REVIEW OF THE ACCOUNTING PROCESS - Theories Part IV

False Explanation It is still necessary for an entity to post the closing entries.

Since new and revenue accounts will be opened in the subsequent accounting period, it is no longer necessary for an entity to post the closing entries to the accounts in the ledger.

True

Special journals are used to record usual and frequent transactions.

False Explanation The accounting process consists of the recording phase and summarizing phase.

The accounting process consists of the recording phase and the reporting phase.

False Explanation Financial Statements are prepared right after the adjusted trial balance.

The adjusted trial balance is prepared after the financial statements are prepared.

True Asset, Liability and Equity accounts are considered real accounts.

The asset and liability accounts are known as real accounts.

True Explanation The balance sheet essentially shows the value of the company on a given date by demonstrating what would remain if all liabilities were paid off using available assets.

The balance sheet shows the financial positions of a company on a given date.

False Explanation The balances of nominal accounts are closed to income summary account.

The balances of all the accounts in the general ledger must be closed at the end of the accounting period.

True

The rules for debit and credit and the normal balance of liabilities are the same as for capital.

True Explanation Accounting is defined as a service activity. Its function is to provide quantitative information, primarily financial in nature, about economic entities that is intended to be useful in making economic decisions.

Accounting is a service activity whose function is to provide quantitative information about economic entities.

False Explanation Adjunct accounts are set up to record additions to related accounts such as freight in.

Accumulated depreciation is an example of an adjunct account.

False Explanation Adjusting entries are made to update the balances of the accounts before preparing the financial statements.

Adjusting entries are made to correct errors made in the recording phase.

True Explanation If the difference is divisible by 2, you may have transferred a debit-balanced account to the trial balance as a credit, or a credit-balanced account as a debit.

Entering a debit balance in an account as a credit will cause the trial balance to be out of balance by an amount that is divisible by 2.

False Explanation Debit and credit totals must be equal all the time.

It is sometimes correct for a compound entry's debit totals and credit totals to be unequal.

True Explanation Asset - Liabilities = Owner's Equity

Owner's equity is the excess of an entity's assets over its liabilities.

True Explanation The entry for the expired portion of an asset is debit expense account credit asset account.

Recording the expiration of a prepaid asset results in the reduction of the asset account and an increase in a related expense account

False Explanation Reversing entries are prepared at the beginning of the accounting period.

Reversing entries are prepared at the end of the accounting period

True Explanation The difference between the totals of the two columns determines net income or net loss.

The difference between the debit total and the credit total in the statement of financial position section of the worksheet represents the profit or loss during the period.

False Explanation Depreciation Expense is not reversed. Only prepaid expense under expense method and unearned revenue under revenue method is subject for reversing.

The entry to record depreciation expense is an example of an adjustment that would be reversed if reversing entries are made.

True A general ledger account that has a supporting subsidiary ledger is called control account

The general ledger account that summarizes the detailed information in a subsidiary ledger is known as control account.

True

The general ledger includes all accounts appearing in the financial statements, while subsidiary ledgers provide details in support of certain general ledger balances.

False Explanation Worksheet facilitates the preparation of the financial statements but not eliminate the need to journalize and post entries.

The preparation of worksheet eliminates the need to journalize and post adjusting entries.

False Explanation The purpose of trial balance is to prove the equality of debits and credits.

The purpose of a trial balance is to reconcile the subsidiary ledger balances with general ledger balances.

True Explanation Accrued expense entry is; debit expense account and credit liability account.

The recording of an accrued expense will always result to an increase in an expense account and a liability account.

True Explanation A business transaction is first recorded in a journal, also called a Book of Original Entry.

The records used for the initial recording of business transactions are journals.

False Explanation Adjusted Trial Balance is used to prepare statement of income and statement of financial position.

The trial balance is used to prepare the statement of comprehensive income while the general ledger is used to prepare the statement of financial position.