Question 1

Correcting entries will only be done at the same time as the adjusting entries are being prepared.

Accepted Answer

Correcting entries can be made at any time errors are discovered, not just when adjusting entries are prepared at the end of an accounting period.

Question 2

Closing entries are journalized after adjusting entries have been journalized.

Accepted Answer

Closing entries are made after adjusting entries, and they are used to close temporary accounts such as revenue and expense accounts to the retained earnings account.

Question 3

After closing entries have been journalized and posted, all temporary accounts in the ledger should have zero balances.

Accepted Answer

Closing entries are made to transfer the balances of temporary accounts (revenues, expenses, gains, losses) to the retained earnings account or the owner's capital account. This ensures that all temporary accounts have zero balances at the end of the period, leaving only the balances of permanent accounts in the ledger.

Question 4

Cash is a temporary account and it should be zero after all closing entries have been posted.

Accepted Answer

Cash is a permanent account, not a temporary one, and its balance is carried over to the next accounting period rather than being zeroed out through closing entries.

Question 5

The final step in the accounting cycle is the pre-closing trial balance.

Accepted Answer

The pre-closing trial balance is not the final step in the accounting cycle. The final step is to prepare and post closing entries, followed by the post-closing trial balance.

Question 6

The last three steps in the accounting cycle include prepare financial statements, journalize and post closing entries, and prepare a post-closing trial balance.

Accepted Answer

These are indeed the last three steps in the accounting cycle.

Question 7

Closing revenue and expense accounts to the Income Summary account is an optional bookkeeping procedure.

Accepted Answer

Closing revenue and expense accounts to the Income Summary account is not optional. It is a required step in the closing process of the accounting cycle.

Question 8

The owner's drawings account is closed to the Income Summary account in order to properly determine profit (or loss) for the period.

Accepted Answer

The owner's drawings account is closed to the owner's capital account, not the Income Summary account. Drawings represent withdrawals by the owner and do not affect the determination of profit or loss for the period.

Question 9

Closing the drawings account to Capital is NOT necessary if profit is greater than owner's drawings during the period.

Accepted Answer

Closing the drawings account to Capital is necessary regardless of the profit amount, as it adjusts the owner's equity to reflect withdrawals made during the period.

Question 10

The amounts appearing on an income statement should agree with the amounts appearing on the post-closing trial balance.

Accepted Answer

The income statement reports revenues and expenses for a specific period and does not include balance sheet accounts, which are the accounts that appear on the post-closing trial balance. The post-closing trial balance includes only permanent accounts (assets, liabilities, and equity) and not the temporary accounts (revenues, expenses, dividends) that are closed to equity and appear on the income statement.

Question 11

The owner's drawings account is a permanent account whose balance is carried forward to the next accounting period.

Accepted Answer

The owner's drawings account is a temporary account, whose balance is closed at the end of the accounting period and transferred to the owner's equity account.

Question 12

In a post-closing trial balance the profit of the business will be one of the temporary accounts.

Accepted Answer

The post-closing trial balance only includes permanent accounts, as temporary accounts are closed out at the end of the accounting period. The profit or loss for the period is already recorded in the retained earnings account, which is a permanent account.

Question 13

A company has only one accounting cycle over its economic existence.

Accepted Answer

A company can have multiple accounting cycles over its economic existence, depending on the length of each cycle and the accounting method chosen by the company. For example, a company may choose to have a monthly, quarterly, or annual accounting cycle.

Question 14

Correcting entries are made any time an error is discovered even though it may NOT be at the end of an accounting period.

Accepted Answer

Correcting entries should be made as soon as an error is discovered, regardless of whether it is at the end of an accounting period or not. Waiting until the end of the period to make corrections could result in inaccurate financial statements.

Question 15

The accounting cycle begins at the start of a new accounting period.

Accepted Answer

The accounting cycle is a series of steps that are followed to record and report financial transactions in an accounting period, which typically lasts a year. The cycle begins at the start of a new accounting period, such as a new fiscal year or a new quarter.

Question 16

Closing entries are an optional part of the accounting cycle.

Accepted Answer

Closing entries are a necessary part of the accounting cycle. They are made to transfer the balances of temporary accounts (revenue, expenses, and dividends) to the retained earnings account in order to start the next accounting period with zero balances in these accounts.

Question 17

Closing entries are necessary if the business plans to continue operating in the future and issue financial statements each year.

Accepted Answer

Closing entries are necessary to transfer temporary account balances to the permanent accounts, which are then used as starting balances for the next accounting period. This process ensures that the income and expenses of one period do not carry over into the next period's financial statements. If a business plans to continue operating and issuing financial statements each year, closing entries are necessary to maintain accurate and reliable financial records.

Question 18

Reversing entries are an optional part of the accounting cycle.

Accepted Answer

Reversing entries are optional but can be helpful when adjusting entries that affect the next accounting period. They are usually made on the first day of the new period and are used to reverse the effects of certain adjusting entries made in the prior period.

Question 19

Both correcting entries and adjusting entries always affect at least one balance sheet account and one income statement account.

Accepted Answer

Adjusting entries always affect at least one income statement account and one balance sheet account, but correcting entries may affect only balance sheet accounts, only income statement accounts, or both, depending on the nature of the error being corrected.

Question 20

After the closing entries are posted to the accounts, a trial balance will show balances only in the Balance Sheet accounts.

Accepted Answer

Closing entries only affect the temporary accounts (revenue, expenses, and dividends), which are then transferred to the retained earnings account on the Balance Sheet. Therefore, after closing entries, only the Balance Sheet accounts will have balances.

Quiz 4: Completion of the Accounting Cycle