Question 1

In a company balance sheet,what are the two main categories equity is separated into?

Accepted Answer

Equity in a company balance sheet is generally separated into two main categories: share capital and retained profits. Share capital represents the funds raised through the issuance of shares, while retained profits refer to the portion of the company's earnings that are kept by the company for future investment or use, rather than paid out to shareholders as dividends.

Question 2

Which of the following statements relating to reversing entries is correct?

Accepted Answer

Reversing entries are not always necessary and there are alternative ways of dealing with accruals in subsequent periods, such as simply adjusting the opening balances in the subsequent period. Reversing entries are appropriate for accrual type entries, but not for deferral type entries. Depreciation is not an adjustment that requires reversing in the subsequent period.

Question 3

The retained profits balance of The Fruit Drop Company was $40 000 on the first day of the year.Profit during the year was $20 000.Near year-end a $10 000 dividend was declared that is to be paid in the following year.Year-end retained profits are:

Accepted Answer

The retained profits balance at the beginning of the year was $40,000.
Profits during the year were $20,000, so the total amount available for distribution (if desired) would have been $60,000.
However, a $10,000 dividend was declared but will be paid in the following year. Therefore, this $10,000 must be subtracted from the $60,000 to get the retained profits balance at the end of the current year.
$60,000 - $10,000 = $50,000
Thus, the correct answer is C) $50,000.

Question 4

A trial balance taken out after the closing process has been completed is called a:

Accepted Answer

The post-closing trial balance is taken out after the closing process has been completed. It includes only permanent accounts with their updated balances after the closing entries have been made. Therefore, it is the correct choice for this scenario. The other options, final trial balance, adjusted trial balance, and closing trial balance, are not appropriate descriptions for this particular trial balance.

Question 5

Which of these is not a purpose of a post-closing trial balance?

Accepted Answer

The purpose of a post-closing trial balance is to ensure that all temporary accounts (such as revenue and expense accounts) have been closed-off and that the ledger is correct as the starting point for the next financial period. It is not used to find out how much profit the entity has made, as this information would be obtained from the income statement.

Question 6

Entries made at the beginning of the next accounting period to reverse the effect of various adjustments,are called:

Accepted Answer

Reversing entries are made to undo the impact of adjusting entries made in the previous period, ensuring that the current period's financial statements are not affected by the previous period's adjustments. This helps to prevent confusion and errors in the accounting records.

Question 7

When reversing entries are used in the accounting system which of the following categories of adjusting entries are always reversed?
Accrued Expenses Accrued Revenue Depreciation

Accepted Answer

When reversing entries are used in the accounting system, accrued expenses and accrued revenue categories of adjusting entries are always reversed. Depreciation entries are not reversed as they are not accrued and are based on the expected useful life of the asset. Therefore, option C is the correct answer.

Question 8

At the end of an accounting period wages expense of $190 000 is closed to the profit and loss summary account.The wages are made up of $180 000 paid in cash and accrued wages of $10 000.A reversing entry is made for accrued wages on the first day of the next accounting period.The first payment to employees for wages in the new year is $25 000.How would this payment be recorded?

Accepted Answer

The answer of At the end of an accounting period...

Question 9

The true statement is:

Accepted Answer

Reversing entries are optional and are only made to simplify the accounting process at the beginning of a new accounting period. They help in avoiding errors that might occur while adjusting the accounts, especially with accruals and deferrals. Reversing entries are not necessary for prepayments, and they are not made on the last day of the financial year as they relate to the beginning of the new accounting period.

Question 10

Assume that no reversing entries are made by this firm.If wages of $11 200 were accrued by it at the end of the year and the first payment of wages in the subsequent year was $101 600 how would this payment be recorded?

Accepted Answer

The payment of $101,600 would first settle the accrued wages of $11,200 (debit salaries payable to remove the liability) and the remaining $90,400 would be recorded as salaries expense for the new period (debit salaries expense). The total payment made is credited to cash, totaling $101,600.

Question 11

When closing the accounts of a partnership it is true that:

Accepted Answer

When closing the accounts of a partnership, profit is credited to each partner's capital account according to the profit sharing agreement. The partner's salaries are treated as an expense and are deducted from the profit before distribution. Retained profits may be used as a source of distribution, but it is not a separate account used in the distribution process. If there is a loss for the period, it is transferred to the partner's capital accounts in accordance with the profit sharing agreement.

Question 12

Cash distributions made to the owners of a company by the directors are called:

Accepted Answer

Cash distributions made to the owners of a company by the directors are called dividends. Drawings refer to cash withdrawn by the owner for personal use, retained profits are profits that are kept within the company for future use, and shares refer to ownership stakes in the company.

Question 13

Which of the following statements relating to reversing entries is correct?

Accepted Answer

Reversing entries are made at the beginning of the next accounting period to reverse the effect of certain adjusting entries made in the previous period. This is done to simplify the recording process and ensure that the correct balances are carried forward into the next period.

Question 14

Assume that no reversing entries are made by this firm.If wages of $12 400 were accrued by it at the end of the year and the first payment of wages in the subsequent year was $110 500 how would this payment be recorded?

Accepted Answer

The payment of $110,500 would first address the accrued wages of $12,400 (debit salaries payable to remove the liability), and the remainder ($98,100) would be recorded as salaries expense for the current period. The total payment made is then credited to cash, reflecting the cash outflow of $110,500.

Question 15

On 1 January Make More Company Pty Ltd issued 10 000 shares for $3 each.Which of the following is the correct entry to record this transaction?

Accepted Answer

When a company issues shares, the transaction results in an increase in the company's bank balance (as it receives cash) and an increase in share capital. Therefore, the correct entry would be to debit bank for the amount received ($30,000) and credit share capital for the same amount ($30,000). Option A is incorrect as it only credits shareholder's equity without specifying where exactly it should be credited. Option B is incorrect as it only credits share capital but does not reflect the correct amount received by the company. Option D is incorrect as it debits share capital instead of bank, which is incorrect as the company has received cash from the issuance of shares.

Question 16

If a profit has been earned for the year,before the closing entries,the profit or loss summary account has a___________________ balance.

Accepted Answer

The profit or loss summary account is used to summarize the revenue and expense accounts for the year and to determine the net profit or loss. If there is a profit for the year, the balance in the profit or loss summary account will be a credit balance.

Question 17

The major purpose of a post-closing trial balance is to:

Accepted Answer

The major purpose of a post-closing trial balance is to confirm that the ledger is in balance at the start of the new accounting period, ensuring all temporary accounts have been closed and only permanent accounts remain.

Question 18

Which adjustment would never require a reversing entry?

Accepted Answer

Depreciation is a non-cash expense, which means it doesn't require a reversing entry. Accrued revenue, accrued expenses, and prepaid income (cash received originally recorded in an income account) all require reversing entries because they involve cash transactions that are recorded in different periods.

Question 19

Dividends require two accounting entries,one when the dividend is declared and another when it is paid.What is the correct entry to record the declaration of a cash dividend of 20c a share calculated on 100 000 shares?

Accepted Answer

When a dividend is declared, the company decreases its retained earnings (since dividends are paid out of profits that have not been reinvested in the business) and increases its dividends payable liability, reflecting the obligation to pay the shareholders.

Question 20

The income statement and the balance sheet are essentially the same for sole traders and partnerships except for transactions that directly affect:

Accepted Answer

The main difference between the income statement and balance sheet for sole traders and partnerships compared to other business structures lies in the equity section. This is because the equity in sole traders and partnerships reflects the owner's capital and drawings, and in the case of partnerships, it also includes the distribution of profits among partners, which directly affects the equity accounts.

Quiz 5: Completing the Accounting Cycle Closing and Reversing Entries

In a company balance sheet,what are the two main categories equity is separated into?

Which of the following statements relating to reversing entries is correct?

The retained profits balance of The Fruit Drop Company was $40 000 on the first day of the year.Profit during the year was $20 000.Near year-end a $10 000 dividend was declared that is to be paid in the following year.Year-end retained profits are:

A trial balance taken out after the closing process has been completed is called a:

Which of these is not a purpose of a post-closing trial balance?

Entries made at the beginning of the next accounting period to reverse the effect of various adjustments,are called:

When reversing entries are used in the accounting system which of the following categories of adjusting entries are always reversed? Accrued Expenses Accrued Revenue Depreciation

The true statement is:

Assume that no reversing entries are made by this firm.If wages of $11 200 were accrued by it at the end of the year and the first payment of wages in the subsequent year was $101 600 how would this payment be recorded?

When closing the accounts of a partnership it is true that:

Cash distributions made to the owners of a company by the directors are called:

Which of the following statements relating to reversing entries is correct?

Assume that no reversing entries are made by this firm.If wages of $12 400 were accrued by it at the end of the year and the first payment of wages in the subsequent year was $110 500 how would this payment be recorded?

On 1 January Make More Company Pty Ltd issued 10 000 shares for $3 each.Which of the following is the correct entry to record this transaction?

If a profit has been earned for the year,before the closing entries,the profit or loss summary account has a___________________ balance.

The major purpose of a post-closing trial balance is to:

Which adjustment would never require a reversing entry?

Dividends require two accounting entries,one when the dividend is declared and another when it is paid.What is the correct entry to record the declaration of a cash dividend of 20c a share calculated on 100 000 shares?

The income statement and the balance sheet are essentially the same for sole traders and partnerships except for transactions that directly affect: