Deck 4: Completing the Accounting Cycle

Question 1

Correcting entries are made any time an error is discovered even though it may not be at the end of an accounting period.

Answer 1

True

Question 2

If total credits in the income statement columns of a worksheet exceed total debits, the enterprise has net income.

Answer 2

True

Question 3

A worksheet is a mandatory form that must be prepared along with an income statement and balance sheet.

Answer 3

False

Question 4

A business entity has only one accounting cycle over its economic existence.

Question 5

The accounting cycle begins at the start of a new accounting period.

Question 6

It is not necessary to prepare formal financial statements if a worksheet has been prepared because financial position and net income are shown on the worksheet.

Question 7

Closing the drawing account to Capital is not necessary if net income is greater than owner's drawings during the period.

Question 8

If a worksheet is used, financial statements can be prepared before adjusting entries are journalized.

Question 9

Both correcting entries and adjusting entries always affect at least one balance sheet account and one income statement account.

Question 10

The adjustments on a worksheet can be posted directly to the accounts in the ledger from the worksheet.

Question 11

The amounts appearing on an income statement should agree with the amounts appearing on the post-closing trial balance.

Question 12

After closing entries have been journalized and posted, all temporary accounts in the ledger should have zero balances.

Question 13

Closing revenue and expense accounts to the Income Summary account is an optional bookkeeping procedure.

Question 14

Closing entries are unnecessary if the business plans to continue operating in the future and issue financial statements each year.

Question 15

The adjusted trial balance columns of a worksheet are obtained by subtracting the adjustment columns from the trial balance columns.

Question 16

The owner's drawing account is a permanent account whose balance is carried forward to the next accounting period.

Question 17

Closing entries are journalized after adjusting entries have been journalized.

Question 18

The balance of the depreciation expense account will appear in the income statement debit column of a worksheet.

Question 19

The owner's drawing account is closed to the Income Summary account in order to properly determine net income (or loss) for the period.

Question 20

The post-closing trial balance is entered in the first two columns of a worksheet.

Question 21

The operating cycle of a company is the average time required to collect the receivables resulting from producing revenues.

Question 22

Current liabilities are obligations that the company is to pay within the coming year.

Question 23

Reversing entries are an optional bookkeeping procedure.

Question 24

The adjustments entered in the adjustments columns of a worksheet are

A) not journalized.
B) posted to the ledger but not journalized.
C) not journalized until after the financial statements are prepared.
D) journalized before the worksheet is completed.

Question 25

An incorrect debit to Accounts Receivable instead of the correct account Notes Receivable does not require a correcting entry because total assets will not be misstated.

Question 26

Cash and office supplies are both classified as current assets.

Question 27

Current assets are customarily the first items listed on a classified balance sheet.

Question 28

Current assets are listed in the order of liquidity.

Question 29

Long-term investments would appear in the property, plant, and equipment section of the balance sheet.

Question 30

To close net income to owner's capital, Income Summary is debited and Owner's Capital is credited.

Question 31

The information for preparing a trial balance on a worksheet is obtained from

A) financial statements.
B) general ledger accounts.
C) general journal entries.
D) business documents.

Question 32

In one closing entry, Owner's Drawing is credited and Income Summary is debited.

Question 33

Preparing a worksheet involves

A) two steps.
B) three steps.
C) four steps.
D) five steps.

Question 34

After a worksheet has been completed, the statement columns contain all data that are required for the preparation of financial statements.

Question 35

The operating cycle of a company is determined by the number of years the company has been operating.

Question 36

A company's operating cycle and fiscal year are usually the same length of time.

Question 37

The post-closing trial balance will contain only owner's equity statement accounts and balance sheet accounts.

Question 38

A liability is classified as a current liability if the company is to pay it within the forthcoming year.

Question 39

A company's liquidity is concerned with the relationship between long-term investments and long-term debt.

Question 40

In a corporation, Retained Earnings is a part of owners' equity.

Question 41

Which of the following companies would be least likely to use a worksheet to facilitate the adjustment process?

A) Large company with numerous accounts
B) Small company with numerous accounts
C) All companies, since worksheets are required under generally accepted accounting principles
D) Small company with few accounts

Question 42

Assuming that there is a net loss for the period, debits equal credits in all but which section of the worksheet?

A) Income statement columns
B) Adjustments columns
C) Trial balance columns
D) Adjusted trial balance columns

Question 43

When using a worksheet, adjusting entries are journalized

A) after the worksheet is completed and before financial statements are prepared.
B) before the adjustments are entered on to the worksheet.
C) after the worksheet is completed and after financial statements have been prepared.
D) before the adjusted trial balance is extended to the proper financial statement columns.

Question 44

Closing entries are

A) an optional step in the accounting cycle.
B) posted to the ledger accounts from the worksheet.
C) made to close permanent or real accounts.
D) journalized in the general journal.

Question 45

The income statement and balance sheet columns of Reed Company's worksheet reflect the following totals: To enter the net income (or loss) for the period into the above worksheet requires an entry to the

A) income statement debit column and the balance sheet credit column.
B) income statement credit column and the balance sheet debit column.
C) income statement debit column and the income statement credit column.
D) balance sheet debit column and the balance sheet credit column.

Question 46

The net income (or loss) for the period

A) is found by computing the difference between the income statement credit column and the balance sheet credit column on the worksheet.
B) cannot be found on the worksheet.
C) is found by computing the difference between the income statement columns of the worksheet.
D) is found by computing the difference between the trial balance totals and the adjusted trial balance totals.

Question 47

Closing entries are made

A) in order to terminate the business as an operating entity.
B) so that all assets, liabilities, and owner's capital accounts will have zero balances when the next accounting period starts.
C) in order to transfer net income (or loss) and owner's drawing to the owner's capital account.
D) so that financial statements can be prepared.

Question 48

If the total debits exceed total credits in the balance sheet columns of the worksheet, owner's equity

A) will increase because net income has occurred.
B) will decrease because a net loss has occurred.
C) is in error because a mistake has occurred.
D) will not be affected.

Question 49

A worksheet is a multiple column form that facilitates the

A) identification of events.
B) measurement process.
C) preparation of financial statements.
D) analysis process.

Question 50

After the adjusting entries are journalized and posted to the accounts in the general ledger, the balance of each account should agree with the balance shown on the

A) adjusted trial balance.
B) post-closing trial balance.
C) the general journal.
D) adjustments columns of the worksheet.

Question 51

If the total debit column exceeds the total credit column of the income statement columns on a worksheet, then the company has

A) earned net income for the period.
B) an error because debits do not equal credits.
C) suffered a net loss for the period.
D) to make an adjusting entry.

Question 52

Closing entries are necessary for

A) permanent accounts only.
B) temporary accounts only.
C) both permanent and temporary accounts.
D) permanent or real accounts only.

Question 53

A worksheet can be thought of as a(n)

A) permanent accounting record.
B) optional device used by accountants.
C) part of the general ledger.
D) part of the journal.

Question 54

Each of the following accounts is closed to Income Summary except

A) Expenses.
B) Owner's Drawing.
C) Revenues.
D) All of these are closed to Income Summary.

Question 55

The income summary account

A) is a permanent account.
B) appears on the balance sheet.
C) appears on the income statement.
D) is a temporary account.

Question 56

The account, Supplies, will appear in the following debit columns of the worksheet.

A) Trial balance
B) Adjusted trial balance
C) Balance sheet
D) All of these

Question 57

When constructing a worksheet, accounts are often needed that are not listed in the trial balance already entered on the worksheet from the ledger. Where should these additional accounts be shown on the worksheet?

A) They should be inserted in alphabetical order into the trial balance accounts already given.
B) They should be inserted in chart of account order into the trial balance already given.
C) They should be inserted on the lines immediately below the trial balance totals.
D) They should not be inserted on the trial balance until the next accounting period.

Question 58

Adjusting entries are prepared from

A) source documents.
B) the adjustments columns of the worksheet.
C) the general ledger.
D) last year's worksheet.

Question 59

The worksheet does not show

A) net income or loss for the period.
B) revenue and expense account balances.
C) the ending balance in the owner's capital account.
D) the trial balance before adjustments.

Question 60

The income statement and balance sheet columns of Reed Company's worksheet reflect the following totals: The net income (or loss) for the period is

A) $48,000 income.
B) $10,000 income.
C) $10,000 loss.
D) not determinable.

Question 61

An error has occurred in the closing entry process if

A) revenue and expense accounts have zero balances.
B) the owner's capital account is credited for the amount of net income.
C) the owner's drawing account is closed to the owner's capital account.
D) the balance sheet accounts have zero balances.

Question 62

The income statement for the month of June, 2010 of Ramirez Enterprises contains the following information: The entry to close Income Summary to Ramirez, Capital includes

A) a debit to Revenue for $7,000.
B) credits to Expenses totalling $3,600.
C) a credit to Income Summary for $3,400
D) a credit to Ramirez, Capital for $3,400.

Question 63

If Income Summary has a credit balance after revenues and expenses have been closed into it, the closing entry for Income Summary will include a

A) debit to the owner's capital account.
B) debit to the owner's drawing account.
C) credit to the owner's capital account.
D) credit to the owner's drawing account.

Question 64

In order to close the owner's drawing account, the

A) income summary account should be debited.
B) income summary account should be credited.
C) owner's capital account should be credited.
D) owner's capital account should be debited.

Question 65

The final closing entry to be journalized is typically the entry that closes the

A) revenue accounts.
B) owner's drawing account.
C) owner's capital account.
D) expense accounts.

Question 66

The income statement for the month of June, 2010 of Ramirez Enterprises contains the following information: At June 1, 2010, Ramirez reported owner's equity of $35,000. The company had no owner drawings during June. At June 30, 2010, the company will report owner's equity of

A) $35,000.
B) $42,000.
C) $38,400.
D) $31,600.

Question 67

Closing entries

A) are prepared before the financial statements.
B) reduce the number of permanent accounts.
C) cause the revenue and expense accounts to have zero balances.
D) summarize the activity in every account.

Question 68

The balance in the income summary account before it is closed will be equal to

A) the net income or loss on the income statement.
B) the beginning balance in the owner's capital account.
C) the ending balance in the owner's capital account.
D) zero.

Question 69

Closing entries may be prepared from all but which one of the following sources?

A) Adjusted balances in the ledger
B) Income statement and balance sheet columns of the worksheet
C) Balance sheet
D) Income and owner's equity statements

Question 70

After closing entries are posted, the balance in the owner's capital account in the ledger will be equal to

A) the beginning owner's capital reported on the owner's equity statement.
B) the amount of the owner's capital reported on the balance sheet.
C) zero.
D) the net income for the period.

Question 71

The income statement for the month of June, 2010 of Ramirez Enterprises contains the following information: The entry to close the revenue account includes a

A) debit to Income Summary for $3,400.
B) credit to Income Summary for $3,400.
C) debit to Income Summary for $7,000.
D) credit to Income Summary for $7,000.

Question 72

In preparing closing entries

A) each revenue account will be credited.
B) each expense account will be credited.
C) the owner's capital account will be debited if there is net income for the period.
D) the owner's drawing account will be debited.

Question 73

The income statement for the month of June, 2010 of Ramirez Enterprises contains the following information: After the revenue and expense accounts have been closed, the balance in Income Summary will be

A) $0.
B) a debit balance of $3,400.
C) a credit balance of $3,400.
D) a credit balance of $7,000.

Question 74

The income statement for the year 2010 of Poole Co. contains the following information: The entry to close the revenue account includes a

A) debit to Income Summary for $3,500.
B) credit to Income Summary for $3,500.
C) debit to Revenues for $70,000.
D) credit to Revenues for $70,000.

Question 75

Closing entries are journalized and posted

A) before the financial statements are prepared.
B) after the financial statements are prepared.
C) at management's discretion.
D) at the end of each interim accounting period.

Question 76

The closing entry process consists of closing

A) all asset and liability accounts.
B) out the owner's capital account.
C) all permanent accounts.
D) all temporary accounts.

Question 77

The most efficient way to accomplish closing entries is to

A) credit the income summary account for each revenue account balance.
B) debit the income summary account for each expense account balance.
C) credit the owner's drawing balance directly to the income summary account.
D) credit the income summary account for total revenues and debit the income summary account for total expenses.

Question 78

The Income Summary account is an important account that is used

A) during interim periods.
B) in preparing adjusting entries.
C) annually in preparing closing entries.
D) annually in preparing correcting entries.

Question 79

The income statement for the month of June, 2010 of Ramirez Enterprises contains the following information: The entry to close the expense accounts includes a

A) debit to Income Summary for $3,400.
B) credit to Rent Expense for $1,000,
C) credit to Income Summary for $3,600.
D) debit to Wages Expense for $2,000.

Question 80

Which of the following is a true statement about closing the books of a proprietorship?

A) Expenses are closed to the Expense Summary account.
B) Only revenues are closed to the Income Summary account.
C) Revenues and expenses are closed to the Income Summary account.
D) Revenues, expenses, and the owner's drawing account are closed to the Income Summary account.