Accounting Chapter 4 Smart Book

Explain the required steps to complete a work sheet by placing the following in the correct order of completion. (Put the first step at the top.)

1. Enter unadjusted trial balance 2. Enter adjustments 3. Prepare adjusted trial balance 4. Sort (adjusted) trial balance amounts for financial statements 5. Total financial statement columns 6. Compute net income or net loss and add to the balance sheet columns

Which of the statements below describe(s) a temporary account? (Check all that apply.)

A temporary account has a balance for only one period. A temporary account is closed at the end of an accounting period.

Which of the following statements correctly describes what a work sheet is? (Check all that apply.)

A worksheet is a tool used by accountants. A work sheet is prepared at the end of an accounting period. A work sheet does not substitute for financial statements. A work sheet helps to organize financial data.

Which of the following statements is (are) correct about completing a work sheet? (Check all that apply.)

Adding net income to the Credit column of the Balance Sheet & Owner's Equity columns implies that it is to be added to Owner, Capital. If a net income occurs, it is added to the Debit column of the Income Statement. If a net income occurs, it is added to the Credit column of the Balance Sheet. If a loss occurs, it is added to the Debit column of the Balance Sheet.

Which of the following statements is correct regarding a work sheet and the adjustment process?

Adjusting journal entries are prepared from the Adjustments columns of a work sheet.

Recall the column headings of a work sheet used to prepare financial statements. Which of the following items would be seen on such a worksheet. (Check all that apply.)

Adjustment columns Balance Sheet columns Unadjusted Trial Balance columns Adjusted Trial Balance columns Income Statement columns

The Income Summary account can be defined as which of the following? (Check all that apply.)

An account that contains a credit for the sum of all revenues A temporary account An account whose balance equals net income or net loss An account used during the closing process

Review and complete the following statement regarding the Income Summary account. The Income Summary account is __________________(debited/credited) for the sum of all revenue accounts and is _______________(debited/credited) for the sum of all expense accounts and its balance will be transferred to the ______________(Capital/Cash) account.

Blank 1: credited Blank 2: debited Blank 3: capital

The closing process takes place at the _________ (end/beginning) of an accounting period, after the __________(adjusted/unadjusted) trial balance is prepared and _____________ (after/before) the financial statements are prepared.

Blank 1: end Blank 2: adjusted Blank 3: after

A post-closing trial balance is a list of ______________(permanent/temporary) accounts and their balances from the ______________(journal/ledger) ___________(after/before) all _________________(adjusting/closing) entries have been journalized and posted.

Blank 1: permanent Blank 2: ledger Blank 3: after Blank 4: closing

Current items can be described as those expected to come due within one ____________(month/year) and are listed in the order of how ___________________(quickly/slowly) they could be converted to or paid in cash.

Blank 1: year Blank 2: quickly

Which of the following accounts would be sorted from the Adjusted Trial Balance of a work sheet to the Balance Sheet & Statement of Owner's Equity columns on a work sheet?

Cash; Accounts payable; Owner, Withdrawals

Describe your understanding of the closing process by identifying the correct steps below. (Check all that apply.)

Close all revenue accounts. Close the Withdrawals account. Close the Income Summary account. Close all expense accounts.

Summarize the steps in the closing process by selecting the correct choice below.

Close income statement credit balance accounts; close income statement debit balance accounts; close income summary; close withdrawals.

Identify which of the following steps in the accounting cycle is optional.

Reversing journal entries

After an adjusted trial balance is prepared, what is the next step in completing the work sheet used in preparing financial statements?

Sort adjusted trial balance amounts to the financial statement columns.

Select the statement below that explains how to use the Income Summary account.

The Income Summary account is used during the closing process to facilitate the closing of revenue and expense accounts.

Review the following statements and select which is correct regarding a work sheet and formal financial statements.

The Withdrawal's account balance will be used in preparing the statement of owner's equity.

Given that a company reported net income for the year, determine how a company would complete its work sheet for the period by choosing the correct statement below.

The company would add the net income amount to the Credit column of the Balance Sheet & Owner's Equity columns of a work sheet.

Current assets are:

cash and other resources that are expected to be sold, collected or used within one year

Describe an unclassified balance sheet.

An unclassified balance sheet is one whose items are broadly grouped into assets, liabilities, and equity.

Closing means to transfer account balances from _______________(asset/liability/permanent/temporary) accounts so that they will start with a ___________________(contra/larger/zero) balance at the beginning of the next period.

Blank 1: temporary Blank 2: zero

Define "current" as it applies to assets and liabilities on a classified balance sheet.

Current items are those expected to come due within one year or the company's operating cycle, whichever is longer.

Which of the following is correct regarding a work sheet?

Each set of column totals must balance on the Trial Balance columns, Adjustments columns and the Adjusted Trial Balance columns.

Define the Income Summary account.

It is a temporary account used during the closing process to summarize revenues and expenses.

Formal financial statements can be prepared from the columns of a work sheet. Which of the statements below are true regarding this process?

The Debit column of the Income Statement columns represent the expenses reported on the Income Statement.

Which of the following statements correctly summarizes how to compute net loss or net income using a work sheet?

The difference between the totals of the debit and credit columns of the Income Statement columns is net income or net loss.

Before sorting/transferring amounts to the financial statement columns on a worksheet, the Trial Balance _____________ (Income Statement, Adjustments) and Adjusted Trial Balance columns must _______________(balance, clear).

blank 1. Adjustments blank 2. balance

When does the closing process take place?

At the end of an accounting period

Select the statement below that describes a post-closing trial balance.

It is a listing of all permanent accounts and their balances after closing.

Identify which of the accounts below would be classified as a current asset. (Check all that apply.)

Prepaid rent Office supplies Accounts receivable Cash

Which of the following lists steps of the accounting cycle in the correct order (note that not all steps are listed)?

Trial balance, Adjusting journal entries, Post-closing trial balance.

Choose the statement below that explains what "closing" means.

Closing means to bring an account balance to zero.

Define plant assets by selecting the correct statements below. (Check all that apply.)

Plant assets are equipment and other assets that have a life greater than one year. Plant assets are property, plant and equipment that are tangible. Plant assets are difficult to convert to cash quickly.

Which of the following lists contains only temporary accounts?

Wages Expense; Income Summary; Owner, Withdrawals

A classified balance sheet can be described as a balance sheet that: (Check all that apply.)

is more useful to decision makers. organizes assets and liabilities into important subgroups. lists current assets in the order of how quickly they can be converted to cash.

Some of the steps in the accounting cycle are listed below. Place them in the correct order of use.

Journalize transactions into the journal Journalize and post the adjustments prepare the adjusted trial balance prepare the financial statements journalize and post closing entries prepare post-closing trial balance

Select the statement(s) below which correctly describe how to use the work sheet in the adjustment process. (Check all that apply.)

Journalizing and posting adjusting entries is required after adjustments are entered in a work sheet. Information from the Adjustments columns are used for the adjusting journal entries.

Identify which of the accounts below would be classified as a plant asset account. (Check all that apply.)

Land currently being used Machinery Equipment Building

Review the following statements and select the ones that are correct regarding sorting accounts from the Adjusted Trial Balance columns of a work sheet to the Income Statement and Balance Sheet columns in order to prepare for our last step of completing the worksheet. (Check all that apply.)

Liabilities go to the Balance Sheet & Statement of Owner's Equity Credit column. Expense accounts go to the Income Statement Debit column. Owner, Withdrawals go to the Balance Sheet & Statement of Owner's Equity Debit column.

Which of the following defines long-term liabilities?

Long-term liabilities are debts of a business that are not due to be settled within one year.

Identify the accounts below that would be classified as long-term liabilities on a classified balance sheet. (Check all that apply.)

Mortgage payable Bonds payable (due in five years)

A classified balance sheet has several categories for assets and liabilities including: (Check all that apply.)

Noncurrent (long-term) liabilities. Long-term investments. Current assets. Plant assets.

Select the statements below that describe the purpose of a post-closing trial balance. (Check all that apply.)

One purpose is to verify that total debits equal total credit for permanent accounts. One purpose is to verify that all temporary accounts have zero balances.