CA5101 – Financial Accounting and Reporting

When an entity uses property and equipment, the company is required to

• A. Create a liability account

• B. Reduce a related expense account

• C. Transfer an amount from one asset account to another.

• D. Allocate the cost of the asset to an expense account.

An adjusting entry to accrue salaries incurred but not yet paid is an example of

• A. Aligning recorded costs with appropriate accounting periods.

• B. Aligning recorded revenues with appropriate accounting periods.

• C. Reflecting unrecorded revenues earned during the accounting period.

• D. Reflecting unrecorded expenses incurred during the accounting period.

The principal difference between depreciation and most other types of expenses is that depreciation

• A. Is subject to more precise measurement.

• B. Can be avoided if the asset is in a good condition as when it was purchased.

• C. Is not deductible if it will cause a loss.

• D. Does not require an immediate cash outlay.

Entries required at the end of an accounting period to bring the accounts up to date and to ensure the proper matching of income and expenses are called

• A. Adjusting entries.

• B. prepaid expenses.

• C. Contra entries.

• D. Matching entries.

If ABC Company omitted an adjustment, which of the following would result to understatement of net income at the end of the accounting period?

• A. Omission of accrued expense

• B. Omission of depreciation expense

• C. Overstatement of a prepaid expense

• D. Overstatement of unearned revenue

From the view point of the firm receiving the cash, an item that represents services that have been paid for by the customer, but have not yet been provided to that customer by the firm which received the cash, is called

• A. Unearned revenue

• B. Prepaid expense

• C. Accrued expense

• D. Accrued revenue

If a P2,500 adjustment for depreciation is omitted, which of the following financial statement errors will occur?

• A. Expenses will be overstated

• B. Profit will be understated

• C. Owner’s equity will be overstated

• D. Assets will be understated

Failure to adjust for accrued salaries at the end of the period will result in an

• A. Overstatement of assets.

• B. Overstatement of profit for the period.

• C. Overstatement of liabilities.

• D. Understatement of profit for the period.

Adjusting entries involve

• A. Only real accounts.

• B. Only nominal accounts.

• C. Only capital accounts.

• D. At least one real and one nominal account.

The beginning balance of the Supplies account for ABC Company is P2,600. During the year, additional supplies were purchased for P8,700 and were recorded using asset method. At the end of the accounting period, a physical inventory count indicates P2,400 of supplies on hand. The adjusting entry on December 31 is:

• A. Debit – Supplies, P8,900; credit – Supplies expense, P8,700

• B. Debit – Supplies expense, P8,900; credit – Supplies, P8,900

• C. Debit - Supplies expense, P8,700; credit – Supplies, P8,700

• D. Debit – Supplies, P8,900; credit – Supplies expense, P8,900