Ch 4 Accounting

Describe an unclassified balance sheet.

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

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

Cash Accounts receivable Prepaid rent Office supplies

Step 2:

Enter adjustments

Steps for work sheet Step 1:

Enter unajusted trial balance

Step 3

Prepare Adjusted Trial balance

Step 4:

Sort Adjusted trial Balance amounts to financial statements

Which statements below are true regarding permanent and temporary accounts?

Temporary accounts have a balance for one period only. Permanent accounts will appear on a post-closing trial balance. Permanent accounts are reported on the balance sheet. Owner, Capital is a permanent account, but Owner, Withdrawals is a temporary account. Most temporary accounts are reported on the income statement.

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.

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.

Step 5:

Total statement columns, compute income or loss balance

Current assets are:

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

Trial balance

matches Choice A list of accounts and their balances at a point in time.

Which of the statements below is correct regarding the difference between a temporary account and a permanent account?

A temporary account will not appear on a post-closing trial balance.

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.

Accounting Cycle Steps

1. Journalize the transactions 2. prepare unadjusted trial balance 3. adjust and post accounts 4. prepare adjusted trial balance 5. prepare financial statements

The first closing journal entry would include which of the following? service revenue: Credit 4,000 Rental revenue credit 2,000 wages expense debit 500 utilities expense 100 owner withdrawals 80

A credit to Income Summary for $6,000.

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 loss occurs, it is added to the Debit column of the Balance Sheet. 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.

Which of the following statements is (are) correct about completing a work sheet?

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.

Reserving entries

Are optional

Unclassified balance sheet

Broadly groups accounts into assets, liabilities , and equity.

Describe your understanding of the closing process by identifying the correct steps below.

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

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

Closing means to reset an account balance to 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.

Recall the column headings of a work sheet used to prepare financial statements. Which of the following items are on a worksheet.

Income Statement columns Balance Sheet & Statement of Owner's Equity columns Unadjusted Trial Balance columns Adjusted Trial Balance columns Adjustment columns

Identify the accounts below that would be classified as a long-term investment.

Investments in bonds Notes receivable due in 2 years Investments in stocks

Work sheet

Is a document that is used internally by companies to help with adjusting and closing accounts and with preparing financial statemnts.

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

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.

Closing Process

Occurs at the end of an accounting period after financial statements are completed.

Classified balance sheet

Organizes assets and liabilites into subgroups

Temporary account

Relate to one accounting.

Permanent accounts

Report on activates related to one or more future accounting periods.

Income summary

Temporary because such accounts are used for a period and then closed at period-end.

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.

Closing entries

Transfer the end of period balances in revenue, expense, and withdrawals accounts to the permeant capital account.

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

Unearned rent Accounts payable Taxes payable

The closing process takes place at the ? of an accounting period, after the ? trial balance is prepared and ? the financial statements are prepared.

end; adjusted ; after

Long term(or non current) investments

include notes receivable and investments in stocks when they are expected to be held for more than the longer of one year or the operating cycle

Review the following totals from a work sheet. Based on these totals, the company experienced (a) net Income Statement Balance Sheet Debit10k Credit 7.5k Debit41k Credit 43.5k

loss of 2,500 41-43.5=2.5

Identify the accounts below that would be classified as current liabilities on a classified balance sheet.

Accounts payable Taxes payable Unearned rent

When does the closing process take place?

At the end of an accounting period

What are current liabilities?

Current liabilities are usually settled by paying out current assets such as cash. Current liabilities are liabilities due to be paid within one year.

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

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

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

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

The accounting cycle goes

1. Analyze transactions 2. Journalize 3. Post 4. Prepare unadjusted trial balance 5. Adjust and post 6. prepare adjusted trial balance 7. Prepare financial statements 8. Close accounts 9. Prepare post-closing trial balance 10. Optional: Reverse and post.

Identify which of the accounts below would be classified as a plant asset account.

Building Land used to produce or sell products and services Machinery Equipment

current assets

Cash and other resources that are expected to be sold, collected, or used within one year or the companies operating cycle, whichever is longer.

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

Work sheet

Choice An internal accounting aid which helps in preparing financial statements.

Current ration is one measure of a company ability to pay its short term obligations

Current ratio = current assets/ current liabilities

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.

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

Current liabilities are

Liabilities due to be paid or settled within one year or operating cycle, whichever is longer.

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.

A classified balance sheet has several categories for assets and liabilities including

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

Intangible assets

are long term assets that benefit business operations but lack physical form

Accounting cycle

is a the steps in preparing financial statements.

Steps to complete work sheet

1. Enter unadjusted trial balance 2. Enter adjustments 3. Prepare adjusted trial balance 4. Sort adjusted trial balance amounts to financial statements 5. Total financial statement columns, compute income or loss and balance columns

At year-end, ABC Company is beginning its closing process. Use the following account balances to demonstrate the closing of its revenue accounts. service fee 15k credit consulting revenue revenue 12,000 credit supplies expense 900 debit rent expense 600 debit owner withdrawl 80 debit

A credit to Income Summary for $27,000. Debit Service Fees for $15,000. Debit to Consulting Revenue for $12,000.

Balance sheet

Choice Reports a business's assets, liabilities and equity on a specific date.

Determine which of the statements below are correct regarding the current ratio. (Check all that apply.)

A current ratio of less than 1.0 would indicate that a company might have a problem paying off short term debt. The current ratio can affect interest rates charged by creditors when lending money to a business. The current ratio helps a supplier determine whether it wants to extend credit to a customer. The current ratio is one measure of a company's ability to pay its short-term debts.

The Income Summary account can be defined as which of the following?

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

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

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

Post closing trial balance

Is a list of permanent accounts and their balances after all closing entries.

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

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

Define the Income Summary account.

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

Select the statements below that describe the purpose of a post-closing trial balance.

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.

Longer term liabilities

Liabilities not due within one year or the operating cycle, whichever is longer.

What defines a long-term investment? (Check all that apply.)

Long-term investments are investments in stocks and bonds when they are expected to be held for more than one year or the operating cycle. Notes receivable and stock and bond investments are assets that are expected to be held for more than one year.

Identify the accounts below that would be classified as long-term liabilities on a classified balance sheet.

Notes payable Bonds payable Mortgage payable

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.

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

Define plant assets by selecting the correct statements below.

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 used to produce or sell products or services.

A classified balance sheet has several categories for assets and liabilities including:

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

Statement of cash flows

Reports the inflows and outflows of cash during a period of time.

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

Reversing journal entries

in millions; current year 620 current asset, current liabilities 430, current ratio 1.44. industry current ratio 1.28

The company's ratio is above the industry's ratio, so this company is able to cover its debt better than others in this industry. The company's ability to pay short-term obligations is not in doubt since its current ratio is greater than 1.0

Operating cycle

Time span from when cash is used to acquire goods and services until cash is received from the sale of goods and services.

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.

Income statement

matches Choice Reports a business's revenues and expenses for a period of time.