Exam Prep: Prelims & Finals

What the Prelim Actually Covers

Your prelim exam is built from the first three units of this subject — nothing beyond them:

Unit III carries the most weight because it contains everything computable — and professors love computation items.

Question Types to Expect

• Multiple choice — mostly Unit I and II theory: match the definition to the body, match the scenario to the GAAP principle.
• True or false — statements with one twisted word ("conservatism anticipates gains" — false, it anticipates losses).
• Classification — given an account, name its element (Asset / Liability / Owner's Equity) and its normal balance.
• Equation computations — solve for the missing element of A = L + OE, or compute ending capital from investments, revenues, expenses, and drawings.

Your Exact Memorize List

1. The accounting equation and its variants. Assets = Liabilities + Owner's Equity, and the rearranged form Assets − Liabilities = Owner's Equity. Remember: in liquidation, creditors are paid before owners.
2. The 10 GAAP principles — economic entity, monetary unit, time period, cost, full disclosure, going concern, matching, revenue recognition, materiality, conservatism. Know each by its one-line trigger scenario.
3. Normal balances. Assets — Debit. Liabilities — Credit. Owner's Capital — Credit. Revenues — Credit (they increase equity). Expenses — Debit (they decrease equity). Owner's Drawing — Debit (it decreases equity).
4. Account classifications — which side of the equation each common account (Cash, Accounts Receivable, Supplies, Accounts Payable, Service Revenue, Owner's Drawing) sits on.
5. The four equity drivers — owner investments (+), revenues (+), expenses (−), drawings (−).
6. Business organization facts — DTI registration for sole proprietorships, SEC registration for partnerships with capital above ₱3,000, limited vs. general partner liability, stock vs. non-stock vs. One Person Corporation.

Top Mistakes That Cost Prelim Points

1. Treating "debit" as "increase" for every account. Debit increases assets, expenses, and drawings — but decreases liabilities, capital, and revenues.
2. Confusing revenue with cash receipts. Revenue is recognized when the service is performed, not when cash arrives. Collecting a receivable is not new revenue.
3. Calling owner's drawings an expense. Drawings reduce equity but are personal extractions, not costs of generating revenue.
4. Mixing the owner's personal finances into the business — the economic entity assumption makes them two separate entities for recording purposes, even in a sole proprietorship.
5. Forgetting that some transactions change only one side of the equation. Buying supplies with cash swaps one asset for another; totals stay the same.

7-Day Study Plan

Instructions

Fifteen items covering Units I–III. Answer everything before scrolling to the key. Target: 20 minutes, no notes.

Part 1 — Multiple Choice

1. Which body defines accounting as "the art of recording, classifying, and summarizing financial transactions and events in monetary terms, followed by interpretation of the results"? a) American Accounting Association b) AICPA c) Accounting Standards Council d) IASB
2. The first formal published description of double-entry bookkeeping appeared in 1494 in a treatise written by: a) An IASB committee b) Roman treasury clerks c) Fra Luca Pacioli d) The AICPA
3. Which branch of accounting is not bound by strict GAAP enforcement because its reports serve internal managers only? a) Financial accounting b) Auditing c) Managerial accounting d) Tax accounting
4. A company records its delivery van at the ₱850,000 it paid three years ago, even though its market value has changed. Which principle applies? a) Cost principle b) Materiality c) Conservatism d) Going concern
5. A partnership whose capital is ₱50,000 must register with the: a) DTI b) SEC c) BSP d) Board of Accountancy

Part 2 — True or False

1. Under the monetary unit assumption, peso amounts from different years are combined assuming a constant unit of purchasing power.
2. A limited partner in a limited partnership is liable for partnership debts beyond their capital contribution.
3. A merchandising business changes the physical form of the goods it sells.
4. Revenues have a normal credit balance because they increase owner's equity.

Part 3 — Classification

For items 10–11, state the element (Asset, Liability, or Owner's Equity effect) and the normal balance.

1. Accounts Receivable
2. Owner's Drawing

Part 4 — Equation Computations

1. Total liabilities are ₱180,000 and owner's equity is ₱420,000. Compute total assets.
2. Total assets are ₱750,000 and owner's equity is ₱480,000. Compute total liabilities.
3. Total assets are ₱240,000 and liabilities equal one-fourth of total assets. Compute owner's equity.
4. An owner invested ₱500,000 to start a service business. During the period the business earned ₱200,000 in revenues, incurred ₱120,000 in expenses, and the owner withdrew ₱30,000. Compute ending capital.

Answer Key

Scored 12/15 or better? You are ready for the full-length mocks. The complete prelim and final mock exams below come with the subject unlock.