Deck 6: Financial Statements and the Closing Process

Question 1

A separate explanation of each closing entry is necessary.

Answer 1

False

Question 2

Match the terms with the definitions.a.Adjusted Trial Balance columns
b.Adjusting entries
c.Balance Sheet columns
d.book value
e.contra-asset
f.depreciable cost
g.depreciation
h.fiscal year
i.historical cost principle
j.Income Statement columns
k.market value
l.matching principle
m.plant assets
n.salvage value
o.straight-line method
p.undepreciated cost
q.useful life
r.work sheet
Long-term liabilities are liabilities that are due in a period longer than one year.

Answer 2

True

Question 3

Match the terms with the definitions.a.Adjusted Trial Balance columns
b.Adjusting entries
c.Balance Sheet columns
d.book value
e.contra-asset
f.depreciable cost
g.depreciation
h.fiscal year
i.historical cost principle
j.Income Statement columns
k.market value
l.matching principle
m.plant assets
n.salvage value
o.straight-line method
p.undepreciated cost
q.useful life
r.work sheet
The steps involved in handling all of the transactions and events completed during an accounting period, beginning with placing data in a book of original entry and ending with a post-closing trial balance, are referred to collectively as the accounting cycle.

Answer 3

True

Question 4

Match the terms with the definitions.a.Adjusted Trial Balance columns
b.Adjusting entries
c.Balance Sheet columns
d.book value
e.contra-asset
f.depreciable cost
g.depreciation
h.fiscal year
i.historical cost principle
j.Income Statement columns
k.market value
l.matching principle
m.plant assets
n.salvage value
o.straight-line method
p.undepreciated cost
q.useful life
r.work sheet
To close the income summary account with a credit balance, debit the account for its balance and credit the drawing account.

Question 5

Match the terms with the definitions.a.Adjusted Trial Balance columns
b.Adjusting entries
c.Balance Sheet columns
d.book value
e.contra-asset
f.depreciable cost
g.depreciation
h.fiscal year
i.historical cost principle
j.Income Statement columns
k.market value
l.matching principle
m.plant assets
n.salvage value
o.straight-line method
p.undepreciated cost
q.useful life
r.work sheet
A statement of owner's equity is a statement summarizing all of the changes in owner's equity during a specified period of time.

Question 6

Long-term liabilities may also be called long-term debt.

Question 7

To close a revenue account with a credit balance, debit the account for its balance and credit the income summary account.

Question 8

Match the terms with the definitions.a.Adjusted Trial Balance columns
b.Adjusting entries
c.Balance Sheet columns
d.book value
e.contra-asset
f.depreciable cost
g.depreciation
h.fiscal year
i.historical cost principle
j.Income Statement columns
k.market value
l.matching principle
m.plant assets
n.salvage value
o.straight-line method
p.undepreciated cost
q.useful life
r.work sheet
To close an expense account with a debit balance, debit the account for its balance and credit the income summary account.

Question 9

Match the terms with the definitions.a.Adjusted Trial Balance columns
b.Adjusting entries
c.Balance Sheet columns
d.book value
e.contra-asset
f.depreciable cost
g.depreciation
h.fiscal year
i.historical cost principle
j.Income Statement columns
k.market value
l.matching principle
m.plant assets
n.salvage value
o.straight-line method
p.undepreciated cost
q.useful life
r.work sheet
The Account Title and Balance Sheet columns of the work sheet provide all of the information necessary to prepare the statement of owner's equity.

Question 10

Match the terms with the definitions.a.Adjusted Trial Balance columns
b.Adjusting entries
c.Balance Sheet columns
d.book value
e.contra-asset
f.depreciable cost
g.depreciation
h.fiscal year
i.historical cost principle
j.Income Statement columns
k.market value
l.matching principle
m.plant assets
n.salvage value
o.straight-line method
p.undepreciated cost
q.useful life
r.work sheet
A form of balance sheet that lists the assets at the left and the liabilities and owner's equity at the right is called a report form of balance sheet.

Question 11

Match the terms with the definitions.a.Adjusted Trial Balance columns
b.Adjusting entries
c.Balance Sheet columns
d.book value
e.contra-asset
f.depreciable cost
g.depreciation
h.fiscal year
i.historical cost principle
j.Income Statement columns
k.market value
l.matching principle
m.plant assets
n.salvage value
o.straight-line method
p.undepreciated cost
q.useful life
r.work sheet
Adjustments at the end of the period are not formally entered in the journal or posted to the accounts.

Question 12

Match the terms with the definitions.a.Adjusted Trial Balance columns
b.Adjusting entries
c.Balance Sheet columns
d.book value
e.contra-asset
f.depreciable cost
g.depreciation
h.fiscal year
i.historical cost principle
j.Income Statement columns
k.market value
l.matching principle
m.plant assets
n.salvage value
o.straight-line method
p.undepreciated cost
q.useful life
r.work sheet
Property, plant, and equipment are assets that are expected to serve the business for many years.

Question 13

Match the terms with the definitions.a.Adjusted Trial Balance columns
b.Adjusting entries
c.Balance Sheet columns
d.book value
e.contra-asset
f.depreciable cost
g.depreciation
h.fiscal year
i.historical cost principle
j.Income Statement columns
k.market value
l.matching principle
m.plant assets
n.salvage value
o.straight-line method
p.undepreciated cost
q.useful life
r.work sheet
The income summary account appears on the income statement at the end of the accounting period.

Question 14

The purpose and use of the income summary account is to summarize the difference between revenues and expenses.

Question 15

The statement of owner's equity is prepared from information from the asset and liability accounts.

Question 16

An income statement is an itemized statement that provides information regarding the status of the assets, liabilities, and owner's equity of a business enterprise as of a specified date.

Question 17

A mortgage on an office building is an example of a property, plant, and equipment asset.

Question 18

Match the terms with the definitions.a.Adjusted Trial Balance columns
b.Adjusting entries
c.Balance Sheet columns
d.book value
e.contra-asset
f.depreciable cost
g.depreciation
h.fiscal year
i.historical cost principle
j.Income Statement columns
k.market value
l.matching principle
m.plant assets
n.salvage value
o.straight-line method
p.undepreciated cost
q.useful life
r.work sheet
The income statement includes all changes in owner's equity except those resulting from investments or withdrawals of assets by the owner.

Question 19

Match the terms with the definitions.a.Adjusted Trial Balance columns
b.Adjusting entries
c.Balance Sheet columns
d.book value
e.contra-asset
f.depreciable cost
g.depreciation
h.fiscal year
i.historical cost principle
j.Income Statement columns
k.market value
l.matching principle
m.plant assets
n.salvage value
o.straight-line method
p.undepreciated cost
q.useful life
r.work sheet
The income summary account is an account used only during the closing process.

Question 20

Match the terms with the definitions.a.Adjusted Trial Balance columns
b.Adjusting entries
c.Balance Sheet columns
d.book value
e.contra-asset
f.depreciable cost
g.depreciation
h.fiscal year
i.historical cost principle
j.Income Statement columns
k.market value
l.matching principle
m.plant assets
n.salvage value
o.straight-line method
p.undepreciated cost
q.useful life
r.work sheet
Expenses on the income statement could be listed in alphabetical order by dollar amount.

Question 21

Revenues and expenses are temporary accounts and are closed at the end of the accounting period.

Question 22

Revenue and expense account are permanent accounts.

Question 23

(Appendix) The accuracy of the statement of cash flows can be proved by comparing the cash provided by operating activities with the change in the cash balance.

Question 24

The effect of drawing transactions on the capital account is formalized at any time during the accounting period.

Question 25

After posting the adjusting entries, the balance of the depreciation expense account should agree with the amount shown on the income statement.

Question 26

An income statement is an itemized statement for the purpose of providing information regarding the results of operations during a specified period of time.

Question 27

Assets, liabilities, and the owner's capital account are closed at the end of the accounting period.

Question 28

Expenses on the income statement could be listed in the same order as they appear in the chart of accounts.

Question 29

The amounts in the financial statements must agree with the ledger account balances.

Question 30

Closing entries are made in the journal and posted to the ledger accounts.

Question 31

A balance sheet that classifies (or groups) items by similarities is called a unified balance sheet.

Question 32

A form of balance sheet that shows the liabilities and owner's equity sections below the assets section is called an account form of balance sheet.

Question 33

A post-closing trial balance is used to prove the equality of debit and credit balances in the general ledger accounts after the closing entries have been posted.

Question 34

(Appendix) The three types of business activities are operating activities, investing activities, and capital activities.

Question 35

The end-of-period work sheet is completed after adjusting entries have been recorded and posted.

Question 36

Obligations that need not be paid for a long time, usually more than one year, are classified as current liabilities.

Question 37

To close the drawing account with a debit balance, credit the account for its balance and debit the owner's capital account.

Question 38

Adjusting entries are recorded and posted after closing entries.

Question 39

Current assets include cash and other assets that will be converted into cash or consumed within one year or the normal operating cycle of the business, whichever is longer.

Question 40

The heading for a balance sheet includes the name of the business, the title of the statement, and a period of time.

Question 41

The journal entry to close expense accounts includes

A) debiting the expense accounts and crediting Income Summary.
B) debiting Income Summary and crediting the expense accounts.
C) debiting the expense accounts and crediting the owner's capital account.
D) debiting the expense accounts and crediting the drawing account.

Question 42

The journal entry to close revenue accounts includes

A) debiting the revenue accounts and crediting Income Summary.
B) debiting Income Summary and crediting the revenue accounts.
C) debiting the revenue accounts and crediting Cash.
D) debiting the revenue accounts and crediting the drawing account.

Question 43

Which of the following steps of the accounting cycle are in the correct order?

A) prepare a trial balance, post to general ledger accounts, journalize adjusting and closing entries
B) make adjustments, complete a work sheet, post to general ledger accounts
C) prepare financial statements, make adjustments, prepare a trial balance
D) prepare a trial balance, make adjustments, prepare financial statements

Question 44

The owner's equity in a business amounted to $52,000 at the beginning of the year and $100,000 at the end of the year. The owner had made no additional investments and had withdrawn $19,000 during the year. The net income for the year amounted to

A) $81,000.
B) $67,000.
C) $48,000.
D) $171,000.

Question 45

The journal entry to close the income summary account (showing a net loss) includes

A) debiting the drawing account and crediting Income Summary.
B) debiting Income Summary and crediting the drawing account.
C) debiting the owner's capital account and crediting Income Summary.
D) debiting Income Summary and crediting the owner's capital account.

Question 46

The order in which financial statements should be prepared is

A) balance sheet, income statement, statement of owner's equity.
B) income statement, balance sheet, statement of owner's equity.
C) statement of owner's equity, balance sheet, income statement.
D) income statement, statement of owner's equity, balance sheet.

Question 47

The amount reported in the Balance Sheet columns of the work sheet for the owner's capital represents the

A) ending balance that should be reported on the balance sheet.
B) beginning balance.
C) beginning balance plus additional investments.
D) beginning balance less withdrawals.

Question 48

The balance in an expense account is closed to a(n)

A) capital account.
B) revenue account.
C) drawing account.
D) income summary account.

Question 49

The total assets amount to $26,000 and the total liabilities amount to $18,000. The amount of the owner's equity is

A) $18,000.
B) $44,000.
C) $26,000.
D) $8,000.

Question 50

Changes in owner's equity that result from investments or withdrawals of assets by the owner are included in the

A) statement of owner's equity.
B) income statement.
C) balance sheet.
D) chart of accounts.

Question 51

When recording closing entries in the general journal, which of the following is written in the Description column?

A) "closing entries"
B) a description of the transaction
C) nothing
D) "zero out accounts"

Question 52

A form of balance sheet that lists the liabilities and the owner's equity sections below the assets section is called the

A) account form.
B) journal form.
C) report form.
D) current form.

Question 53

The journal entry to close the income summary account (showing a profit) includes

A) debiting the drawing account and crediting Income Summary.
B) debiting Income Summary and crediting the drawing account.
C) debiting the owner's capital account and crediting Income Summary.
D) debiting Income Summary and crediting the owner's capital account.

Question 54

After the closing entries have been posted, which of the following accounts would still have a balance?

A) Miscellaneous Revenues
B) Accumulated Depreciation Equipment
C) Salaries Expense
D) Supplies Expense

Question 55

Owner's equity can be increased through

A) withdrawals by the owner.
B) investments by the owner.
C) expenses exceeding revenues.
D) purchases of assets for cash.

Question 56

After the closing entries are journalized and posted, which of the following accounts would NOT have a balance?

A) Cash
B) Office Supplies
C) Accounts Payable
D) Service Revenue

Question 57

After the accounts are closed and the journal entries have been posted, which of the following accounts would have a balance?

A) Payroll Taxes Expense
B) Miscellaneous Expense
C) Professional Expense
D) Supplies

Question 58

To prove the equality of the debit and credit balances in the general ledger accounts after the closing entries have been journalized and posted, prepare the

A) balance sheet.
B) income statement.
C) adjustments.
D) post-closing trial balance.

Question 59

Which step is taken at the end of the accounting period?

A) analyze source documents
B) post to the general ledger accounts
C) prepare a trial balance
D) prepare a post-closing trial balance

Question 60

The total revenue of the month of June amounted to $7,500; total expenses amounted to $3,500; and withdrawals amounted to $600. The net income for the month amounted to

A) $7,500.
B) $3,400.
C) $4,000.
D) $3,500.

Question 61

The journal entry to close the drawing account includes

A) debiting the owner's capital account and crediting the drawing account.
B) debiting the drawing account and crediting the owner's capital account.
C) debiting Income Summary and crediting the drawing account.
D) debiting the drawing account and crediting Income Summary.

Question 62

The body of the income statement consists of an itemized list of

A) assets and liabilities.
B) assets and owner's equity.
C) cash and revenues.
D) revenues and expenses.

Question 63

From the following partial work sheet for Walter Searing, journalize the closing entries necessary for month-end and prepare a post-closing trial balancE.​ ​
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Question 64

What is the purpose of the post-closing trial balance?

A) to prove no errors were made while recording entries in the journal
B) to prove the equality of the debit and credit balances in the general ledger accounts
C) to prove the closing entries were recorded correctly in the journal
D) to prove the balances in the general ledger accounts are correct

Question 65

Match the terms with the definitions.a.account form of balance sheet
b.accounting cycle
c.classified balance sheet
d.closing process
e.current assets
f.current liabilities
g.Income Summary
h.long-term liabilities
i.operating cycle
j.permanent accounts
k.post-closing trial balance
l.property, plant, and equipment
m.report form of balance sheet
n.temporary accounts
The period of time required to purchase supplies and services and convert them back into cash.

Question 66

From the partial work sheet, prepare an income statement, a statement of owner's equity, and a classified balance sheet. The owner made no additional investments in the business during the month.

Question 67

The account to which revenue and expenses are closed is called

A) Cash.
B) Drawing.
C) Income Summary.
D) Net Income.

Question 68

Match the terms with the definitions.a.account form of balance sheet
b.accounting cycle
c.classified balance sheet
d.closing process
e.current assets
f.current liabilities
g.Income Summary
h.long-term liabilities
i.operating cycle
j.permanent accounts
k.post-closing trial balance
l.property, plant, and equipment
m.report form of balance sheet
n.temporary accounts
Prepared after posting the closing entries to prove the equality of the debit and credit balances in the general ledger accounts.

Question 69

(Appendix) A utility bill for $315 was paid. This activity is classified as

A) operating.
B) investing.
C) financing.
D) paying.

Question 70

What is the correct sequence for closing the temporary accounts?

A) revenue accounts, expense accounts, Income Summary, drawing account
B) expense accounts, revenue accounts, Income Summary, drawing account
C) revenue accounts, expense accounts, drawing account, Income Summary
D) drawing account, revenue accounts, expense accounts, Income Summary

Question 71

The Income Summary account is used to

A) close the revenue accounts only.
B) close the revenue accounts and expense accounts only.
C) close the drawing account.
D) close revenue accounts and expense accounts and update the owner's capital account.

Question 72

The steps involved in handling all of the transactions and events completed during an accounting period, beginning with placing data in a book of original entry and ending with a post-closing trial balance, are referred to collectively as

A) input.
B) processing.
C) output.
D) the accounting cycle.

Question 73

The account to which the drawing account is closed is called

A) Revenue.
B) Income Summary.
C) Owner's Capital.
D) Cash.

Question 74

(Appendix) Business transactions can be classified as

A) operating, investing, and accounting.
B) operating, financing, and lending.
C) operating, investing, and financing.
D) operating, lending, and borrowing.

Question 75

A balance sheet that groups similar items is called a(n)

A) report form of balance sheet.
B) account form of balance sheet.
C) classified balance sheet.
D) temporary balance sheet.

Question 76

Capital at the beginning of the month amounted to $4,000; net income for the month amounted to $1,000; and withdrawals for personal use during the month amounted to $2,000. Capital at the end of the month is

A) $3,000.
B) $2,000.
C) $7,000.
D) $5,000.

Question 77

Cash and other assets that will be converted into cash within one year or the normal operating cycle of the business, whichever is longer, are called

A) property.
B) plant.
C) equipment.
D) current assets.

Question 78

(Appendix) A company receives cash from a bank loan. This activity is classified as

A) operating.
B) investing.
C) financing.
D) borrowing.

Question 79

On December 31, 20--, after adjustments, Tuscany Company's general ledger contains the account balances as shown on the partially completed work sheet below. Journalize the (four) closing entries necessary at the end of December.
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Question 80

From the following adjusted trial balance, journalize the necessary closing entries. Prepare a post-closing trial balance.