This document contains 46 multiple choice questions testing accounting concepts and principles from the conceptual framework. The questions cover topics such as the essential characteristics of accounting information, accounting concepts like relevance and reliability, the definition of key terms like assets and liabilities, accounting methods including accrual accounting, and general features of financial statement presentation.

1. 1. The conceptual framework of accounting sets out certain essential characteristics of accounting
information. Which of the following is not an essential characteristic?
a. Comparability
b. Profit-oriented
c. Understandability
d. Reliability
2. It is the capacity of information to make a difference in decision by helping users evaluate past,
present or future events, or conforming, or correcting, their past evaluations
a. Relevance
b. Comparability
c. Understandability
d. Reliability
3. Those who lend money or deliver goods and services before being paid are called
a. Creditors
b. Investors
c. Underwriters
d. Debtors
4. In the event of conflict between the economic substance of a transaction and its legal form, the
economic substance shall prevail. This concept is known as
a. Faithful representation
b. Form over substance
c. Substance over form
d. Completeness
5. It is the exercise of car and caution in dealing with uncertainties in measurement so as not to
overstate assets and income and not understate liabilities and expenses.
a. Neutrality
b. Prudence
c. Completeness
d. Faithful representation
6. Financial reports communicated after an accounting decision has been made defeat the primary
purpose of which characteristics?
a. Timeliness
b. Materiality
c. Adequate disclosure
d. Conservatism
7. It is the result of the standard of adequate disclosure
a. Neutrality
b. Faithful representation
c. Completeness
d. Substance over form
8. This accounting concept justifies the usage of accruals and deferrals
a. Materiality
b. Consistency
c. Stable monetary unit

2. d. Going concern
9. The financial information must be comprehensive or intelligible if it is to be useful.
a. Comparability
b. Reliability
c. Understandability
d. relevance
10. The effect of transactions and other events are recognized when they occur and not as cash or its
equivalent is received or paid, and they are recorded and reported in the financial statements of
the periods to which they relate.
a. time period
b. Going concern
c. Accrual
d. Monetary unit
11. Which of the following will not enhance the reliability of financial information?
a. faithful representation
b. Prudence
c. Completeness
d. Understandability
12. The effect of the prudence concept is that
a. Similar items should be treated in as consistent way from one accounting period to the next.
b. Losses should be provided for as soon as they are foreseen and profit should not be recorded
prematurely.
c. Profit is the difference between revenues and expenses rather than the differences between
receipts and payments.
d. None of the above
13. According to the conceptual framework, the usefulness of providing information in financial
statements is subject to the constraint of
a. Consistency
b. Materiality
c. Timeliness
d. Representational faithfulness
14. Which users need financial information to enable them to determine whether their loans and the
related interest will be paid when due?
a. Lenders
b. Customers
c. Investors
d. Suppliers
15. It is the quality of the information that assures readers that the information is free from bias or
error and faithfully represents what it purports to show.
a. Relevance
b. Comparability
c. Reliability
d. Understandability

3. 16. If a business is not being sold or closed, the amounts reported in the accounts for assets used in
the business operations are based on the cost of the assets used in the business operations are
based on the cost of the assets. This practice is justified by
a. Going concern
b. Time period
c. Accounting entity
d. Accrual
17. The underlying assumption which suggest the continuation of an accounting entity in the absence
of evidence to the contrary is
a. Consistency
b. Conservatism
c. Completeness
d. Neutrality
18. The attributes of relevance include all except
a. Neutrality
b. Feedback value
c. Materiality
d. Predictive value
19. Which of the following statements is correct?
a. Expenses are matched with revenues, not the reverse
b. In accordance with the going concern assumption, the life of a business is presumes to be
indefinite.
c. The accrual method, which builds directly on the revenues and matching principles, ignores the
timing of cash receipts or payments when determining when to recognize revenue or expenses
d. All of the above
20. The financial accounting information is directed toward the common needs of users and is
independent of presumptions about particular needs and desires of specific users.
a. Neutrality
b. Relevance
c. Completeness
d. Verifiability
21. It is the ability to bring together for the purpose of noting similarities and dissimilarities
a. Understandability
b. Relevance
c. Reliability
d. Comparability
22. This refers to the process of incorporating in the statement of financial position statement of
comprehensive income an item that meets the definition of a financial statement element and is
expected to result in useful information.
a. Definition
b. Incorporation
c. Celebration
d. Recognition

4. 23. Information about an entity’s financial position and changes in financial position is referred to
under the conceptual framework as the
a. Economic sabotage
b. Phantom of the opera
c. Economic phenomenon
d. Foundation of the conceptual framework
24. According to the conceptual framework contributions from, And distributions to, holders of equity
claims(i.e., the entity’s owners) are
a. not income and expenses, but rather direct adjustments to equity
b. Not recognized in the financial statements
c. Income and expenses, respectively, that are recognized in other comprehensive income
d. Income and expenses, respectively
25. Which of the following could result to the recognition of income?
a. Increase in liability
b. Decrease in liability
c. Decrease in equity
d. Decrease in asset
26. According to the conceptual framework, it is the right or the group of rights, the obligation or the
group of obligations, or the group of rights and obligations, to which recognition criteria and
measurement concepts are applied
a. Classifying
b. Aggregation
c. Executory contract
d. Unit of account
27. Entity A combines similar items and separates dissimilar items when presenting information.
Entity A is applying which of the following presentation and disclosure principles?
a. Classifying
b. Aggregates
c. Offsetting
d. Use of entity specific information, rather than ‘boiler plate’ descriptions
28. According to the conceptual Framework, this principle refers to presenting information in a
concise manner by summarizing voluminous data, but not too concise that important detail is
either omitted or obscured
a. Aggregations
b. Offsetting
c. Classifying
d. Use of entity specific information, rather than ‘boiler plate’ descriptions
29. Which of the following is considered a primary user of general purpose financial reports under the
conceptual framework?
a. The entity’s management
b. Government regulatory body
c. Potential investor

5. d. All of these are primary users
30. Which of the following is not one of the aspects in the revised definition of a liability?
a. Transfer of an economic resource
b. Present obligation as a result of past events
c. Obligation
d. Probable outflows of economic benefits and reliable measurement of those outflows
31. The conceptual framework uses the term “economic resources” to refer to
a. Income
b. Assets
c. Equity
d. A and c
32. According to the conceptual framework, the historical cost of an asset or a liability is updated for
all of the following (*if applicable), except
a. Accrual of interest, when the time value of money is considered
b. Impairment of an asset
c. Changes in value as at the measurement date
d. Increase in an obligation relating to a contract becoming onerous.
33. The revised conceptual framework defines a liability as
a. A present obligation of the entity to transfer an economic resource as a result of past events
b. A present obligation of the entity arising from past events, the settlement of which is expected
to result in an outflow from the entity of resources embodying economic benefits
c. A present economic resource controlled by the entity as a result of past events. An economic
resource is a right that has the potential to produce economic benefits
d. All of these
34. Late information lacks this qualitative characteristic
a. Timeliness
b. Verifiability
c. Comparability
d. Tardiness
35. Which of the following is not included among the general features of financial statement
presentation?
a. Accrual basis
b. Frequency of reporting
c. Comparative information
d. Growing concern
36. A company is issuing its comparative financial statements for the years 20x2 and 20X3. If the
company is require to issue an additional statement of financial position, such statement should
be dated
a. As of Dec 31 20x2
b. As of Dec 31, 20x1
c. As of Jan 1 20x1
d. As of Jan 1 20x2
37. These are entries made at the end of each cut off in order to update the balances of the accounts

6. a. Adjusting entries
b. Closing entries
c. Correcting entries
d. Answer not given
38. An expense where the company has received the benefit but it is not yet paid
a. Accrued income
b. Prepaid income
c. Accrued expense
d. None of the above
39. The process of allocating the cost of the asset over its estimated useful life is called
a. Depreciation
b. Allocation
c. Provisioning
d. None of the above
40. The amount that can be recovered from an asset at the end of its useful life.
a. Salvage value
b. Cost
c. Netbook value
d. Answer not given
41. Expenses already paid but not yet consumed are called
a. Accrued revenue
b. Depreciation expense
c. Accrued expense
d. Prepaid expense
42. There are advance collections from the customers for which services has not yet been rendered
a. Prepaid expense
b. Accrued expense
c. Unearned revenue
d. Accrued revenue
43. Recognizing portion of receivables that are doubtful of collections
a. Depreciation
b. Accrued expense
c. Prepaid expense
d. Doubtful accounts
44. Prepayments can be recognized using
a. Asset and liability methods
b. Liability and income methods
c. Revenue and expense methods
d. Assets and expense methods
45. Unearned revenue can be recognized using
a. Asset and liability methods

7. b. Liability and income methods
c. Revenue and expense methods
d. Assets and expense methods
46. An adjusting entry affects
a. Only the statement of profit and loss
b. Only the balance sheet accounts
c. Only cash flow statement
d. Both balance sheet and income statement accounts
1 d
2 a
3 a
4 c
5 b
6 a
7 c

8. 8 b
9 c
10 c
11 d
12 b
13 c
14 a
15 c
16 a
17 a
18 b
19 d
20 d
21 d
22 d
23 c
24 a
25 b
26 d
27 a
28 a
29 c
30 d
31 b
32 c
33 a
34 a
35 d
36 c

9. 37 a
38 c
39 a
40 a
41 d
42 c
43 d
44 d
45 b
46 d