Chapter 6 accounting.

When recording closing entries in the general journal, which of the following is written in the Description column?

"closing entries"

Capital at the beginning of the month amounted to $4,000; net income for the month amounted to $1,000; and withdrawals for personal use during the month amounted to $2,000. Capital at the end of the month is

$3,000

The total revenue of the month of June amounted to $7,500; total expenses amounted to $3,500; and withdrawals amounted to $600. The net income for the month amounted to

$4,000

The owner's equity in a business amounted to $52,000 at the beginning of the year and $100,000 at the end of the year. The owner had made no additional investments and had withdrawn $19,000 during the year. The net income for the year amounted to

$67,000

The total assets amount to $26,000 and the total liabilities amount to $18,000. The amount of the owner's equity is

$8,000

After the closing entries have been posted, which of the following accounts would still have a balance?

Accumulated Depreciation Equipment

(Appendix) The accuracy of the statement of cash flows can be proved by comparing the cash provided by operating activities with the change in the cash balance.

False

(Appendix) The three types of business activities are operating activities, investing activities, and capital activities.

False

A balance sheet that classifies (or groups) items by similarities is called a unified balance sheet.

False

A form of balance sheet that lists the assets at the left and the liabilities and owner's equity at the right is called a report form of balance sheet.

False

A form of balance sheet that shows the liabilities and owner's equity sections below the assets section is called an account form of balance sheet.

False

A mortgage on an office building is an example of a property, plant, and equipment asset.

False

A separate explanation of each closing entry is necessary.

False

Adjusting entries are recorded and posted after closing entries.

False

Adjustments at the end of the period are not formally entered in the journal or posted to the accounts.

False

An income statement is an itemized statement that provides information regarding the status of the assets, liabilities, and owner's equity of a business enterprise as of a specified date.

False

Assets, liabilities, and the owner's capital account are closed at the end of the accounting period.

False

Expenses on the income statement could be listed in alphabetical order by dollar amount.

False

Obligations that need not be paid for a long time, usually more than one year, are classified as current liabilities.

False

Revenue and expense account are permanent accounts.

False

The Account Title and Balance Sheet columns of the work sheet provide all of the information necessary to prepare the statement of owner's equity.

False

The effect of drawing transactions on the capital account is formalized at any time during the accounting period.

False

The end-of-period work sheet is completed after adjusting entries have been recorded and posted.

False

The heading for a balance sheet includes the name of the business, the title of the statement, and a period of time.

False

The income summary account appears on the income statement at the end of the accounting period.

False

The statement of owner's equity is prepared from information from the asset and liability accounts.

False

To close an expense account with a debit balance, debit the account for its balance and credit the income summary account.

False

To close the income summary account with a credit balance, debit the account for its balance and credit the drawing account.

False

The account to which revenue and expenses are closed is called

Income Summary

The account to which the drawing account is closed is called

Owner's Capital

After the closing entries are journalized and posted, which of the following accounts would NOT have a balance?

Service Revenue

After the accounts are closed and the journal entries have been posted, which of the following accounts would have a balance?

Supplies

A post-closing trial balance is used to prove the equality of debit and credit balances in the general ledger accounts after the closing entries have been posted.

True

A statement of owner's equity is a statement summarizing all of the changes in owner's equity during a specified period of time.

True

After posting the adjusting entries, the balance of the depreciation expense account should agree with the amount shown on the income statement.

True

An income statement is an itemized statement for the purpose of providing information regarding the results of operations during a specified period of time.

True

Closing entries are made in the journal and posted to the ledger accounts.

True

Current assets include cash and other assets that will be converted into cash or consumed within one year or the normal operating cycle of the business, whichever is longer.

True

Expenses on the income statement could be listed in the same order as they appear in the chart of accounts.

True

Long-term liabilities are liabilities that are due in a period longer than one year.

True

Long-term liabilities may also be called long-term debt.

True

Property, plant, and equipment are assets that are expected to serve the business for many years.

True

Revenues and expenses are temporary accounts and are closed at the end of the accounting period.

True

The amounts in the financial statements must agree with the ledger account balances.

True

The income statement includes all changes in owner's equity except those resulting from investments or withdrawals of assets by the owner.

True

The income summary account is an account used only during the closing process.

True

The purpose and use of the income summary account is to summarize the difference between revenues and expenses.

True

The steps involved in handling all of the transactions and events completed during an accounting period, beginning with placing data in a book of original entry and ending with a post-closing trial balance, are referred to collectively as the accounting cycle.

True

To close a revenue account with a credit balance, debit the account for its balance and credit the income summary account.

True

To close the drawing account with a debit balance, credit the account for its balance and debit the owner's capital account.

True

Which of the following steps is generally recognized as the first step of the accounting cycle? a.Analyze source documents. b.Journalize and post the adjusting entries. c.Prepare a trial balance. d.Journalize the transactions.

a. Analyze source documents.

Once the closing process is completed, which of the following are the only remaining open accounts with balances? a.Permanent accounts b.Temporary accounts c.Owner's equity d.Asset accounts

a. Permanent accounts

What is the purpose of the post-closing trial balance? a.To prove that debits equal credits in the permanent general ledger accounts b.To record any revenues that occurred after the year-end but before the books closed c.To avoid preparing a balance sheet d.To adjust for any gains or losses for the period

a. To prove that debits equal credits in the permanent general ledger accounts

The steps involved in accounting for all of the business activities during the accounting period make up the a.accounting cycle. b.closing process. c.fiscal period. d.accounting system.

a. accounting cycle.

The closing process prepares temporary accounts to begin each new fiscal period with a a.zero balance. b.proven balance. c.debit balance. d.credit balance.

a. zero balance.

What is the journal entry to close the drawing account if it has a balance of $2,100? a.Debit Income Summary for $2,100 and credit Drawing for $2,100 b.Debit Capital for $2,100 and credit Drawing for $2,100 c.Debit Drawing for $2,100 and credit Capital for $2,100 d.Debit Drawing for $2,100 and credit Income Summary for $2,100

b. Debit Capital for $2,100 and credit Drawing for $2,100

Given the following data, what is the journal entry to close the service revenue account? Debit Credit. Service Revenue-------$7,775Bal. a.Debit Income Summary for $7,775 and credit Service Revenue for $7,775 b.Debit Service Revenue for $7,775 and credit Income Summary for $7,775 c.Debit Income Summary for $7,775 and credit owner's capital account for $7,775 d.Debit owner's capital account for $7,775 and credit Service Revenue for $7,775

b. Debit Service Revenue for $7,775 and credit Income Summary for $7,775

All amounts on the post-closing trial balance are the same as on the Balance Sheet columns of the work sheet except a.Equipment and Accumulated Depreciation—Equipment. b.Drawing and Capital. c.Cash and Accounts Receivable. d.Accounts Payable and Notes Payable.

b. Drawing and Capital.

On a balance sheet, current assets are usually listed in a.increasing order of liquidity. b.decreasing order of liquidity. c.alphabetical order. d.order of acquisition.

b. decreasing order of liquidity.

The amount reported in the Balance Sheet columns of the work sheet for the owner's capital represents the

beginning balance plus additional investments

Which of the following types of balance sheet differentiates between current and long-term assets and liabilities? a.Comparative balance sheet b.Operating balance sheet c.Classified balance sheet d.Valuation balance sheet

c. Classified balance sheet

All of the following steps in the accounting cycle occur before preparing financial statements except a.posting to the general ledger accounts. b.journalizing and posting the adjusting entries. c.journalizing and posting the closing entries. d.journalizing the transactions.

c. journalizing and posting the closing entries.

Accounts used to accumulate information for a specific accounting period and closed at the end of each fiscal year are called a.permanent accounts. b.capital accounts. c.temporary accounts. d.revenue accounts.

c. temporary accounts.

A balance sheet that groups similar items is called a(n)

classified balance sheet

The Income Summary account is used to

close revenue accounts and expense accounts and update the owner's capital account

Cash and other assets that will be converted into cash within one year or the normal operating cycle of the business, whichever is longer, are called

current assets

Which of the following accounts should the post-closing trial balance include? a.All accounts that appear in the general ledger b.Accounts with activity in the fiscal period c.The same accounts that appeared in the work sheet's Trial Balance columns d.Accounts that have balances after posting the closing entries

d. Accounts that have balances after posting the closing entries

The balances of the accounts to be closed are found in the a.statement of owner's equity. b.general journal. c.balance sheet (owner's equity section). d.Income Statement and Balance Sheet columns of the work sheet.

d. Income Statement and Balance Sheet columns of the work sheet.

Which of the following accounts is classified as a long-term liability? a.Land b.Accounts Payable c.Vehicle d.Mortgage Payable

d. Mortgage Payable

The journal entry to close expense accounts includes

debiting Income Summary and crediting the expense accounts

The journal entry to close the income summary account (showing a profit) includes

debiting Income Summary and crediting the owner's capital account

The journal entry to close the income summary account (showing a net loss) includes

debiting the owner's capital account and crediting Income Summary

The journal entry to close the drawing account includes

debiting the owner's capital account and crediting the drawing account

The journal entry to close revenue accounts includes

debiting the revenue accounts and crediting Income Summary

(Appendix) A company receives cash from a bank loan. This activity is classified as

financing

The order in which financial statements should be prepared is

income statement, statement of owner's equity, balance sheet

The balance in an expense account is closed to a(n)

income summary account

Owner's equity can be increased through

investments by the owner

(Appendix) A utility bill for $315 was paid. This activity is classified as

operating

(Appendix) Business transactions can be classified as

operating, investing, and financing

To prove the equality of the debit and credit balances in the general ledger accounts after the closing entries have been journalized and posted, prepare the

post-closing trial balance

Which step is taken at the end of the accounting period?

prepare a post-closing trial balance

Which of the following steps of the accounting cycle are in the correct order?

prepare a trial balance, make adjustments, prepare financial statements

A form of balance sheet that lists the liabilities and the owner's equity sections below the assets section is called the

report form

What is the correct sequence for closing the temporary accounts?

revenue accounts, expense accounts, Income Summary, drawing account

The body of the income statement consists of an itemized list of

revenues and expenses

Changes in owner's equity that result from investments or withdrawals of assets by the owner are included in the

statement of owner's equity

The steps involved in handling all of the transactions and events completed during an accounting period, beginning with placing data in a book of original entry and ending with a post-closing trial balance, are referred to collectively as

the accounting cycle

What is the purpose of the post-closing trial balance?

to prove the equality of the debit and credit balances in the general ledger accounts