accounting unit 6

post-closing trial balance

only lists the accounts that have a balance

Quick Ratio Formula

quick ratio= (cash+ accounts receivable + short-term investments)/ Current liabilities

if a company has a net income for the period and closes its books using the income summary account, will the income statement summary account have a debit or credit balance before it is closed to the capital account

the income summary will have a credit balance

closing the books

updates owners capital and starts a new income statement for the upcoming period.

1. close revenue on the income summary account 2. close the expense on the income summary account 3. close owners capital on the income summary account 4. close owners withdraws account to owners capital

what are four steps to close the accounts using the income summary?

1. Zero out the revenue account 2. zero out the expense account 3. zero out owners withdraws

what are the three steps to close directly to owners capital

The categories that appear on the post closing balance trial balance are, assets, liabilities and capital account

which categories of accounts appear on the post-closing trial balance.

Current Ratio Formula

Current Ratio = Current Assets / Current Liabilities

working capital = current assets - current liabilites

How do you calculate the working capital

What does it mean to have negative working capital

If a business has a negative working capital the business has a hard time paying off its debts.

Current Ratio

Measures the company's ability to pay current liabilities from current assets. Total current assets / Total current liabilities.

The classified balance sheet groups assets and liabilities into current and long term items. A non-classified balance sheet doesn't do this

What is one difference between a non-classified balance sheet and a classified balance sheet

temporary accounts

accounts are brought back to zero at the end of the period. ex. revenue, expenses owners withdraws

permanent accounts

are balance sheet items that have their balances carried forward from one accounting period to the next. Ex. cash liabilities and owners capital

closing entries

are made to revenue, expenses and owners withdraws at the end of an accounting period, to close out the account

current assets

cash and other assets expected to be exchanged for cash or consumed within a year

Statement of Owner's Equity

changes in equity during the reporting period

Direct Method

close directly to owners capital

income summary method

close using the income summary method

plant assets

contains several types of non-current assets such as land building equipment.

Operating Cycle

is the time between the use of cash and the receipt of cash for the business

Current Liabilities

liabilities due within a short time, usually within a year

long-term liabilities

liabilities owed for more than a year

noncurrent assets

long-term investments, plant assets, intangible assets

Quick Ratio

measures how easily assets can be turned into cash