Deck 4: Completing the Accounting Cycle and Classifying Accounts

Question 1

The work sheet is used to record transactions as they occur.

Answer 1

False

Question 2

Revenue accounts should begin each accounting period with zero balances.

Answer 2

True

Question 3

If all columns balance upon completion of a work sheet, you can be sure that no errors were made in preparing the work sheet.

Answer 3

False

Question 4

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

Question 5

A work sheet is a substitute for the financial statements.

Question 6

To prepare the income statement all necessary numbers can be found in the income statement columns of the work sheet, including the profit or loss.

Question 7

The closing process is a step in the accounting cycle that prepares accounts for the next accounting period.

Question 8

A work sheet can be prepared manually or with a computer spreadsheet program.

Question 9

On the work sheet, profit is entered in the Income Statement Credit column and in the Statement of Changes in Equity or Balance Sheet Debit column.

Question 10

If interim financial statements are required, adjusting entries must be journalized and posted to obtain the adjusted data needed for their preparation.

Question 11

Revenue and expense accounts are permanent accounts and should not be closed at the end of the fiscal period.

Question 12

Closing entries are normally entered in the General Journal and then recorded on the work sheet.

Question 13

Adjusting entries are normally entered in the General Journal before they are recorded on the work sheet.

Question 14

On the work sheet, a loss is indicated if the total of the Income Statement Debit column exceeds the total of the Income Statement Credit column.

Question 15

To prepare the balance sheet, all necessary numbers can be found in the balance sheet columns of the work sheet, including ending capital.

Question 16

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.

Question 17

Financial statements prepared from a work sheet offer more information than if it is not used and statements are just prepared from an adjusted trial balance.

Question 18

A work sheet is prepared before entering the adjustments in the accounts.

Question 19

Accounts that appear in the balance sheet are often called permanent or temporary accounts.

Question 20

A work sheet is a tool of the accountant for bringing together information needed in preparing the statements, adjusting the accounts, and preparing closing entries.

Question 21

The first step in the accounting cycle is to analyze and record transactions during the accounting period.

Question 22

Closing entries are designed to transfer the end-of-period balances in the revenue accounts, the expense accounts, and the withdrawals account to a balance sheet equity account.

Question 23

The closing process is a two-step process. First revenue, expense, and withdrawals are set to zero balance. Second, the process summarizes a period's assets and expenses.

Question 24

When expenses exceed revenues, there is a loss and the Income Summary account has a credit balance.

Question 25

In a sole proprietorship, the Income Summary account is closed to the capital account.

Question 26

The withdrawals account is normally closed by debiting it.

Question 27

Asset, liability and revenue accounts are not closed as long as a company continues in business.

Question 28

Income Summary is a temporary account.

Question 29

An expense account is normally closed by debiting Income Summary and crediting the expense account.

Question 30

Sharp's post-closing trial balance has debit totals of $40,350 and credit totals of $40,650. The next step is to review for errors in the closing process.

Question 31

Closing entries are needed at the end of the fiscal period to close all ledger accounts.

Question 32

The Income Summary account is a permanent account that will be carried forward year after year.

Question 33

The Income Summary account is used to close all other temporary accounts at the end of an accounting period.

Question 34

The third closing entry is to close Withdrawals to Income Summary.

Question 35

Closing entries accomplish the goal of reflecting revenues and expenses in the owner's capital account.

Question 36

After posting the entries to close all revenue accounts and all expense accounts, the Income Summary account of Waif Services has a $4,000 debit balance. This shows that Waif Services earned profit of $4,000.

Question 37

A post-closing trial balance is a list of permanent accounts and their balances from the ledger after all closing entries are journalized and posted.

Question 38

The steps in the closing process are (1) close credit balances in revenue accounts to Income Summary; (2) close credit balances in expense accounts to Income Summary; (3) close Income Summary to Owner's Capital; (4) close Withdrawals to Owner's Capital.

Question 39

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 the Hatfield, Withdrawals account has a debit balance of $2,500. These balances indicate that profit for the accounting period amounted to $3,500.

Question 40

The purpose of a post-closing trial balance is to verify that (1) total debits equal total credits for temporary accounts and (2) all temporary accounts have zero balances.

Question 41

For a partnership, the equity section is called Shareholders Equity.

Question 42

Current liabilities include accounts receivable, unearned revenues, and taxes owed.

Question 43

Current liabilities are listed in the order of liquidity.

Question 44

Harley Ravidson's current ratio is.9 to 1. The industry average current ratio is 1.2. Harley Davidson does not have a problem in covering its current liabilities because of its strong sales and position in its industry.

Question 45

A classified balance sheet organizes assets and liabilities into important subgroups.

Question 46

The current ratio is used to evaluate the ability of a business to meet its short-term obligations.

Question 47

Assets are classified into current assets, investments, property, plant and equipment, and intangible assets.

Question 48

The current ratio is calculated by dividing current liabilities by current assets.

Question 49

Harley Ravidson's current assets are $400 million and its current liabilities are $250 million. Its current ratio is.63 to 1.

Question 50

Reversing entries are prepared to adjust accrued assets and liabilities that were created by adjusting entries at the end of the previous reporting period.

Question 51

Property, plant and equipment and intangible assets are non-current assets used to produce or sell products and services.

Question 52

Current assets and current liabilities are expected to be used up or come due within one year or the company's operating cycle.

Question 53

The accounting cycle refers to the steps in preparing the work sheet for users.

Question 54

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

Question 55

Reversing entries are optional.

Question 56

Sharp has current assets of $15,000 and current liabilities of $9,500. Its current ratio is 1.6 to 1.

Question 57

The first five steps in the accounting cycle include analyzing transactions, journalizing, posting, preparing an unadjusted trial balance, and recording adjusting entries.

Question 58

Long-term investments can include land not currently being used in operations.

Question 59

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

Question 60

Current liabilities are cash and other resources that are expected to be sold, collected, or used within the longer of one year or the company's operating cycle.

Question 61

Which of the following statements is incorrect?

A) Working papers are invaluable tools of the accountant.
B) The work sheet shows the effects of adjustments on the account balances.
C) After the work sheet is completed, the work sheet information is used to prepare the financial statements.
D) On the work sheet, the accountant sorts the adjusted amounts into columns according to whether the accounts are used in preparing the unadjusted trial balance or the adjusted trial balance.
E) The work sheet is an optional step in the accounting cycle.

Question 62

A 10-column spreadsheet used to draft a company's unadjusted trial balance, adjusting entries, adjusted trial balance, and financial statements, and which is an optional step in the accounting process, is a(n)

A) Adjusted trial balance
B) Work sheet
C) Post-closing trial balance
D) Unadjusted trial balance
E) Book of final entry

Question 63

Accounts that are used to describe assets, liabilities, and equity, that are not closed as long as the company continues to own the assets, owe the liabilities, or have equity, and whose balances appear on the balance sheet are called

A) Summary accounts
B) Temporary accounts
C) Permanent accounts
D) Contra accounts.
E) Accrued accounts

Question 64

The income summary has a zero balance after which step in the closing process

A) Step 1
B) Step 2
C) Step 3
D) Step 4
E) The income summary is permanent and therefore not closed

Question 65

Accounts that are used to describe revenues, expenses, and owner's withdrawals, and are closed at the end of the reporting period, are

A) Financial accounts
B) Temporary accounts
C) Closing accounts
D) Permanent accounts
E) Summary accounts

Question 66

Closing the temporary accounts at the end of each accounting period

A) Serves to transfer the effects of these accounts to the proper equity account on the balance sheet
B) Prepares the withdrawals account for use in the next period
C) Gives the revenue and expense accounts zero balances
D) Gives the withdrawals account a zero balance
E) All of these

Question 67

The Unadjusted Trial Balance columns of a work sheet total $84,000. The Adjustments columns contain entries for the following: (1) Office supplies used during the period, $1,200. (2) Expiration of prepaid rent, $700. (3) Accrued salaries expense, $500. (4) Depreciation expense, $800. (5) Accrued repair service fees receivable, $400. The Adjusted Trial Balance columns total

A) $80,400
B) $84,000
C) $85,700
D) $85,900
E) $87,600

Question 68

Another name for income summary accounts is

A) Permanent accounts
B) Contra accounts
C) Accrued accounts
D) Balance column accounts
E) Temporary account

Question 69

Which of the following errors would cause the balance sheet columns of a work sheet to be out of balance?

A) Entering an asset amount in the Income Statement Debit column.
B) Entering a liability amount in the Income Statement Credit column.
C) Entering an expense amount in the Balance Sheet Debit column.
D) Entering a revenue amount in the Balance Sheet Debit column.
E) Entering a liability amount in the Balance Sheet Credit column.

Question 70

Journal entries recorded at the end of each accounting period to prepare the revenue, expense, and withdrawals accounts for the upcoming year and to update the owner's capital account for the events of the year just finished are

A) Adjusting entries
B) Closing entries
C) Final entries
D) Work sheet entries
E) None of these answers is correct.

Question 71

If, in preparing a work sheet, an adjusted trial balance amount is sorted to the wrong work sheet column, the Balance Sheet columns will balance on completing the work sheet, but with the wrong profit, if the amount sorted in error is

A) An expense amount entered in the Balance Sheet Credit column
B) A revenue amount entered in the Balance Sheet Debit column
C) A liability amount entered in the Income Statement Credit column
D) An asset amount entered in the Balance Sheet Credit column
E) A liability amount entered in the Balance Sheet Debit column

Question 72

Internal documents prepared by accountants when organizing the information presented in formal reports to internal and external decision makers are called

A) Adjusting papers
B) Statement papers
C) Working papers
D) Closing papers
E) Business papers

Question 73

The Unadjusted Trial Balance columns of the work sheet show the balance in the Office Supplies account at $750. The Adjustments columns show that $425 of these supplies were used during the period. The amount shown as Office Supplies in the Balance Sheet columns is

A) $325 debit
B) $325 credit
C) $425 debit
D) $750 debit
E) $750 credit

Question 74

When closing entries are made

A) All ledger accounts are closed to start the new fiscal period
B) All temporary accounts are closed but not the permanent accounts
C) All permanent accounts are closed but not the temporary accounts
D) All permanent accounts are closed but not the temporary accounts
E) All balance sheet accounts are closed

Question 75

If the Balance Sheet columns of a work sheet fail to balance when the amount of profit is added to the Balance Sheet Credit column, the cause could be

A) An expense amount entered in the Balance Sheet Debit column
B) A revenue amount entered in the Balance Sheet Credit column
C) An asset amount entered in the Income Statement Debit column
D) A liability amount entered in the Balance Sheet Debit column
E) A liability amount entered in the Income Statement Credit column

Question 76

Accumulated Depreciation, Equipment, Accounts Receivable, and Service Revenue would be sorted to which respective columns in completing a work sheet?

A) Statement of changes in equity or Balance Sheet-Credit; Statement of changes in equity or Balance Sheet-Debit; and Income Statement-Credit.
B) Statement of changes in equity or Balance Sheet-Debit; Statement of changes in equity or Balance Sheet-Credit; and Income Statement-Credit.
C) Income Statement-Debit; Statement of changes in equity or Balance Sheet-Debit; and Income Statement-Credit.
D) Income Statement-Debit; Income Statement-Debit; and Statement of changes in equity or Balance Sheet-Credit.
E) Statement of changes in equity or Balance Sheet-Credit; Income Statement-Debit; and Income Statement-Credit.

Question 77

A company shows an $800 balance in Prepaid Insurance in the Unadjusted Trial Balance columns of the work sheet. The Adjustments columns show expired insurance of $600. This adjusting entry results in

A) $600 less profit
B) $600 more profit
C) $200 difference between the debit and credit columns of the unadjusted trial balance
D) $400 in the Income Statement Debit column on the work sheet
E) $400 in the Balance Sheet Credit column on the work sheet

Question 78

Which of the following statements is incorrect?

A) Permanent accounts are another name for temporary accounts.
B) Temporary accounts carry a zero balance at the beginning of each accounting period.
C) The Income Summary account is a temporary account.
D) Permanent accounts remain open as long as the asset, liability, or equity items recorded in the accounts continue in existence.
E) Permanent accounts include assets.

Question 79

The information on a work sheet can be used to prepare

A) Year-end financial statements
B) Adjusting entries
C) Closing entries
D) Interim financial statements
E) All of these

Question 80

The following items appeared on December 31 Excel work sheet. Based on the following information, what is profit for the year?

A) $1,725
B) $1,855
C) $2,060
D) $4,125
E) $4,670