Deck 4: Completing the Accounting Cycle

Question 1

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

Answer 1

False

Question 2

Permanent accounts carry their balances into the next accounting period.

Answer 2

True

Question 3

Closing entries are designed to transfer the end-of-period balances in the revenue accounts, the expense accounts, and the withdrawals account to owner's capital.

Answer 3

True

Question 4

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

Question 5

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 6

The first step in the accounting cycle is to analyze transactions and events to prepare for journalizing.

Question 7

If a company plans to continue business into the future, closing entries are not required.

Question 8

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

Question 9

A classified balance sheet organizes assets and liabilities into important subgroups that provide more information to decision makers.

Question 10

Revenue accounts are temporary accounts that should begin each accounting period with zero balances.

Question 11

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

Question 12

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

Question 13

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

Question 14

The closing process takes place before financial statements have been prepared.

Question 15

Closing entries are necessary so that owner's capital will begin each period with a zero balance.

Question 16

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

Question 17

The accounting cycle refers to the sequence of steps used in preparing the work sheet.

Question 18

Accounts that appear in the balance sheet are often called temporary (nominal)accounts.

Question 19

Closing entries are required at the end of each accounting period to close all ledger accounts.

Question 20

Closing entries result in the owner's capital account being transferred into net income or net loss for the period ending.

Question 21

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

Question 22

If a company has current assets of $15,000 and current liabilities of $9,500, its current ratio is 1.6

Question 23

The work sheet is a required report made available to external decision makers.

Question 24

Assets are often classified into current assets, long-term investments, plant assets, and intangible assets.

Question 25

The current ratio is used to help assess a company's ability to pay its debts in the near future.

Question 26

Cash and office supplies are both classified as current assets.

Question 27

Plant assets are usually listed in order from most liquid to least liquid.

Question 28

Intangible assets are long-term resources that benefit business operations that usually lack physical form and have uncertain benefits.

Question 29

A benefit of using a work sheet is that it aids in the preparation of the financial statements.

Question 30

Intangible assets are assets that are long-term, have physical form, and are used to produce or sell products and services.

Question 31

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

Question 32

Adjustments must be entered in the journal and posted to the ledger after the work sheet is prepared.

Question 33

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

Question 34

All necessary amounts needed to prepare the income statement can be taken from the income statement columns of the work sheet, including the net income or net loss.

Question 35

Current liabilities include accounts receivable, unearned revenues, and salaries payable.

Question 36

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

Question 37

Long-term investments can include land held for future expansion.

Question 38

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

Question 39

Trekker Bikes' current assets are $300 million and its current liabilities are $125 million. Its current ratio is 0.417.

Question 40

A work sheet contains all of the balances for each account and therefore may be used as a substitute for the set of financial statements.

Question 41

Reversing entries are optional.

Question 42

The aim 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 43

All necessary amounts to prepare the balance sheet, including ending owner's capital, can be found in the Balance Sheet columns of the work sheet.

Question 44

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

Question 45

When there is a net loss, the Income Summary account would have a credit balance.

Question 46

If all columns of a completed work sheet balance, you can be sure that no errors were made in its preparation.

Question 47

A company's post-closing trial balance has total debits of $40,560 and total credits of $40,650. Accordingly, the company should review for errors in the closing process.

Question 48

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 Credit column.

Question 49

During the closing process, Owner's Capital is closed to the Owner's Withdrawals account.

Question 50

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

Question 51

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

Question 52

Normally closing entries are first entered in the general journal and then posted to the work sheet.

Question 53

After posting the entries to close all revenue and expense accounts, the Income Summary account of Cleaver Auto Services has a $4,000 debit balance. This result implies that Cleaver earned a net income of $4,000.

Question 54

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

Question 55

A worksheet can be helpful in showing the effects of proposed or "what if" transactions but not in helping to prepare interim financial statements.

Question 56

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 57

Adjusting entries are usually entered in the work sheet before they are entered in the general journal.

Question 58

The withdrawals account is normally closed by debiting it.

Question 59

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

Question 60

Because it is a necessary financial statement, the work sheet must be prepared according to specified accounting procedures.

Question 61

Assets, liabilities, and equity accounts are not closed; these accounts are called:

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

Question 62

Two common subgroups for liabilities on a classified balance sheet are:

A)Current liabilities and intangible liabilities.
B)Current liabilities and long-term liabilities.
C)Present liabilities and operating liabilities.
D)General liabilities and specific liabilities.
E)Intangible liabilities and long-term liabilities.

Question 63

Closing entries are required:

A)If the temporary accounts are to reflect correct amounts for each accounting period.
B)Only if the company adheres to the accrual method of accounting.
C)If a company's bookkeeper does not choose to prepare reversing entries.
D)If management has decided to cease operating the business.
E)In order to satisfy the Internal Revenue Service guidelines.

Question 64

A classified balance sheet differs from an unclassified balance sheet in that

A)An unclassified balance sheet is never used by large companies.
B)A classified balance sheet presents information in a manner that makes it easier to calculate a company's current ratio.
C)A classified balance sheet groups items into the broad categories of asset, liability, and equity.
D)A classified balance sheet will include more accounts than an unclassified balance sheet for the same company on the same date.
E)A classified balance sheet is not usually provided to outside parties.

Question 65

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

A)Updating entries.
B)Work sheet entries.
C)Closing entries.
D)Adjusting entries.
E)Final entries.

Question 66

Reversing entries are recorded in response to external transactions that were created in error during the prior accounting period.

Question 67

Revenues, expenses, and withdrawals accounts, which are closed at the end of each accounting period are:

A)Balance sheet accounts.
B)Temporary accounts.
C)Real accounts.
D)Permanent accounts.
E)Closing accounts.

Question 68

The closing process is necessary in order to:

A)Ensure that the company complies with state laws.
B)Calculate net income or net loss for an accounting period.
C)Ensure that management is aware of how well the company is operating.
D)Ensure that all permanent accounts are closed to zero at the end of each accounting period.
E)Ensure that net income or net loss and owner withdrawals for the period are closed into the owner's capital account.

Question 69

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

A)Preparing a post-closing trial balance.
B)Preparing the financial statements.
C)Journalizing transactions.
D)Preparing a work sheet.
E)Preparing an adjusted trial balance.

Question 70

A classified balance sheet:

A)Broadly groups items into assets, liabilities and equity.
B)Measures a company's ability to pay its bills on time.
C)Organizes assets and liabilities into important subgroups that provide more information.
D)Reports operating, investing, and financing activities.
E)Reports the effect of profit and withdrawals on owner's capital.

Question 71

Closing the temporary accounts at the end of each accounting period does all of the following except:

A)Serves to transfer the effects of these accounts to the owner's capital account on the balance sheet.
B)Prepares the withdrawals account for use in the next period.
C)Causes owner's capital to reflect increases from revenues and decreases from expenses and withdrawals.
D)Brings the revenue and expense accounts to zero balances.
E)Has no effect on the owner's capital account.

Question 72

The usual order for the asset subgroups of a classified balance sheet is:

A)Current assets, long-term investments, plant assets, intangible assets.
B)Plant assets, intangible assets, long-term investments, current assets.
C)Intangible assets, current assets, long-term investments, plant assets.
D)Current assets, prepaid expenses, long-term investments, intangible assets.
E)Long-term investments, current assets, plant assets, intangible assets.

Question 73

Which of the following accounts is a permanent (real)account?

A)Interest revenue.
B)Office supplies expense.
C)Fees earned.
D)Salaries expense.
E)Accounts payable.

Question 74

The recurring steps performed each reporting period in preparing financial statements, starting with analyzing and recording transactions in the journal and continuing through the post-closing trial balance, is referred to as the:

A)Closing cycle.
B)Natural business year.
C)Operating cycle.
D)Accounting cycle.
E)Accounting period.

Question 75

The assets section of a classified balance sheet usually includes the subgroups:

A)Current assets, long-term investments, plant assets, and intangible assets.
B)Current assets, long-term investments, plant assets, and equity.
C)Current liabilities, long-term investments, plant assets, and intangible assets.
D)Current assets, long-term assets, revenues, and intangible assets.
E)Current assets, liabilities, plant assets, and intangible assets.

Question 76

Which of the following statements is incorrect?

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

Question 77

Which of the following is classified as a current asset?

A)Office supplies.
B)Patent.
C)Office equipment.
D)Land.
E)Unearned revenue.

Question 78

When closing entries are made:

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

Question 79

Reversing entries overcome the disadvantage of more complex entries to pay accrued liabilities from the previous accounting period.

Question 80

Another name for a temporary account is a(n):

A)Real account.
B)Nominal account.
C)Contra account.
D)Balance column account.
E)Accrued account.