Exam 4: Completing the Accounting Cycle

After posting the entries to close all revenue and expense accounts, Hatfield Company's Income Summary account has a credit balance of $6,000, and its Hatfield, Withdrawals account has a debit balance of $2,500. These balances indicate that net income for the current accounting period amounted to $3,500.

All of the following regarding current ratio are true except:

Employees of Artworld Co. have earned but have not been paid $3,500 in salaries for the last week of the current calendar year. (a) Prepare the necessary adjusting journal entry(ies) for Artworld at December 31 of the current year. (b) Assuming that Artworld makes reversing entries, prepare the necessary reversing entry. Include the appropriate date for the reversing entry(ies).

Income Summary is a temporary account only used for the closing process.

Explain the purpose of reversing entries.

The work sheet is a required report.

Which of the following is the usual final step in the accounting cycle?

Dina Kader withdrew a total of $35,000 from her business during the current year. The entry needed to close the withdrawals account is:

The following information has been gathered for Stylish Co. to assist in preparing its year-end adjusting entries at December 31: (a) The company has earned $2,500 of rental revenue that has not yet been received or recorded. (b) Stylish has recorded $3,200 of unearned service fees. At year-end, $1,500 of this amount has been earned. (c) Depreciation on equipment for the year is $7,800. (d) Employees have earned but have not yet been paid $2,750 in salaries. Identify which of the above accounting adjustment would be reversed assuming Stylish Co. uses reversing entries.

Adjusting entries are normally entered in the general journal before they are posted to the work sheet.

On the work sheet, net income is entered in the Income Statement Credit column as well as the Balance Sheet or Statement of Owner's Equity Debit column.

Closing revenue and expense accounts at the end of the accounting period serves to make the revenue and expense accounts ready for use in the next period.

Revenue and expense accounts are permanent (real) accounts and should not be closed at the end of the accounting period.

The special account used only in the closing process to temporarily hold the amounts of revenues and expenses before the net difference is added to (or subtracted from) the owner's capital account is the:

A company's post-closing trial balance has a debit total of $475,000 and a credit total of $457,000. This indicates that _________________________.

An unclassified balance sheet provides more information to users than a classified balance sheet.

On a work sheet, the adjusted balances of revenues and expenses are sorted to the Income Statement columns of the work sheet.

The last four steps in the accounting cycle include preparing the adjusted trial balance, preparing financial statements and recording closing and adjusting entries.

Harry's Bikes' current ratio is 1.3. The industry average for the current ratio is 1.2. This indicates that Harry's Bikes can cover its short term liabilities with its short term assets.

Reversing entries: