CFAS Accounting Concepts PDF

Accounting has been given various definitions, which of the following is not one of those definitions? a\. Accounting is a service activity. Its function is to provide quantitative information, primarily financial in nature, about economic entities that is intended to be useful in making economic d...

Accounting has been given various definitions, which of the following is not one of those definitions? a\. Accounting is a service activity. Its function is to provide quantitative information, primarily financial in nature, about economic entities that is intended to be useful in making economic decisions. b\. Accounting is the art of recording, classifying, and summarizing in a significant manner and in terms of money, transactions and events which are, in part of at least, of a financial character and interpreting the results thereof. ANSWER: c. Accounting is a systematic process of objectively obtaining and evaluating evidence regarding assertions about economic actions and events to ascertain the degree of correspondence between these assertions and established criteria and communicating the results to interested users. d\. Accounting is the process of identifying, measuring, and communicating economic information to permit informed judgment and decisions by users of information. 2. Which of the following statements is true? ANSWER: a. The basic purpose of accounting is to provide information about economic activities intended to be useful in making economic decisions. b\. All events and transactions of an entity are recognized in the books of accounts. C. General purpose financial statements are those statements that cater to the common and specific needs of a wide range of external users. d\. The accounting process of assigning numbers, commonly in monetary terms, to the economic transactions and events is referred to as classifying. 3. The accounting standards used in the Philippines are adapted from the standards issued by the A. Federal Accounting Standards Board (FASB) ANSWER: B. International Accounting Standards Board (IASB) C. Philippine Institute of Certified Public Accountants (PICPA). d\. Democratic People\'s Republic of Korea Accounting Standards Committee (DPKRASC) 4. Which of the following statements is incorrect regarding the basic accounting concepts? ANSWER: a. The time period concept means that financial statements are prepared only at the end of the life of a business b\. Under the consistency concept, the financial statements should be prepared on the basis of accounting principles which are followed consistently. C. Under the entity theory, the business is viewed as a separate entity. Therefore, the personal transactions of the business owners are not recorded in the business\' accounting records. D. One of ABC Co.\'s delivery trucks was involved in an accident. Although no lawsuits have yet been filed against ABC, ABC recognized a liability for the probable loss on the event. This is an application of the prudence or conservatism concept. 5. It is the branch of accounting that focuses on the preparation of general purpose financial statements. ANSWER: A. Financial accounting b\. General Accounting c\. All-purpose Accounting d\. All-around accounting 6. These are events that do not involve an external party. a\. external events b\. nonreciprocal events ANSWER: C. internal events D. special event 7. Entity A computes for its profit or loss periodically instead of waiting until the end of the life of the business before doing so. This is an application of which of the following accounting concepts? a\. historical cost b\. stable monetary unit c\. accrual basis ANSWER: D. time period or reporting period 8. This refers to the use of caution in the exercise of judgments needed in making estimates required under conditions of uncertainty, such that asseis on income are no overstated and liabilities or expenses are not understated. a\. faithful representation ANSWER: B. prudence c\. consistency d\. relevance 9. This concept defines the area of interest of the accountant. It determines which transactions are recognized in the books of accounts and which are not. a\. Articulation b\. Matching ANSWER: C. Separate entity d\. Full disclosure 10. A CPA employed as an accountant in a government agency is considered to be in ANSWER: A. private practice. B. public practice. C. academe. d\. service. 11. Which of the following statements is correct? I. Accounting provides qualitative information, financial information, and quantitative information. II\. Qualitative information is found in the notes to the financial statements only. III\. Accounting is considered an art because it is supported by an organized body of knowledge IV\. Accounting is considered a science because it involves the exercise of skill and judgment. V. Measurement is the process of assigning numbers to objects such inventories or plant assets and to events such as purchases or sales. VI\. All quantitative information is also financial in nature. VII\. The accounting process of assigning peso amounts or numbers to relevant objects and events is called identification. ANSWER: a. I and V b\. I, II, VI and V C. I, II, III, IV and V d\. II, VI and V 12. The process of identifying measuring analyzing and communicating financial information needed by management to plan, evaluate, and control an organization\'s operations is called A. financial accounting. B. tax accounting. ANSWER: C. managerial accounting. d\. auditing. 13. It is the official accounting standard setting body in the Philippines. It is composed of a chairperson and 14 members. a\. Financial Reporting Standards Committee (FRSC) ANSWER: b. Financial Reporting Standards Council (FRSC) c\. Accounting Standards Committee (ASC) d\. Accounting Standards Council (ASC) 14. Accounting is often called the \"language of business\" because a\. it is easy to understand. ANSWER: B. it is fundamental to the communication of financial information. c\. all business owners have a good understanding of accounting principles. d\. accountants in many companies share financial information. 15. All of the following statements incorrectly refer to the concepts in the Conceptual Framework except a\. The Conceptual Framework is concerned with all-purpose financial statements. B. Financial statements are prepared and presented at least annually and are directed toward both the common and specific information needs of a wide range of users. ANSWER: C. The objective of general purpose financial statements is similar to the objective of general purpose financial reporting. d\. The financial statements prepared by a reporting entity comprising a parent and its subsidiaries are referred to as \'combined financial statements\'. 16. What is the authoritative status of the Conceptual Framework? a\. It has the highest level of authority. In case of a conflict between the Conceptual Framework and a Standard, the Conceptual Framework overrides that Standard. B. If there is a Standard that specifically applies to a transaction, that Standard overrides the Conceptual Framework. In the absence of such a Standard, the requirement of the Conceptual Framework should be followed. ANSWER: C. If there is a Standard that applies to a transaction, that Standard overrides the Conceptual Framework. In the absence of such a Standard, the entity\'s management should consider the applicability of the Conceptual Framework in developing and applying an accounting policy that will result in useful information. d\. The Conceptual Framework applies only to the IASB when developing or amending Standards. A reporting entity should never use the Conceptual Framework. 17. The foundation of the Conceptual Framework is formed from a\. the qualitative characteristics that makes information useful to users. ANSWER: B. the objective of general purpose financial reporting. C. the concept of reporting entity. d\. the principles and objectives of presentation and disclosure of financial information. 18. What is the objective of general purpose financial statements according to the Conceptual Framework? ANSWER: A. To provide information about the financial position, financial performance, and changes in financial position of an entity that is useful to primary users in making economic decisions. b\. To prepare and present a balance sheet, an income statement, a cash flow statement, and a statement of changes in equity. C. To prepare and present comparable, relevant, reliable, and understandable information for investors and creditors. d\. To prepare financial statements in accordance with all applicable Standards and Interpretations. 19. The primary users of financial statements under the Conceptual Framework include I. Existing and potential investors II\. Employees III\. Lenders and other creditors IV\. Suppliers and other trade creditors V. Customers VI\. Governments and their agencies VII\. Public VIII\. Professional accountants, including auditors ANSWER: A. I and II B. I, II, III, IV, V, VI, VII c\. I, II, III, IV, V, VI D. all of these 20. The Conceptual Framework broadly classifies the qualitative characteristics into A. primary and secondary qualitative characteristics. b\. major and minor qualitative characteristics. ANSWER: C. fundamental and enhancing qualitative characteristics. d\. cold and hot qualitative characteristics. 21. Identify the fundamental qualitative characteristics under the Conceptual Framework. I. Relevance II. Reliability III. Faithful representation IV. Comparability V. Verifiability VI. Timeliness VII. Understandability a\. I and II ANSWER: b. I and III c\. I, II, III, IV, V and VI d\. IV, V, VI and VII 22. Identify the qualitative characteristics that enhance the usefulness of financial information. I. Relevance II. Reliability III. Faithful representation IV. Comparability V. Verifiability VI. Timeliness VII. Understandability a\. I and II b\. I and III C. II, III, IV, V and VII ANSWER: D. IV, V, VI and VII 23. Which of the following are considered aspects of the qualitative characteristic of relevance under the Conceptual Framework? I. Predictive value II. Confirmatory value III. Timeliness IV. Materiality ANSWER: A. I and II B. I, II, and III C. I, II and IV d\. I, II, III and IV 24. Under this qualitative characteristic, users are assumed to have a reasonable knowledge of business activities and willingness to study the information with reasonable diligence. a\. Relevance b\. Faithful representation ANSWER: C. Understandability d\. Comparability 25. Which of the following statements is incorrect concerning materiality? ANSWER: A. Materiality is a quantitative matter. It should never be assessed qualitatively. b\. There are no specific materiality thresholds provided under the PFRSS c\. Materiality is a matter of judgment d\. Materiality can be assessed quantitatively or qualitatively 26. Which of the following may result to an expense? a\. Increase in asset B. Decrease in liability ANSWER: C. Increase in liability d\. Distribution to holders of equity claims 27. Entity A is making a materiality judgment. Entity A considers an item to be material, and therefore included in the financial statements, if it pertains to a related party transaction. What type of materiality assessment is Entity A using? a\. Quantitative ANSWER: b. Qualitative C. Faithful representation D. Relevance 28. Which of the following events is considered as an internal event? a\. sale of inventory on account b\. provision of capital by owners c\. borrowing of money ANSWER: D. conversion of raw materials into finished goods 29. All of the following events is considered as an external event, EXCEPT? ANSWER: A. production b\. payment of taxes c\. gifts and charitable contributions d\. provision of capital by owners