Basic Accounting Qualifying Exam (True or False)

Answer if the given statement is TRUE or FALSE. If false, explain what make it false.

Owners of the business firms are the only people who need accounting information.

Owners of the business firms are the only people who need accounting information.

FALSE

(Owners are not the only user of the accounting information.)

Transactions that can be measured in pesos and cents are recorded in financial information system

TRUE

The hiring of new company president is an economic event recorded by the financial information system.

FALSE

(hiring of new company president cannot be expressed in unit of measure thus it is considered as a non accountable event.

Management of a business enterprise is a major external user of information.

FALSE

(management is an internal user of accounting information.)

Accounting communicates financial information about a business enterprise to both internal and external users.

TRUE

Accounting information is used only by the external users with a financial interest in a business enterprise.

FALSE

(Accounting information is used by both internal and external users with financial interest in the business.)

Financial statements are the major means of communicating accounting information to interested parties.

TRUE

Bookkeeping and accounting are one and the same because the bookkeeping function includes the accounting process.

FALSE

(Bookkeeping and Accounting are not one and the same. Accounting is broader compare to bookkeeping and includes creating financial statements, taxation, and auditing.

The origins of accounting are attributed to Luca Pacioli, a famous mathematician.

TRUE

(Luca Pacioli introduces the double entry system which is the basis of the modern accounting.)

The study of accounting will be useful only if a student is interested in working for a profit-oriented business firm.

FALSE

(Accounting can be practice in non-profit organizations.)

Private accountants are accountants who are not employees of business enterprises.

FALSE

(Its public accountants.)

The study of accounting is not useful for a business career unless your career objective is to become an accountant.

FALSE

(studying accounting is useful even if you are not an accountant.)

A working knowledge of accounting is not relevant to a lawyer or an architect.

FALSE

(Accountant can be useful in manage cost related transactions of a lawyer and an architect.)

Expressing an opinion as to the fairness of the information presented in financial statements is a service performed by CPAs.

TRUE

Accountants rely on a fundamental business concept—ethical behavior—in reporting financial information.

TRUE

The primary accounting standard-setting body in the United States is the International Accounting Standards board.

FALSE

(The primary accounting setting body in the U.S. is the Financial Accounting Standards Board or FASB)

The Financial Accounting Standards Board is part of Securities and Exchange Commission.

FALSE

(FASB is not part of SEC.)

The Securities and Exchange Commission overseas U.S. financial markets and accounting standards-setting bodies.

TRUE

The cost and fair market value of an asset are the same at the time of acquisition and in subsequent periods.

FALSE
(While it is possible for a cost and fair market value to remain the same, it is not the mostly the case. The fair market value of an asset can go up or down from its purchase price or cost.)

Even though partnership is not a separate legal entity, for accounting purposes the partnership affairs should be kept separate from personal activities of the owners.

TRUE

A partnership must have more than one owner.

TRUE

The entity concept assumption states that the activities of an entity be kept separate and distinct from the activities of its owner and all other economic entities.

TRUE

The monetary unit assumption states that the transaction that can be measured in terms of money should be recorded in the accounting records.

TRUE

In order to possess future service potential, an asset must have physical substance.

FALSE

(An asset doesn’t need to have a physical substance to provide economic benefits. Some example are the patents and copyrights.)

Owners’ claims to total business assets take precedence over the claims of creditors because owners invest assets in the business and are liable for losses.

FALSE

(Creditors have a higher priority claim over the owners.)

The basic accounting equation states that Asset=Liabilities.

FALSE
(The basic accounting equation is Asset = Liabilities + Equity.)

Accountants record both internal and external transactions

TRUE

Internal transactions do not affect basic accounting equation because they are economic events that occur entirely within one company.

FALSE

(Even though they occur entirely within one company they do have an effect on the accounting equation. e.g. company paying its employees.)

The purchase of store equipment for cash reduces owner’s equity by an equal amount.

FALSE
(The purchase of store equipment for cash reduces ASSET(Cash) and Increases ASSET(Store equipment)

The purchase of office equipment on credit increases total assets and total liabilities.

TRUE

The primary purpose of the statement of cash flows is to provide information about the cash receipts and cash payments of a company during a period.

TRUE

Net income for the period is determined by subtracting total expenses and drawings from total revenues.

FALSE

(Drawings are not included in finding the Net Income.)

Identifying is the process of keeping a chronological diary of events measured in dollars and cents.

FALSE
(It is journalizing)

Management consulting includes examining financial statements of companies and expressing an opinion as to the fairness of their presentation.

FALSE
(It is auditing.)

Accountants do not have to worry about issues of ethics.

FALSE

(Ethics is important in practicing accountancy.)

At the time an asset is acquired, cost and value should be the same.

TRUE

The monetary unit assumption requires that all dollar amount be rounded to the nearest.

FALSE

(Rounding to the nearest is not an aspect of monetary unit assumption.)

The basic accounting equation is balance when the creditor and ownership claims against the business equal the assets.

TRUE

External transaction involve economic events between the company and some other enterprise or party.

TRUE

In the owner’s equity statement, revenues are listed first, followed by expense and net income (or net loss)

FALSE
(It is listed as beginning equity, net income or lost, additional investments, followed by drawings, and total equity on last.)