Smartbook: Chapter 4 Completing the Accounting Cycle

Closing means to transfer account balances from ___ (asset/liability/permanent/temporary) accounts so that they will start with a ___ (contra/larger/zero) balance at the beginning of the next period.

Temporary; zero

Which of the following lists contains only temporary accounts?

Wages Expense; Income Summary; Owner, Withdrawals

Which of the statements below describe(s) a temporary account? (Check all that apply.)

A temporary account has a balance for only one period. A temporary account is closed at the end of an accounting period.

Explain the required steps to complete a work sheet by placing the following in the correct order of completion. (Put the first step at the top.)

1) Enter unadjusted trial balance 2) Enter adjustments 3) Prepare adjusted trial balance 4) Sort (adjusted)trial balance amounts to financial statements 5) Total financial statement columns 6) Compute net income or net loss and add to the Balance Sheet columns

Some of the steps in the accounting cycle are listed below. Place them in the correct order of use.

1) Journalize transactions into the journal 2) Journalize and post the adjusting entries 3) Prepare the adjusted trial balance 4) Prepare the financial statements 5) Journalize and post closing entries 6) Prepare post-closing trial balance

Which of the following statements is correct regarding a work sheet and the adjustment process?

Adjusting journal entries are prepared from the Adjustments columns of a work sheet.

Recall the column headings of a work sheet used to prepare financial statements. Which of the following items would be seen on such a worksheet. (Check all that apply.)

Adjustment columns Adjusted Trial Balance columns Balance Sheet columns Income Statement columns Unadjusted Trial Balance columns

Before sorting/transferring amounts to the financial statement columns on a worksheet, the Trial Balance, ___ (Income Statement, Adjustments) and Adjusted Trial Balance columns must ___(balance, clear).

Adjustments; balance

Describe an unclassified balance sheet.

An unclassified balance sheet is one whose items are broadly grouped into assets, liabilities, and equity.

When does the closing process take place?

At the end of an accounting period

Choose the statement below that explains what "closing" means.

Closing means to bring an account balance to zero.

Choose the formula below that is used to calculate the current ratio of a business.

Current assets divided by current liabilities

Define "current" as it applies to assets and liabilities on a classified balance sheet.

Current items are those expected to come due within one year or the company's operating cycle, whichever is longer.

What are current liabilities? (Check all that apply.)

Current liabilities are reported in the order of those to be settled first. Current liabilities are liabilities due to be paid within one year. Current liabilities are usually settled by paying out current assets such as cash.

Which of the following is correct regarding a work sheet?

Each set of column totals must balance on the Trial Balance columns, Adjustments columns and the Adjusted Trial Balance columns.

The closing process takes place at the ___ (end/beginning) of an accounting period, after the ___ (adjusted/unadjusted) trial balance is prepared and ___ (after/before) the financial statements are prepared.

End; adjusted; after

Match the item on the left with the definition on the right.

Income statement: Reports a business's revenues and expenses for a period of time. Balance sheet: Reports a business's assets, liabilities and equity on a specific date. Work sheet: A useful tool in working with accounting information. Trial balance: A list of accounts and their balances at a point in time. Statement of cash flows: Reports the inflows and outflows of cash during a period of time.

Select the statement(s) below which correctly describe how to use the work sheet in the adjustment process. (Check all that apply.)

Information from the Adjustments columns are used for the adjusting journal entries. Journalizing and posting adjusting entries is required after adjustments are entered in a work sheet.

What is a work sheet? (Check all that apply.)

It can help with adjusting and closing accounts and with preparing financial statements.

Select the statement below that describes a post-closing trial balance.

It is a listing of all permanent accounts and their balances after closing.

A classified balance sheet has several categories for assets and liabilities including: (Check all that apply.)

Noncurrent (long-term) liabilities. Long-term investments. Plant assets. Current assets.

Identify the accounts below that would be classified as current liabilities on a classified balance sheet. (Check all that apply.)

Notes payable (due in three months) Unearned rent Accounts payable Taxes payable

Identify which of the accounts below would be classified as a current asset. (Check all that apply.)

Office supplies Cash Prepaid rent Accounts receivable

Select the statements below that describe the purpose of a post-closing trial balance. (Check all that apply.)

One purpose is to verify that total debits equal total credit for permanent accounts. One purpose is to verify that all temporary accounts have zero balances.

A post-closing trial balance is a list of ___ (permanent/temporary) accounts and their balances from the ___ (journal/ledger) ___ (after/before) all ___ (adjusting/closing) entries have been journalized and posted.

Permanent; ledger; after; closing

Determine which of the statements below are correct regarding the current ratio. (Check all that apply.)

The current ratio helps a supplier determine whether it wants to extend credit to a customer. A current ratio of less than 1.0 would indicate that a company would have a problem paying off short term debt. The current ratio can affect interest rates charged by creditors when lending money to a business. The current ratio is one measure of a company's ability to pay its short-term debts.

Which of the following lists steps of the accounting cycle in the correct order (note that not all steps are listed)?

Trial balance, Adjusting journal entries, Post-closing trial balance.

Current items can be described as those expected to come due within one ___ (month/year) and are listed in the order of how ___ (quickly/slowly) they could be converted to or paid in cash.

Year; quickly

Current assets are:

cash and other resources that are expected to be sold, collected or used within one year

A classified balance sheet can be described as a balance sheet that: (Check all that apply.)

organizes assets and liabilities into important subgroups. lists current assets in the order of how quickly they can be converted to cash. is more useful to decision makers.