Deck 6: Financial Statements and the Closing Process

Question 1

The Account Title and Balance Sheet columns of the work sheet provide all of the information necessary to prepare the statement of owner's equity.

Answer 1

True

Question 2

A mortgage on an office building is an example of a property, plant, and equipment asset.

Answer 2

False

Question 3

The purpose and use of the income summary account is to summarize the difference between revenues and expenses.

Answer 3

True

Question 4

To close the income summary account with a credit balance, debit the account for its balance and credit the drawing account.

Question 5

An income statement is an itemized statement that provides information regarding the status of the assets, liabilities, and owner's equity of a business enterprise as of a specified date.

Question 6

To close a revenue account with a credit balance, credit the account for its balance and debit the income summary account.

Question 7

The statement of owner's equity is prepared from information from the asset and liability accounts.

Question 8

Current liabilities are liabilities that are due within one year.

Question 9

Property, plant, and equipment are assets that are expected to serve the business for many years.

Question 10

A separate explanation of each closing entry is necessary.

Question 11

To close an expense account with a debit balance, debit the account for its balance and credit the income summary account.

Question 12

A form of balance sheet that lists the assets at the left and the liabilities and owner's equity at the right is called a report form of balance sheet.

Question 13

Expenses on the income statement could be listed in alphabetical order by dollar amount.

Question 14

The income summary account appears on the income statement at the end of the accounting period.

Question 15

The steps involved in handling all of the transactions and events completed during an accounting period, beginning with placing data in a book of original entry and ending with a post-closing trial balance, are referred to collectively as the accounting cycle.

Question 16

Long-term liabilities may also be called long-term debt.

Question 17

A statement of owner's equity is a statement summarizing all of the changes in owner's equity during a specified period of time.

Question 18

Adjustments at the end of the period are not formally entered in the journal or posted to the accounts.

Question 19

The income summary account is an account used only during the closing process.

Question 20

The income statement includes changes in owner's equity resulting from investments or withdrawals of assets by the owner.

Question 21

Adjusting entries are recorded and posted after closing entries.

Question 22

Current assets include cash and other assets that will be converted into cash or consumed within one year or the normal operating cycle of the business, whichever is longer.

Question 23

A post-closing trial balance is used to prove the equality of debit and credit balances in the general ledger accounts after the closing entries have been posted.

Question 24

(Appendix) The three types of business activities are operating activities, investing activities, and financing activities.

Question 25

Assets, liabilities, and the owner's capital account are closed at the end of the accounting period.

Question 26

The amounts in the financial statements must agree with the ledger account balances.

Question 27

To close the drawing account with a debit balance, credit the account for its balance and debit the owner's capital account.

Question 28

The heading for a balance sheet includes the name of the business, the title of the statement, and a period of time.

Question 29

Assets, liabilities, and the owner's capital account are permanent accounts.

Question 30

Expenses on the income statement could be listed in the same order as they appear in the chart of accounts.

Question 31

Closing entries are made in the journal and posted to the ledger accounts.

Question 32

A balance sheet that classifies (or groups) items by similarities is called a unified balance sheet.

Question 33

(Appendix) The accuracy of the statement of cash flows can be proved by comparing the cash provided by operating activities with the change in the cash balance.

Question 34

The effect of drawing transactions on the capital account is formalized at any time during the accounting period.

Question 35

An income statement is an itemized statement for the purpose of providing information regarding the results of operations during a specified period of time.

Question 36

The end-of-period work sheet is completed after adjusting entries have been recorded and posted.

Question 37

Revenues and expenses are temporary accounts and are closed at the end of the accounting period.

Question 38

After posting the adjusting entries, the balance of the depreciation expense account should agree with the amount shown on the income statement.

Question 39

A form of balance sheet that shows the liabilities and owner's equity sections below the assets section is called an account form of balance sheet.

Question 40

Obligations that need not be paid for a long time, usually more than one year, are classified as current liabilities.

Question 41

The total assets amount to $24,000 and the total liabilities amount to $18,000. The amount of the owner's equity is

A) $16,000.
B) $42,000.
C) $18,000.
D) $6,000.

Question 42

The amount reported in the Balance Sheet columns of the work sheet for the owner's capital represents the

A) ending balance that should be reported on the balance sheet.
B) beginning balance.
C) beginning balance plus additional investments.
D) beginning balance less withdrawals.

Question 43

After the accounts are closed and the journal entries have been posted, which of the following accounts would have a balance?

A) Payroll Taxes Expense
B) Miscellaneous Expense
C) Professional Expense
D) Supplies

Question 44

The journal entry to close the income summary account (showing a net loss) includes

A) debiting the drawing account and crediting Income Summary.
B) debiting Income Summary and crediting the drawing account.
C) debiting the owner's capital account and crediting Income Summary.
D) debiting Income Summary and crediting the owner's capital account.

Question 45

The owner's equity in a business amounted to $56,000 at the beginning of the year and $100,000 at the end of the year. The owner had made no additional investments and had withdrawn $19,000 during the year. The net income for the year amounted to

A) $76,000.
B) $67,000.
C) $63,000.
D) $188,000.

Question 46

To prove the equality of the debit and credit balances in the general ledger accounts after the closing entries have been journalized and posted, prepare the

A) balance sheet.
B) income statement.
C) adjustments.
D) post-closing trial balance.

Question 47

After the closing entries are journalized and posted, which of the following accounts would NOT have a balance?

A) Cash
B) Office Equipment
C) Notes Payable
D) Delivery Fees

Question 48

The balance in an expense account is closed to a(n)

A) capital account.
B) revenue account.
C) drawing account.
D) income summary account.

Question 49

After the closing entries have been posted, which of the following accounts would NOT have a balance?

A) Miscellaneous Expense
B) Accumulated Depreciation-Equipment
C) Accounts Payable
D) Supplies

Question 50

The journal entry to close expense accounts includes

A) debiting the expense accounts and crediting Income Summary.
B) debiting Income Summary and crediting the expense accounts.
C) debiting the expense accounts and crediting the owner's capital account.
D) debiting the expense accounts and crediting the drawing account.

Question 51

A form of balance sheet that lists the liabilities and the owner's equity sections below the assets section is called the

A) account form.
B) journal form.
C) report form.
D) current form.

Question 52

Which step is taken at the end of the accounting period?

A) analyze source documents
B) post to the general ledger accounts
C) prepare a trial balance
D) prepare a post-closing trial balance

Question 53

The journal entry to close the income summary account (showing a profit) includes

A) debiting the drawing account and crediting Income Summary.
B) debiting Income Summary and crediting the drawing account.
C) debiting the owner's capital account and crediting Income Summary.
D) debiting Income Summary and crediting the owner's capital account.

Question 54

Which of the following steps of the accounting cycle are in the correct order?

A) prepare a trial balance, post to general ledger accounts, journalize adjusting and closing entries
B) make adjustments, complete a work sheet, post to general ledger accounts
C) prepare financial statements, make adjustments, prepare a trial balance
D) prepare a trial balance, make adjustments, prepare financial statements

Question 55

Changes in owner's equity that result from investments or withdrawals of assets by the owner are included in the

A) statement of owner's equity.
B) income statement.
C) balance sheet.
D) chart of accounts.

Question 56

When recording closing entries in the general journal, which of the following is written in the Description column?

A) "closing entries"
B) a description of the transaction
C) nothing
D) "zero out accounts"

Question 57

The journal entry to close revenue accounts includes

A) debiting the revenue accounts and crediting Income Summary.
B) debiting Income Summary and crediting the revenue accounts.
C) debiting the revenue accounts and crediting Cash.
D) debiting the revenue accounts and crediting the drawing account.

Question 58

Owner's equity can be increased through

A) withdrawals by the owner.
B) investments by the owner.
C) expenses exceeding revenues.
D) purchases of assets for cash.

Question 59

The total revenue of the month of June amounted to $6,500; total expenses amounted to $3,500; and withdrawals amounted to $600. The net income for the month amounted to

A) $6,000.
B) $2,400.
C) $3,000.
D) $3,500.

Question 60

The order in which financial statements should be prepared is

A) balance sheet, income statement, statement of owner's equity.
B) income statement, balance sheet, statement of owner's equity.
C) statement of owner's equity, balance sheet, income statement.
D) income statement, statement of owner's equity, balance sheet.

Question 61

The account to which revenue and expenses are closed is called

A) Cash.
B) Drawing.
C) Income Summary.
D) Net Income.

Question 62

Match the terms with the definitions.a.account form of balance sheet
b.accounting cycle
c.classified balance sheet
d.closing process
e.current assets
f.current liabilities
g.Income Summary
h.long-term liabilities
i.operating cycle
j.permanent accounts
k.post-closing trial balance
l.property, plant, and equipment
m.report form of balance sheet
n.temporary accounts
The period of time required to purchase supplies and services and convert them back into cash.

Question 63

(Appendix) Business transactions can be classified as

A) operating, investing, and accounting.
B) operating, financing, and lending.
C) operating, investing, and financing.
D) operating, lending, and borrowing.

Question 64

(Appendix) A utility bill for $315 was paid. This activity is classified as

A) operating.
B) investing.
C) financing.
D) paying.

Question 65

What is the purpose of the post-closing trial balance?

A) to prove no errors were made while recording entries in the journal
B) to prove the equality of the debit and credit balances in the general ledger accounts
C) to prove the closing entries were recorded correctly in the journal
D) to prove the balances in the general ledger accounts are correct

Question 66

Cash and other assets that will be converted into cash within one year or the normal operating cycle of the business, whichever is longer, are called

A) property.
B) plant.
C) equipment.
D) current assets.

Question 67

The Income Summary account is used to

A) close the revenue accounts only.
B) close the revenue accounts and expense accounts only.
C) close the drawing account.
D) close revenue accounts and expense accounts and update the owner's capital account.

Question 68

The steps involved in handling all of the transactions and events completed during an accounting period, beginning with placing data in a book of original entry and ending with a post-closing trial balance, are referred to collectively as

A) input.
B) processing.
C) output.
D) the accounting cycle.

Question 69

What is the correct sequence for closing the temporary accounts?

A) revenue accounts, expense accounts, Income Summary, drawing account
B) expense accounts, revenue accounts, Income Summary, drawing account
C) revenue accounts, expense accounts, drawing account, Income Summary
D) drawing account, revenue accounts, expense accounts, Income Summary

Question 70

Match the terms with the definitions.a.account form of balance sheet
b.accounting cycle
c.classified balance sheet
d.closing process
e.current assets
f.current liabilities
g.Income Summary
h.long-term liabilities
i.operating cycle
j.permanent accounts
k.post-closing trial balance
l.property, plant, and equipment
m.report form of balance sheet
n.temporary accounts
A balance sheet with separate categories for current assets; property, plant, and equipment; current liabilities; and long-term liabilities.

Question 71

(Appendix) Equipment costing $12,000 was purchased for cash. This activity is classified as

A) operating.
B) investing.
C) financing.
D) borrowing.

Question 72

The body of the income statement consists of an itemized list of

A) assets and liabilities.
B) assets and owner's equity.
C) cash and revenues.
D) revenues and expenses.

Question 73

Match the terms with the definitions.a.account form of balance sheet
b.accounting cycle
c.classified balance sheet
d.closing process
e.current assets
f.current liabilities
g.Income Summary
h.long-term liabilities
i.operating cycle
j.permanent accounts
k.post-closing trial balance
l.property, plant, and equipment
m.report form of balance sheet
n.temporary accounts
Accounts that accumulate information across accounting periods; all accounts reported on the balance sheet.

Question 74

Match the terms with the definitions.a.account form of balance sheet
b.accounting cycle
c.classified balance sheet
d.closing process
e.current assets
f.current liabilities
g.Income Summary
h.long-term liabilities
i.operating cycle
j.permanent accounts
k.post-closing trial balance
l.property, plant, and equipment
m.report form of balance sheet
n.temporary accounts
Prepared after posting the closing entries to prove the equality of the debit and credit balances in the general ledger accounts.

Question 75

Capital at the beginning of the month amounted to $4,000; net income for the month amounted to $1,000; and withdrawals for personal use during the month amounted to $2,000. Capital at the end of the month is

A) $3,000.
B) $2,000.
C) $7,000.
D) $5,000.

Question 76

A balance sheet that groups similar items is called a(n)

A) report form of balance sheet.
B) account form of balance sheet.
C) classified balance sheet.
D) temporary balance sheet.

Question 77

The account to which the drawing account is closed is called

A) Revenue.
B) Income Summary.
C) Owner's Capital.
D) Cash.

Question 78

The journal entry to close the drawing account includes

A) debiting the owner's capital account and crediting the drawing account.
B) debiting the drawing account and crediting the owner's capital account.
C) debiting Income Summary and crediting the drawing account.
D) debiting the drawing account and crediting Income Summary.

Question 79

Match the terms with the definitions.a.account form of balance sheet
b.accounting cycle
c.classified balance sheet
d.closing process
e.current assets
f.current liabilities
g.Income Summary
h.long-term liabilities
i.operating cycle
j.permanent accounts
k.post-closing trial balance
l.property, plant, and equipment
m.report form of balance sheet
n.temporary accounts
A balance sheet in which the liabilities and the owner's equity sections are shown below the assets section.

Question 80

Match the terms with the definitions.a.account form of balance sheet
b.accounting cycle
c.classified balance sheet
d.closing process
e.current assets
f.current liabilities
g.Income Summary
h.long-term liabilities
i.operating cycle
j.permanent accounts
k.post-closing trial balance
l.property, plant, and equipment
m.report form of balance sheet
n.temporary accounts
A balance sheet in which the assets are on the left and the liabilities and the owner's equity sections are on the right.