Question 1

When is a post-closing trial balance prepared?
A) when reversing entries are required
B) after adjusting entries but before closing entries
C) after both adjusting and closing entries have been posted
D) after the balance sheet has been prepared

Accepted Answer

A post-closing trial balance is prepared after both adjusting and closing entries have been posted. This trial balance is used to ensure that all temporary accounts have been closed and the balances have been transferred to the appropriate permanent accounts.

Question 2

Closing entries are
A) an optional step in the accounting cycle.
B) posted to the ledger accounts from the work sheet.
C) made to close permanent or real accounts.
D) journalized in the general journal.

Accepted Answer

The answer of Closing entries are
A) an optional step in...

Question 3

Closing entries are made
A) in order to terminate the business as an operating entity.
B) so that all assets, liabilities, and owner's capital accounts will have zero balances when the next accounting period starts.
C) in order to transfer profit (or loss) and owner's drawings to the Owner's Capital account.
D) so that financial statements can be prepared.

Accepted Answer

Closing entries are made in order to transfer profit (or loss) and owner's drawings to the Owner's Capital account. This is done to summarize the revenue and expense accounts for the period and to prepare the accounts to start recording transactions for the next period.

Question 4

Reversing entries are used to reverse accrued revenues and expenses.

Accepted Answer

Reversing entries are often used to reverse accrued revenues and expenses so that they do not interfere with the next accounting period's financial statements. This allows for a more accurate representation of the company's financial position for the new period.

Question 5

In preparing closing entries
A) every revenue account will be credited.
B) every expense account will be credited.
C) the Owner's Capital account will be debited if there is profit for the period.
D) the Owner's Drawings account will be debited.

Accepted Answer

The answer of In preparing closing entries
A) every revenue account...

Question 6

Which of the following is an example of a temporary account that will be closed to Income Summary at the end of the accounting period?
A) Accumulated Depreciation
B) Land
C) Accounts Payable
D) Service Revenue

Accepted Answer

Service Revenue is a temporary account that represents income earned during the accounting period and will be closed to Income Summary at the end of the period. Choices A, B, and C are all permanent accounts that are not closed to Income Summary.

Question 7

To close the Depreciation Expense account
A) Income Summary is debited and Owner's Capital is credited.
B) Income Summary is debited and the Depreciation Expense is credited.
C) Income Summary is credited and the Owner's Capital is debited.
D) Income Summary is credited and the Depreciation Expense is debited.

Accepted Answer

To close the Depreciation Expense account, the accounting equation should balance, and therefore an equal and opposite entry to Depreciation Expense should be made. Since Depreciation Expense is an expense account, it has a normal debit balance, and to close it, it should be credited. The Income Summary account is used to transfer the balance of all temporary accounts, including Depreciation Expense, to the Owner's Capital account. Therefore, the Income Summary account should be debited, and the Depreciation Expense should be credited.

Question 8

In order to close a revenue account, the
A) Income Summary account should be credited.
B) Income Summary account should be debited.
C) Owner's Drawings account should be credited.
D) Owner's Drawings account should be debited.

Accepted Answer

Revenue accounts have a credit balance, so in order to close them, they need to be debited. The Income Summary account is used to summarize all revenue and expense accounts at the end of an accounting period. As such, the Income Summary account should be credited when closing revenue accounts, as this will bring its balance to a net profit for the period.

Question 9

Closing entries
A) are prepared before the financial statements.
B) reduce the number of permanent accounts.
C) cause the revenue and expense accounts to have zero balances.
D) close all of the permanent accounts.

Accepted Answer

Closing entries cause the revenue and expense accounts to have zero balances, which prepares them for the next accounting period. This is done before preparing the financial statements. They do not necessarily reduce the number of permanent accounts or close all of them, although some may be affected.

Question 10

A reversing entry is made at the beginning of the next accounting period and is the exact opposite of the adjusting entry that was made in the previous period.

Accepted Answer

A reversing entry is a special type of adjusting entry that is made at the beginning of the next accounting period. It is the exact opposite of the adjusting entry that was made in the previous period, and is used to simplify the process of recording certain transactions. By making a reversing entry, the original adjusting entry is cancelled out, and the accounts return to their pre-adjustment state.

Question 11

Reversing entries are more relevant in corporations.

Accepted Answer

The answer of Reversing entries are more relevant in corporations....

Question 12

Closing entries are journalized and posted
A) before the financial statements are prepared.
B) after the financial statements are prepared.
C) when the business is closing its doors.
D) at the end of each interim accounting period.

Accepted Answer

Closing entries are made after the financial statements are prepared for the accounting period. They are necessary to reset the temporary accounts (revenue, expenses, gains, and losses) to zero and transfer their balances to the permanent accounts (assets, liabilities, and equity) to start the next accounting period fresh. The purpose of closing entries is to ensure the accuracy of the financial statements and the continuity of the accounting cycle. Closing entries are made annually or periodically, depending on the business's reporting needs.

Question 13

The owner's capital account is
A) a permanent account.
B) closed to the owner's drawings account at the end of the accounting period.
C) closed to the Income Summary account at the end of the accounting period.
D) a temporary account.

Accepted Answer

The owner's capital account is a permanent account, as it reflects the owner's equity in the business and is not closed at the end of the accounting period.

Question 14

The closing entry process consists of closing
A) all asset and liability accounts.
B) out the Owner's Capital account.
C) all permanent accounts.
D) all temporary accounts.

Accepted Answer

The closing entry process involves closing all temporary accounts (such as revenues, expenses, and dividends) by transferring their balances to the Owner's Capital account. Permanent accounts (such as asset and liability accounts) are not closed, as they carry forward into the next accounting period. Therefore, choice D is the best option.

Question 15

In order to close the Owner's Drawings account, the
A) Income Summary account should be debited.
B) Income Summary account should be credited.
C) Owner's Capital account should be credited.
D) Owner's Capital account should be debited.

Accepted Answer

Owner's Drawings is a contra equity account that reduces the Owner's Capital account. Therefore, to close the Owner's Drawings account, we need to debit the Owner's Capital account.

Question 16

Which of the following is a true statement about closing the books of a proprietorship?
A) Expenses are closed to the owner's drawings account.
B) Only revenues are closed to the Income Summary account.
C) Only revenues and expenses are closed to the Income Summary account.
D) Revenues, expenses, and the owner's drawings account are closed to the Income Summary account.

Accepted Answer

Revenues and expenses are closed to the Income Summary account to calculate the net income or loss for the period. This amount is then transferred to the owner's capital account, not the drawings account. The owner's drawings are directly closed to the owner's capital account, not through the Income Summary.

Question 17

It is NOT necessary to prepare formal financial statements if a work sheet has been prepared because financial position and profit are shown on the work sheet.

Accepted Answer

While a work sheet does provide information about the financial position and profit of a business, it is still necessary to prepare formal financial statements in order to present accurate and detailed information to stakeholders, including investors, creditors, and regulators.

Question 18

When all columns are in balance, the preparation of a work sheet will help ensure that no errors were made in the accounting records.

Accepted Answer

A balanced worksheet does not guarantee the absence of errors, as some errors do not affect the trial balance, such as omitted transactions or incorrect account classifications.

Question 19

Reversing entries are used to reverse adjusting entries originally recorded to account for the lapse of prepaid expenses.

Accepted Answer

The answer of Reversing entries are used to reverse adjusting...

Question 20

The adjustments on a work sheet can be posted directly to the accounts in the ledger from the work sheet.

Accepted Answer

Adjustments on a worksheet are used for planning purposes and must be journalized and posted to the ledger accounts as separate transactions, not directly from the worksheet.

Quiz 4: Completion of the Accounting Cycle

When is a post-closing trial balance prepared?

Closing entries are

Closing entries are made

Reversing entries are used to reverse accrued revenues and expenses.

In preparing closing entries

Which of the following is an example of a temporary account that will be closed to Income Summary at the end of the accounting period?

To close the Depreciation Expense account

In order to close a revenue account, the

Closing entries

A reversing entry is made at the beginning of the next accounting period and is the exact opposite of the adjusting entry that was made in the previous period.

Reversing entries are more relevant in corporations.

Closing entries are journalized and posted

The owner's capital account is

The closing entry process consists of closing

In order to close the Owner's Drawings account, the

Which of the following is a true statement about closing the books of a proprietorship?

It is NOT necessary to prepare formal financial statements if a work sheet has been prepared because financial position and profit are shown on the work sheet.

When all columns are in balance, the preparation of a work sheet will help ensure that no errors were made in the accounting records.

Reversing entries are used to reverse adjusting entries originally recorded to account for the lapse of prepaid expenses.

The adjustments on a work sheet can be posted directly to the accounts in the ledger from the work sheet.