PART I: THEORIES

1. What is Debit?

ANS: Increase assets and decreases liabilities

2. Which of the following statement is not part of the recording process?

ANS: Analyzing transactions

3. Mr. Abad invested 100,000 in Abad Barber Shop. He bought equipment on account for
200,000 giving 50% down payment. The asset of Abad Barber Shop is?

ANS: 200,000

Journal Entries:
Debit Credit
Jan 1. Cash ₱100,000
Abad, Owner’s Equity ₱100,000
To record initial investment in Abad Barber
Shop

Jan. 1 Equipment 200,000

Accounts Payable 100,000
Cash 100,000
To record purchase of equipment

CASH EQUIPMENT

₱100,000 ₱100,000 ₱200,000

₱ 0 ₱200,000

4. The Liability of Abad Barber Shop is?

ANS: 100,000
ACCOUNTS PAYABLE

₱100,000

₱100,000

5. What item below is not asset of the business?

ANS: the house of the owner of the business

6. Which is not a current asset?

 ANS: Tools

7. Owner’s Equity means

ANS: Total asset less total liabilities

SOLUTION/EXPLANATION:

ASSETS = LIABILITIES + OWNER’S EQUITY (Basic Accounting Equation)

ASSETS – LIABILITIES = OWNER’S EQUITY

8. The Trial Balance should be dated:

ANS: February 28, 2007

9. What is Owner’s Drawing?

ANS: Deduction from the capital of the business

Journal Entries:
Debit Credit
Abad, Owner’s Equity ₱100,000
Abad, Owner’s Drawing ₱100,000
To record amount withdrawn for personal
use

10. What is the Trial Balance?

ANS: is a list of accounts with their balances at a given time

11. What is ledger?

ANS: is a collection of the entire group of accounts maintained by a company

12. What is posting?

ANS: transfers journal entries to ledger accounts

13. What is the nature of revenue /income account?

ANS: is increased by credits

14. How assets are classified?

ANS: Current and Non-Current

15. Which of the following are not required steps in the accounting cycle?

ANS: Journalizing and posting closing entries

16. As of December 31, 2006, Bato Company has assets of ₱4,500 and owner’s equity of
₱2,500. What is the liabilities for Bato Company as of December 31, 2006?

ANS: 2,000

SOLUTION/EXPLANATION:

ASSETS = LIABILITIES + EQUITY

₱4,500 ₱2,000 ₱2,500
(4,500-2,500)

17. What is the effect of performing service on accounts on the basic accounting equation?

ANS: Increase assets and increase owner’s equity

Journal Entries:
Debit Credit
Accounts Receivable ₱100,000
Service Revenue ₱100,000
To record billed service to a customer.

18. When is the trial balance will not balance?

ANS: a ₱450 payment on account is debited to accounts payable for ₱450 and
credited to cash for ₱45.

Letter D: Posting of wrong amounts

Debit Credit
Accounts Payable ₱450
Cash ₱45
To record payment

ACCOUNTING ERRORS WHICH DO NOT AFFECT THE TRIAL BALANCE

Letter A: Correct entry but posted twice

Debit Credit
Office Supplies ₱150
Cash ₱150

Office Supplies 150

Cash 150
 Letter B: Correct Entry
Debit Credit
Supplies ₱300
Cash ₱300

Letter C: Error of Original Entry

Correct accounts, wrong amounts
Debit Credit
Drawing ₱100
Cash ₱100

19. In bookkeeping, transactions or events are recorded:

ANS: Chronologically

20. SM Supermarket is engaged in:

ANS: Merchandising

II: TRUE OR FALSE

FALSE 1. If liabilities equal 75,000 and owner’s equity equals 25,000, then assets are
50,000.

ASSETS = LIABILITIES + EQUITY

₱50,000 ₱75,000 ₱25,000
100,000
(75,000+25,000)

FALSE 2. The normal balance for the owner’s drawing account is a credit balance.

ANS: Normal Balance of owner’s drawing account is Debit

FALSE 3. Supplies On Hand would be classified as an expense.

ANS: ASSET – Supplies On Hand; EXPENSE – Supplies Expense

TRUE 4. A credit to Accounts Payable increases the accounts balance

ANS: Normal Balance of ACCOUNTS PAYABLE is Credit.

TRUE 5. The financial position of a business as of a business as of a specific date is reported

using a balance sheet.
TRUE 6. Assets are equal to liabilities plus owner’s equity

TRUE 7. Assets are property or economic resources that are expected to provide a future
benefit to a business.

FALSE 8. Credits increase asset and expense accounts

ANS: DEBIT increase asset and expense accounts

FALSE 9. An investment by the owner to his/her business will decrease owner’s capital

ANS: increase owner’s capital

FALSE 10. Income/Fees earned are classified as an asset account.

ANS: OWNER’S EQUITY ACCOUNT

FALSE 11. The profit or loss for a period is reported using a balance sheet

ANS: INCOME STATEMENT

FALSE 12. The cash account is increased with a credit

ANS: increased with debit

TRUE 13. Profit is determined by subtracting sales from the total expenses of the business

FALSE 14. When an equipment is bought, cash is debited in the journal entries.

Equipment 200,000
Cash 100,000
To record purchase of equipment

FALSE 15. Prepaid rent is a non-current asset.

ANS: CURRENT ASSET

TRUE 16. Normal balance means to increase the account.

FALSE 17. Accounts Receivable is a current liability

ANS: CURRENT ASSET

FALSE 18. Accounts payable, notes payable, taxes payable, and accounts receivable
are all types of liability accounts.

ANS: Accounts Receivable is a Current asset.

III: SCRAMBLED WORDS
Income Statement Balance Sheet
Cash Flows Statement Statement of Equity
Current Liability Headings

FILL IN THE BLANKS

1. The Income Statement reports activity over a period of time,

2. The Balance Sheet reports activity on a specific point in time.

3. Operating activities are reported on the Cash Flows Statement before financing activities.

4. The Statement of Equity shows the changes in equity during a period.

5. Accounts payable is reported as a Current Liability on the balance sheet.

6. All financial statements have Headings that display the company name, name of the report
and date of activity.

I. Identification
1. What is the name of the reference that indicates where an entry into the general ledger came
from?

ANS: POSTING REFERENCE/POST REFERENCE

2. This is the side of a T-Account where asset and expenses decrease

ANS: CREDIT SIDE/RIGHT SIDE

3. It is called the book of original entry

ANS: JOURNAL/GENERAL JOURNAL

4. It is called the book of final entry because this is where the transactions are being last
recorded

ANS: LEDGER/GENERAL LEDGER

5. The number assigned to an account title.

ANS: ACCOUNT NUMBER

6. Where can you find a list of accounts that should be listed in the general ledger?

ANS: CHART OF ACCOUNTS

7. A schedule that contains all accounts needed to prepare financial statements

ANS: GENERAL LEDGER

8. What do you mean by the abbreviation CR for Credit?

ANS: CREDITUM “SOMETHING ENTRUSTED TO ANOTHER OR A LOAN”

9. The general ledger is used to directly create which financial document?

ANS: BALANCE SHEET & INCOME STATEMENT

10. The procedure of transferring the entries form general journal to the general ledger.

ANS: POSTING

A. FILL IN THE BLANKS

1. The ledger accounts begin after JOURNALIZING ENTRY

2. When the journalized entry recorded and maintains in a book it’s called LEDGER.

3. A journal entry is consists of the RECORD OF THE business transactions.

4. Double entry transactions must be AT LEAST TWO ACCOUNTS AS A debit and credit.

5. The accounts have AT LEAST TWO ACCOUNTS one is debit which is the left side of
accounts and another is credit which is the right side of accounts.

6. Differences between the two sides are represented a BALANCE

7. The BOOKKEEPING method is mostly used in practical life.

8. DOUBLE ENTRY bookkeeping method that means every transaction makes at least two
ledger accounts.

9. At the end, the closing balance forwarded next year as a BEGINNING balance.

10. Debit entry is posted on the LEFT side.

B. IDENTIFICATION
1. NOMINAL 4. REAL

2. NOMINAL 5. REAL

3. REAL 6. NOMINAL