Accounting Unit 2
During the closing process, owners capital is closed to the income summary account.
False
T or F. A company's fiscal year must correspond with the calendar year?
False
T or F. Accrued revenues reflect transactions where customers pay cash in advance of services being performed.
False
T or F. Adjusting entries are made after the preparation of financial statements?
False
T or F. Before an adjusting entry is made to recognize the cost of expired insurance for the period, prepaid insurance and insurance expense are both overstated.
False
T or F. The closing process takes place before financial statements have been prepared.
False
The withdrawals account is normally closed by debiting it.
False
A classified balance sheet:
Organizes assets and liabilities into important subgroups that provide more information.
T or F. Depreciation expense for a period is the portion of a plant asset's cost that is allocated to that period.
True
T or F. Failure to record depreciation expense will overstate assets and understate expenses.
True
T or F. Income summary is a temporary account only used for the closing process:
True
T or F. Recording revenues early overstates current period income; recording revenues late understates current period income,
True
The closing process is a step in the accounting cycle that prepares accounts for the next accounting period.
True
Which two categories of accounts are affected when adjusting journal entries are made?
A income statement and Balance sheet account will be affected.
Unearned revenue is reported in the financial statements as:
A liability on the balance sheet
Which of the following are classified as plant assets? A. Machinery B. Patent C. Cash D. Office Supplies E. Merchandise Inventory
A. Machinery
The length of time covered by a set of financial statements, primarily a year for most companies, is referred to as the:
Accounting Period
Which of the following are classified as current assets? A. Office Equipment B. Patent C. Unearned Revenue D. Accounts Receivable E. Land
Accounts receivable
The approach to preparing financial statements based on recognizing revenues when they are earned and matching expenses to those revenues is:
Accrual Base Accounting
Incurred but unpaid expenses that are recorded during the adjusting process with a debit to an expense and a credit to a liability are:
Accrued Expenses
The total amount of depreciation recorded against an asset over the entire time the asset has been owned:
Accumulated Depreciation
An account linked with another account that has an opposite normal balance and is subtracted from the balance of the related account is a:
Contra Account
Which of the following accounts is a permanent account? A. Fees earned B. Office supplies expense C. Interest revenue D. Cash E. Salaries Expense
D. Cash
Closing entries are necessary so that owners capital will begin each period with a zero balance.
False
A company made no adjusting entries for accrued and unpaid wages of 28,000 on December 31. This oversight would:
Overstate net income by 28,000
A post closing trial balance is a list of permanent accounts and their balances from the ledger after all closing entries are journalized and posted.
True
After posting the entries to close all revenue and expense accounts, the income summary account of cleaver auto services has a 4,000 credit balance. This result implies that cleaver earned a net income of 4,000.
True
An expense account is normally closed by debiting income summary and crediting the expense account.
True
Closing entries are designed to transfer the end of period balances in the revenue accounts, the expense accounts, and the withdrawals account to owners capital.
True
Current assets and current liabilities are expected to be used up or come due within one year or the company's operating cycle, whichever is longer.
True
Permanent accounts carry their balances into the next accounting period.
True
T or F. A fiscal year refers to an organization's accounting period that spans twelve consecutive months or 52 weeks?
True
T or F. Accumulated depreciation is shown on the balance sheet as a subtraction from the cost of it's related asset.
True
T or F. Adjusting entries are necessary so that asset, liability, revenue, and expense account balances are correctly recorded.
True
T or F. Adjusting entries result in a better matching of revenues and expenses for the period?
True
