accounting chapter 4

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list the accounts that are considered to be permanent and which are considered to be temporary

permanent - cash, accounts receivable, equipment, accumulated depreciation, accounts payable, common stock, retained earnings. temporary - expense accounts, revenue accounts, dividends account

which financial statement would contain each of the following accounts

rent revenue - income statement dividends - statement of stockholders equity legal expenses payable - balance sheet machinery - balance sheet legal expense - income statement retained earnings - balance sheet net income - income statement

where are revenue and expense accounts closed

revenue and expense accounts are closed to the dividends account (the balance from the revenue - expense is put as a credit on the retained earnings)

describe the process of preparing an income statement

the income statement is prepared directly from the adjusted trial balance column beginning with revenue the expenses from largest to smallest with miscellaneous expense always last

explain the format of the balance sheet and how to prepare one

you start off with the title of the company then the name of the financial statement you are about to prepare the the last date of the month then list your current assets followed by property plant and equipment then move to your current and long term liabilities the your stockholders equity

describe the steps in preparing the end of period spreadsheet

1. enter the title 2. enter the unadjusted trail balance 3. enter the adjustments 4. enter the adjusted trail balance 5. extend the accounts to the income statement and balance sheet columns 6. total the income statement and balance sheet columns and compute the net income or net loss and complete the spread sheet

list which accounts from the adjusted trial balance will flow into each financial statement.

1. income statement: revenues and expenses (fees earned, rent expense, wages expense, etc) 2. statement of stockholders equity: common stock, net income, dividends balance sheet: current assets (cash, acts receivable, etc) long term assets (property plant and equipment) liabilities (current and long term) 3. stockholders equity (common stock retained earnings)

describe the steps in the accounting cycle and the order in which they occur

1. transactions are analyzed and recorded in the journal 2. transactions are posted to the ledger 3. an unadjusted trail balance is prepared 4. adjustment data are assembled and analyzed 5. an optional end of period spreadsheet is prepared 6. adjusting entries are journalized and posted to the ledger 7. an adjusted trail balance is prepared 8. financial statements are prepared 9. closing entries are journalized and posted to the ledger 10. a post closing trail balance is prepared

determine if the following accounts are considered temporary or permanent

account receivable - permanent wages expense - temporary salaires payable - permanent fees earned - temporary

determine if each of the following accounts is a current asset, fixed asset, current liability, or long term liability

accounts payable - current liability machinery - long term asset notes receivable, maturity in one year - current asset

Working Capital

current assets - current liabilities

explain the difference between current and fixed assets and current and long term liabilities

current assets are assets that are expected to be converted to cash or sold or used with one year or less. fixed assets are assets that you expect to hold on to for a long time and depreciate over a period of time except land. current liabilities are liabilities that will be due within a short time usually one year or less long term liabilities are liabilities that will not be due in a long time usually a year or longer

Current Ratio

current assets divided by current liabilities


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