Deck 5: Completing the Accounting Cycle Closing and Reversing Entries

Question 1

Closing an account means:

A) transferring the balance to the trial balance.
B) transferring the balance to the balance sheet.
C) reducing the balance to zero.
D) removing the account from the ledger.

Answer 1

C

Question 2

Before calculating the profit for the period, the totals of the income statement debit and credit columns on the worksheet are $60 000 and $80 000 respectively. What is the amount of the profit or loss?

A) $20 000 loss
B) $60 000 profit
C) $80 000 profit
D) $20 000 profit

Answer 2

D

Question 3

King Ltd's year-end trial balance includes the following accounts.
$\bullet$ Cash
$\bullet$ Sales revenue
$\bullet$ Accounts payable
$\bullet$ Equity
$\bullet$ Interest expense
$\bullet$ Interest receivable
$\bullet$ Motor vehicles
How many of these are temporary accounts?

A) One
B) Two
C) Three
D) Four

Answer 3

Two

Question 4

Accounting entries made at the end of an accounting year to reduce expense and income accounts to zero are called:

A) adjusting entries.
B) correcting entries.
C) end of period entries.
D) closing entries.

Question 5

Which of these is not a temporary account?

A) Sales revenue
B) Bank
C) Drawings
D) Cleaning expense

Question 6

Which of these is the correct treatment on the worksheet of the nominated item?

A) For GST collection, credit the income statement and credit the balance sheet.
B) For depreciation, debit the balance sheet and credit the adjustments.
C) For profit earned, debit the income statement and credit the balance sheet.
D) For cash at bank, credit the adjustments and debit the balance sheet.

Question 7

In the closing process which accounts are closed?

A) All ledger accounts
B) All asset, liability and equity accounts
C) All income and expense accounts
D) All accounts that have been adjusted

Question 8

Which of these is not a permanent account?

A) Prepaid rent
B) Rent expense
C) Accounts receivable
D) Owner's capital account

Question 9

Accounting entries made to reduce the temporary accounts to zero balances are known as:

A) correcting entries.
B) adjusting entries.
C) reversing entries.
D) closing entries.

Question 10

In which order do these steps in the accounting cycle occur?
I Prepare closing entries
II Post to the ledger
III Enter business transactions in the journal
IV Prepare adjusting entries
V Prepare financial statements

A) I, II, III, IV, V
B) III, IV, II, I, V
C) IV, II, I, III, V
D) III, II, IV, V, I

Question 11

Because income and expenses are accumulated for only one year they are known as:

A) temporary accounts.
B) permanent accounts.
C) short-term accounts.
D) yearly accounts.

Question 12

In which order do these steps in the accounting cycle occur?
I Prepare financial statements
Ii Prepare reversing entries
Iii Prepare adjusting entries
Iv Prepare closing entries
V Prepare an adjusted trial balance

A) iii, v, i, iv, ii
B) v, iii, iv, i, ii
C) iii, v, iv, ii, i
D) v, iii, i, ii, iv

Question 13

Interim statements are:

A) summary statements.
B) prepared by junior staff when the accountant is busy.
C) prepared between the annual reports, usually half-yearly, quarterly or monthly.
D) used by creditors to deal with an emergency.

Question 14

Which of the following statements about closing entries is true?

A) Closing entries are made at the end of each accounting period whatever its length.
B) Closing entries are only made at the end of the accounting year.
C) With computerised accounting systems there is no need to close off the expense and income accounts.
D) The profit or loss summary account is used regularly when processing transactions for sales and expenses.

Question 15

Income and expense accounts can be referred to as:

A) incurred accounts.
B) temporary accounts.
C) personal accounts.
D) permanent accounts.

Question 16

Because the balance at the end of one accounting period becomes the opening balance at the start of the next period, balance sheet accounts are known as:

A) temporary accounts.
B) permanent accounts.
C) long-term accounts.
D) multi-period accounts.

Question 17

Closing the accounts refers to:

A) establishing zero balances in the balance sheet accounts.
B) establishing a zero balance in the cash at bank account.
C) establishing zero balances in all ledger accounts.
D) transferring income and expense account balances to the profit or loss summary account, which is then closed to the equity account.

Question 18

What is the correct order for the steps in the closing process?
I Transfer the profit or loss to the owner's capital account
II Balance the owner's capital account
III Close the drawings account to the owner's capital account
IV Close the income and expense accounts to the profit or loss summary account

A) III, IV, II, I
B) I, II, III, IV
C) IV, III, I, II
D) IV, III, II, I

Question 19

Adjusting entries prepared for interim financial statements are:

A) always recorded in the journal.
B) always recorded in the ledger.
C) often recorded on a worksheet.
D) there are usually no adjusting entries made when interim financial statements are prepared.

Question 20

In the closing process which accounts are closed?

A) All ledger accounts
B) All asset, liability and equity accounts
C) All income and expense accounts
D) All accounts that have been adjusted

Question 21

The balance in the profit or loss summary account before it is closed represents:

A) profit (or loss) less drawings.
B) total expense.
C) profit (or loss).
D) total owner's capital.

Question 22

The balance of the salaries expense account is $1200. Which is the correct closing general journal entry?

A)
B)
C)
D)

Question 23

Closing which of these accounts results in a credit to the profit or loss summary account?

A) Sales
B) Insurance expense
C) Depreciation
D) Drawings

Question 24

The post-closing trial balance contains only:

A) income statement accounts.
B) asset and liability accounts.
C) balance sheet accounts.
D) temporary accounts.

Question 25

Closing entries are made:

A) in the ledger only.
B) in the journal and the ledger.
C) in the journal only.
D) on the worksheet.

Question 26

Which of these accounts should be closed to the profit or loss summary account at the end of the financial period?

A) Insurance payable
B) Prepaid insurance
C) Accumulated depreciation
D) Depreciation

Question 27

Which of these accounts is closed to the profit or loss summary account?

A) GST outlays
B) Depreciation expense
C) Owner's drawings
D) Prepaid insurance

Question 28

The major purpose of a post-closing trial balance is to:

A) prepare the accounting reports.
B) confirm that the ledger is in balance at the start of the new accounting period.
C) determine if any closing entries have been missed.
D) determine if any adjusting entries have been missed.

Question 29

What is the closing entry for drawings of $25 000?

A) Debit owner's capital account $25 000; credit drawings $25 000
B) Debit profit or loss summary account $25 000; credit drawings $25 000
C) Debit bank $25 000; credit drawings $25 000
D) None of the above

Question 30

Which of the following is the correct closing entry for a profit of $105 300?

A) No closing entry is required
B) Debit profit or loss summary account $105 300; credit owner's capital account $105 300
C) Debit owner's capital account $105 300; credit profit or loss summary account $105 300
D) Debit owner's capital account $105 300; credit bank $105 300

Question 31

On a worksheet if the opening balance of the salaries expenses account was $7000, a reversing entry for $800 was completed for salaries accrued in the previous year and $600 of salaries were prepaid in the current year the balance of salaries expense transferred to the income statement column would be:

A) $6800.
B) $7200.
C) $8400.
D) $5600.

Question 32

The major purpose of a post-closing trial balance is to:

A) confirm that the adjusting entries are correct.
B) determine if any adjusting entries have been omitted.
C) test for equality of debits and credits in the general ledger to ensure the opening position is correct for the next period.
D) make sure that all post-closing account balances are equal to the pre-closing account balances.

Question 33

Which of these is not recorded on a worksheet?

A) Closing entries
B) Drawings
C) Adjusting entries
D) Profit for the period

Question 34

A) Cash 110 000 Capital 110 000
B) Profit or loss summary 110 000 Capital 110 000
C) Capital 110 000 Cash 110 000
D) Capital 110 000 Profit or loss summary 110 000

Question 35

Which statement relating to closing entries is incorrect?

A) The closing process is simple with a computerised accounting system.
B) Closing entries are only made once a year.
C) Closing entries are made each time a trial balance is prepared.
D) The need for closing entries arises from the accounting period assumption.

Question 36

Which statement relating to the profit or loss summary account is incorrect?

A) The balance in each income and expense account is transferred to the profit or loss summary account.
B) The profit or loss summary account is a permanent account.
C) The profit or loss summary account is established to summarise the balances in the income and expense accounts.
D) The balance in the profit or loss summary account is transferred to the owner's capital account.

Question 37

Which of the following is the correct closing entry for sales income of $30 000?

A) Debit sales income $30 000; credit equity $30 000
B) Debit profit or loss summary account $30 000; credit sales income $30 000
C) Debit equity $30 000; credit sales income $30 000
D) Debit sales income $30 000; credit profit or loss summary account $30 000

Question 38

A) $90.
B) $110.
C) $80.
D) $170.

Question 39

What is the correct closing entry for the bank account?

A) No closing entry is required
B) Debit owner's capital account; credit bank
C) Debit bank; credit owner's capital account
D) Debit profit or loss summary account; credit bank

Question 40

If telephone expenses for the year are $7900, made up of cash payments of $7400 and accrued telephone expense of $500 what is the amount of telephone expense that is closed to the profit and loss summary account?

A) Nil
B) $500
C) $7900
D) $8400

Question 41

The major purpose of a post-closing trial balance is to:

A) prepare the accounting reports.
B) confirm that the ledger is in balance at the start of the new accounting period.
C) determine if any closing entries have been missed.
D) determine if any adjusting entries have been missed.

Question 42

The income statement and the balance sheet are essentially the same for sole traders and partnerships except for transactions that directly affect:

A) profit.
B) liabilities.
C) assets.
D) equity.

Question 43

Assume that no reversing entries are made by this firm. If wages of $11 200 were accrued by it at the end of the year and the first payment of wages in the subsequent year was $101 600 how would this payment be recorded?

A) Debit salaries payable $11 200; debit salaries expense $90 400; credit cash $101 600
B) Credit salaries payable $11 200; debit salaries expense $112 800; credit cash $101 600
C) Debit salaries payable $11 200; debit salaries expense $101 600; credit cash $112 800
D) Debit salaries expense $90 400; credit cash $90 400

Question 44

If a profit has been earned for the year, before the closing entries, the profit or loss summary account has a___________________ balance.

A) debit
B) credit
C) positive
D) negative

Question 45

Which adjustment would never require a reversing entry?

A) Accrued revenue
B) Accrued expense
C) Prepaid income (cash received originally recorded in an income account)
D) Depreciation

Question 46

Which of the following statements relating to reversing entries is correct?

A) They reverse the effect of credit transactions.
B) They reverse the effects of closing entries.
C) They reverse the effect of errors.
D) They reverse the effect of certain adjusting entries.

Question 47

When reversing entries are used in the accounting system which of the following categories of adjusting entries are always reversed?
Accrued Expenses Accrued Revenue Depreciation

A) Yes Yes Yes
B) No No No
C) Yes Yes No
D) No No Yes

Question 48

Assume that no reversing entries are made by this firm. If wages of $12 400 were accrued by it at the end of the year and the first payment of wages in the subsequent year was $110 500 how would this payment be recorded?

A) Debit salaries payable $12 400; debit salaries expense $98 100; credit cash $110 500
B) Credit salaries payable $12 400; debit salaries expense $122 900; credit cash $110 500
C) Debit salaries payable $12 400; debit salaries expense $110 500; credit cash $122 900
D) Debit salaries expense $98 100; credit cash$98 100

Question 49

On 1 January Make More Company Pty Ltd issued 10 000 shares for $3 each. Which of the following is the correct entry to record this transaction?

A) Debit bank $30 000; credit shareholder's equity $30 000
B) Debit bank $10 000; credit share capital $10 000
C) Debit bank $30 000; credit share capital $30 000
D) Debit share capital $10 000; credit bank $10 000

Question 50

Entries made at the beginning of the next accounting period to reverse the effect of various adjustments, are called:

A) adjusting entries.
B) contrary entries.
C) reversing entries.
D) negative entries.

Question 51

The true statement is:

A) reversing entries are always necessary.
B) reversing entries are optional and are only made so that the accounting at the beginning of the new accounting period is less complicated.
C) all prepayments need to be reversed.
D) reversing entries are made on the last day of the financial year.

Question 52

Which of these is not a purpose of a post-closing trial balance?

A) Testing for the equality of debits and credits in the general ledger.
B) Making sure the ledger is correct as the starting point for the next financial period.
C) Checking that all the revenue and expense accounts have been closed-off.
D) Finding out how much profit the entity has made.

Question 53

The retained profits balance of The Fruit Drop Company was $40 000 on the first day of the year. Profit during the year was $20 000. Near year-end a $10 000 dividend was declared that is to be paid in the following year. Year-end retained profits are:

A) $70 000.
B) $60 000.
C) $50 000.
D) $40 000.

Question 54

In a company balance sheet, what are the two main categories equity is separated into?

A) Share capital and retained profits
B) Retained profits and dividends
C) Share capital and dividends
D) Retained profits and dividends payable

Question 55

Dividends require two accounting entries, one when the dividend is declared and another when it is paid. What is the correct entry to record the declaration of a cash dividend of 20c a share calculated on 100 000 shares?

A) Debit dividend payable $20 000; credit cash at bank $20 000
B) Debit retained profits $20 000; credit dividend payable $20 000
C) Debit bank $20 000; credit share capital $20 000
D) Debit dividend payable $20 000; credit retained profits $20 000

Question 56

A trial balance taken out after the closing process has been completed is called a:

A) final trial balance.
B) adjusted trial balance.
C) closing trial balance.
D) post-closing trial balance.

Question 57

Which of the following statements relating to reversing entries is correct?

A) Reversing entries are always necessary.
B) There are alternative ways of dealing with the effect of accruals in subsequent periods without using reversing entries.
C) Reversing entries are never appropriate for deferral type entries.
D) Depreciation is an adjustment that requires reversing in the subsequent period.

Question 58

At the end of an accounting period wages expense of $190 000 is closed to the profit and loss summary account. The wages are made up of $180 000 paid in cash and accrued wages of $10 000. A reversing entry is made for accrued wages on the first day of the next accounting period. The first payment to employees for wages in the new year is $25 000. How would this payment be recorded?

A) Debit wages expense $15 000; debit accrued wages $10 000; credit bank $25 000
B) Debit wages expense $25 000; credit bank $25 000
C) Debit wages expense $15 000; credit bank $15 000
D) Debit accrued wages $10 000; credit bank $10 000

Question 59

When closing the accounts of a partnership it is true that:

A) partner's salaries must be treated as drawings because partners are owners.
B) a retained profits account is used rather than a profit or loss summary account.
C) profit is credited to each partner's capital account according to the profit sharing agreement.
D) a loss for the period is carried forward and is not transferred to the partner's capital accounts.

Question 60

Cash distributions made to the owners of a company by the directors are called:

A) drawings.
B) retained profits.
C) dividends.
D) shares.

Question 61

What type of account is retained profits?

A) Asset
B) Liability
C) Income
D) Equity

Question 62

On 1 January Y Company Pty Ltd issued 100 000 shares for $2 each. Which of the following is the correct entry to record this transaction?

A) Debit bank $200 000; credit shareholder's equity $200 000
B) Debit bank $200 000; credit share capital $200 000
C) Debit bank $100 000; credit share capital $100 000
D) Debit shareholder's equity $200 000; credit bank $200 000

Question 63

In accounting for a partnership separate capital and drawings accounts are maintained for each:

A) shareholder.
B) partnership.
C) year.
D) partner.

Question 64

At the end of the period a company often prepares which additional accounting report?

A) Statement of changes in equity
B) Statement of retained profits
C) Statement of equity
D) Statement of liabilities

Question 65

What type of account is dividend payable?

A) Asset
B) Liability
C) Income
D) Equity