dr. AR 26,880
Cr. Sales 24,000
Cr. Output tax 2,880 (24,000 * 12%)
Dr. AR 2,240
Cr. Cash 2,240
Dr. Sales return 4,000
Dr. Output tax 480
Cr. AR 4,480
Dr. Cash 24,192
Dr. Sales discount 400
Dr. Output tax 48
Cr. AR 24,640

44. On October 10, Lover Company purchased merchandise on credit from Enchanted Co.,
terms 3/10, n/30, FOB shipping point, P90,000. Freight prepaid by Enchanted, P6,000.
On October 20, Lover paid Ortiz. The entry to record the transaction will include
(Note: Amounts are exclusive of VAT and entity uses periodic inventory system)
a. Debit to Accounts payable, P107,520
b. Credit to Cash, P97,776
c. Credit to Purchase discount, P3,024
d. None of these

Dr. Purchase 90,000

Dr. Input tax 10,800 (90,000*12%)
Cr. AP 100,800
Dr. Freight In 6,000
Dr. Input tax 720
Cr. AP 6,720
Dr. AP 107,520 (100,800+6,720)
Cr. Purchase discount 2,700 (90k*3% nga discount)
Cr. Input tax 324 (2,700*12% vat)
Cr. Cash 104,496 (AP – PD – IT)

45. Globe Corporation, an entity which uses perpetual inventory system purchased
merchandise on account from Smart Inc., P47,000, terms, 3/10, n/30 FOB shipping
point, freight collect. Freight charges amounted to P2,000. The entry to record the
transaction will include (Note: Entity is a non-VAT entity)
a. Debit to Purchase, P47,000
b. Credit to Accounts Payable, P50,640
c. Debit to Merchandise Inventory, P49,000
d. None of these

Dr. M/I 47,000

Cr. A/P 47,000
Dr. M/I 2,000
Cr. Cash 2,000

46. Pace, an entity which uses perpetual inventory system sold merchandise on credit to
Pabelico Co., terms n/30, FOB shipping point, P24,000. Freight charges amounted to
P2,000, freight prepaid. The entity to record the transaction will include (Note:
Entity is a non-VAT entity and goods are sold with 20% mark-up on cost) (multiple
answers may be selected)
a. Debit to Accounts Receivable, P26,000
b. Debit to Cost of Sales, P20,000
c. Credit to Sales, P24,000
d. Credit to Merchandise Inventory, P28,800
Dr. A/R 24,000
 Cr. Sales 24,000
Dr. A/R 2,000
Cr. Cash 2,000
Dr. COS 20,000
Cr. M/I 20,000 (HOW?????)

47. The following statement is not incorrect, except

a. The accounts that remain open or have a balance after footing the general ledger
constitute the trial balance.
b. When the trial balance is “in-balance” we take an assumption that no error has
been committed in both journalizing and posting.
c. Posting an entry twice in the general ledger will cause the trial balance to be
“out-of-balance”
d. Omission in posting in either debit or credit entry from the general journal to
the general ledger will the trial balance to be out of balance.

48. Which of the following errors cannot be revealed by a trial balance?

a. Posting the amount of an item to a wrong side of the account or ledger
b. Omission in posting of either debit or credit entry in the journal
c. A journal entry that has not been posted in its entirety
d. Footing of the account balance or in the ledger is wrong

49. A trial balance will not balance if

a. a correct journal entry is posted twice
b. the purchase of supplies on account is debited to supplies and credited to cash
c. a P210 payment on account is debited to account payables for P21 and credited to
cash for P21
d. a P100 cash drawing is debited to drawing account for P1,000 and credited to
cash for P100

50. If a cash purchase of an office equipment for P50,000 was debited to office supplies
expense by the same amount, what will be the effect of this journalizing process
error?
a. The trial balance will be out of balance
b. The trial balance will be in-balance
c. Cash balance will be overstated
d. Office equipment will be overstated

-end-