ACCT 1A&B: Fundamentals of Accounting

BCSV
Fundamentals of Accounting Part I
Recognition Principles
I.
Multiple Choice
Choose the letter of the best answer.
1. The elements directly related to the measurement of financial performance are
A. Assets, liabilities, equity, income and expenses
B. Assets, liabilities, equity
C. Income and expenses
D. Liquidity
2. The elements directly related to the measurement of financial position are
A. Assets, liabilities, equity, income and expenses
B. Assets, liabilities, equity
C. Income and expenses
D. Liquidity
3. These are resources controlled by the entity as a result of past transactions or events
and from which future economic benefits are expected to flow to the entity.
A. Assets
B. Liabilities
C. Equity
D. Income
4. These are present obligations of an entity arising from past transactions or events the
settlement of which is expected to result in an outflow from the entity of resources
embodying economic benefits.
A. Assets
B. Liabilities
C. Equity
D. Income
5. It is the residual interest in the assets of the entity after deducting all of its liabilities.
A. Assets
B. Liabilities
C. Equity
D. Income
6. It is a decrease in economic benefit during the accounting period related to a
decrease in asset or an increase in liability that results in decrease in equity other
than distribution to owners.
A. Asset
B. Liability
C. Income
D. Expense
7. It is an increase in economic benefit during the accounting period related to an
increase in asset or a decrease in liability that results in increase in equity other than
contribution from owners.
A. Asset
B. Liability
C. Income
D. Expense

Page 1 of 7

ACCT 1A&B: Fundamentals of Accounting

BCSV
8. Which of the following statements is incorrect concerning assets?
A. Physical form is not essential to the existence of an asset.
B. In determining existence of an asset, the right of ownership is essential.
C. An asset results from past event.
D. There is a close association between incurring an expenditure and generating
asset but the two do not necessarily coincide.
9. This arises in the course of ordinary regular activities of the entity and is referred to
by a variety of different names including sales, fees, interest, dividends, royalties and
rent.
A. Income
B. Revenue
C. Profit
D. Gain
10. Which of the following statements in relation to income is true?
A. Income encompasses both revenue and gain.
B. Revenue encompasses both income and gain.
C. Gain encompasses both income and revenue.
D. Income encompasses revenue only.
11. It is the process of incorporating in the statement of financial position or statement of
comprehensive income an item that meets the definition of an element of the
financial statements.
A. Recognition
B. Measurement
C. Realization
D. Allocation
12. An item that meets the definition of an element shall be recognized when
I.
It is probable that future economic benefits associated with the item
will flow to or from the entity
II.
The item has a cost or value that can be measured with reliability.
A.
B.
C.
D.
13. An
A.
B.
C.
D.

I only
II only
Either I or II
Both I and II
asset is recognized when
It is probable that future economic benefit will flow to the entity.
The cost or value of the asset can be measured reliably.
The entity obtains control of the rights associated with the asset.
It is probable that future economic benefit will flow to the entity and the cost or
value of the asset can be measured reliably

14. An income is recognized when

A. It is probable that future economic benefit will flow to the entity and the economic
benefit can be measured reliably.
B. It is possible that future economic benefit will to the entity and the economic
benefit can be measured reliably.
C. The entity obtains control of the future economic benefit.
D. The future economic benefit can be measured reliably.

Page 2 of 7

ACCT 1A&B: Fundamentals of Accounting

BCSV
15. It is the process that involves the simultaneous or combined recognition of revenue
and expenses that result directly from the same transactions and other events.
A. Matching cost with revenue
B. Matching of revenue with cost
C. Systematic and rational allocation
D. Immediate recognition
16. When economic benefits are expected to arise over several accounting periods and
the association with income can only be broadly or indirectly determined, expenses
are recognized on the basis of
A. Strict matching
B. Systematic and rational allocation
C. Immediate recognition
D. Realization
17. Which of the following measurement attributes is not currently used in practice?
A. Present value
B. Net realizable value
C. Current replacement cost
D. Inflation-adjusted cost
18. It is the amount of cash or cash equivalent that would have to be paid if the same or
an equivalent asset was acquired currently.
A. Historical cost
B. Current cost
C. Realizable value
D. Present value
19. It is the amount of cash that could currently be obtained by selling the asset in an
orderly disposal.
A. Realizable value
B. Fair value
C. Market value
D. Present value
20. Which of the following statements is not consistent with GAAP in relation to asset
valuation?
A. Assets are originally recorded at cost.
B. Accountants assume that assets such as supplies, buildings and equipment will
be used in the business operations rather than sold.
C. Subtracting total liabilities from total assets results in the current market value of
an entity.
D. Accountants base asset valuation upon objective and verifiable evidence rather
than on personal opinion.
21. Which of the following best describes the conditions that must be present for the
recognition of revenue?
a. The revenue must be earned, measureable, and collected.
b. The revenue must be earned, measurable, and collectible.
c. The revenue must be earned and collectible.
d. The revenue must be measurable and collectible.
22. Depending on the nature of the entity, revenue may be recognized based on different
acceptable criteria. Which of the following is not an accepted basis for recognition of
revenue?

Page 3 of 7

ACCT 1A&B: Fundamentals of Accounting

BCSV
A.
B.
C.
D.

Passage of time
Performance of service
Completion of percentage of a project
Upon signing of contract

23. Revenue from an artistic performance is recognized once

A. The audience register for the event online.
B. The tickets for the concert are sold.
C. Cash has been received from the ticket sales.
D. The event takes place.
24. A wholesale bakery would normally recognize revenue when
A. The product is available for sale to a customer
B. Cash is received from the customer
C. Goods are delivered to the customer
D. Management chooses to do so
25. The term revenue recognition conventionally refers to
A. The process of identifying transactions to be recorded as revenue in an
accounting period.
B. The process of measuring and relating revenue and expenses of an entity for an
accounting period.
C. The earning process which gives rise to revenue realization.
D. The process of identifying those transactions that result in an inflow of assets
from customers.
26. Which of the following means the process of converting noncash resources and rights
into cash or claims to cash?
A. Allocation
B. Collection
C. Recognition
D. Realization
27. The term recognized is synonymous with the term
A. recorded
B. realized
C. matched
D. allocated
28. According to the Conceptual Framework, an entitys revenue may result from
A. A decrease in an asset from primary operations
B. An increase in an asset from incidental transactions.
C. An increase in a liability from incidental transactions.
D. A decrease in a liability from primary operations.
29. Which accounting principle is being observed when an accountant charges to
expense a cost that contributed to revenue during a period?
A. Revenue realization
B. Matching
C. Monetary unit
D. Conservatism
30. The primary distinction between revenue and gain is
A. The materiality of the amount
B. The likelihood that the transaction will recur in the future

Page 4 of 7

ACCT 1A&B: Fundamentals of Accounting

BCSV
C. The nature of the activity that gives rise to the transaction
D. The cost versus the benefit of the alternative method of disclosing the transaction
II. True or False
Write A if the statement is true otherwise, Write B.
1. Admission fees for a musical concert are recognized when received regardless of
when the event takes place.
2. Gains on assets unsold are identified in a precise sense by the term unrecognized.
3. Summarization is a theoretical basis for the allocation of expense.
4. An outflow of assets from an entity based on an activity that represents the entitys
major operations is called expense.
5. Under the Conceptual Framework, the term income is synonymous to
comprehensive income.
6. Revenues are inflows or other enhancements of assets or settlements of liabilities
from major operations.
7. Gains are inflows or other enhancements of assets or settlements of liabilities from
major operations.
8. Recognition means the process of reporting an asset, liability, income or expense on
the face of the financial statements of an entity.
9. The elements directly related to the measurement of financial performance are
income and expenses.
10. The elements of financial statements refer to the quantitative information shown in
the statement of financial position and statement of comprehensive income.
11. The cost principle does not require that assets be recorded initially at acquisition
cost.
12. Financial statements shall be based on historical cost rather than market value.
13. A liability is recognized in the statement of financial position when it is probable that
an outflow of resources embodying economic benefits will be required for the
settlement of a present obligation and the amount of the obligation can be measured
precisely.
14. Gain represents an item that meets the definition of income and does not arise in the
course of ordinary activities.
15. Expenses are recognized in the income statement when it is probable that a decrease
in future economic benefits related to a decrease in an asset or an increase in liability
has occurred and the decrease in economic benefits can be measured reliably.
You can never cross the ocean until you have the courage to lose sight of
the shore.
~ Christopher Columbus

Page 5 of 7

ACCT 1A&B: Fundamentals of Accounting

BCSV

SUGGESTED KEY
Multiple choice

True or false

1.
2.
3.
4.
5.
6.
7.
8.
9.
10

C
B
A
B
C
D
C
B
B
A

1.
2.
3.
4.
5.
6.
7.
8.
9.
1

B
B
A
A
B
A
B
A
A
A

.
11

0.
1

.
12

1.
1

.
13

2.
1

.
14

3.
1

.
15

4.
1

.
16

.
17

.
18

.
19

.
20

.
21

.
22

.
23

5.

Page 6 of 7

ACCT 1A&B: Fundamentals of Accounting

BCSV
.
24

.
25

.
26

.
27

.
28

.
29

.
30

Page 7 of 7