Question 1

Assume the beginning balance in the Retained Earnings account is zero. If a debit balance of $5,000 exists in Retained Earnings after closing out revenues and expenses at the end of the current period, it indicates:

Accepted Answer

If there is a debit balance in Retained Earnings after closing out revenues and expenses, it means that the company had a net loss for the period, which reduces the overall balance in the Retained Earnings account. In this case, the debit balance of $5,000 indicates that the company had a net loss of $5,000 during the period.

Question 2

The closing entry for the Salaries Expense account would include a debit to:

Accepted Answer

The answer of The closing entry for the Salaries Expense...

Question 3

The entry to close the Dividends account would include a debit to:

Accepted Answer

The correct entry to close the Dividends account is to debit Retained Earnings and credit Dividends, as dividends reduce retained earnings.

Question 4

The closing process applies only to permanent accounts.

Accepted Answer

The closing process applies to both temporary and permanent accounts. Temporary accounts, such as revenue, expenses, and dividends, are closed at the end of the accounting period, while permanent accounts, such as assets, liabilities, and equity, are not closed and their balances are carried forward to the next period.

Question 5

Closing entries transfer the revenue, expense, and dividends balances to:

Accepted Answer

Closing entries transfer the revenue, expense, and dividends balances to retained earnings, which is a permanent account.

Question 6

During the closing process, Retained Earnings is debited for all revenues earned.

Accepted Answer

During the closing process, Retained Earnings is credited for all revenues earned, not debited. This is because revenues increase Retained Earnings, which is an equity account.

Question 7

Permanent accounts include:

Accepted Answer

Permanent accounts are balance sheet accounts that carry their balances into the next accounting period, such as cash, prepaid expenses, and unearned revenue.

Question 8

The entry to close revenue accounts:

Accepted Answer

Closing revenue accounts involves transferring the balance of these accounts to the retained earnings account, which is an equity account. This increases the balance of retained earnings, which increases the overall equity of the company. Therefore, the correct answer is D, as the entry to close revenue accounts increases retained earnings. Choice A is incorrect because closing revenue accounts does not affect total assets. Choice B is also incorrect because closing revenue accounts does not decrease total assets. Choice C is incorrect because closing revenue accounts does not decrease retained earnings.

Question 9

The entry made to close Service Revenue would include a debit to:

Accepted Answer

Service Revenue is a revenue account and has a credit balance. To close this account, we need to debit it, which means we are reducing it to zero. The offsetting credit should be made to Retained Earnings, which is a shareholder's equity account. Therefore, the entry to close Service Revenue would include a debit to Service Revenue and a credit to Retained Earnings.

Question 10

The entry to close expense account(s):

Accepted Answer

Closing an expense account involves transferring its balance to the retained earnings account, which decreases retained earnings since expenses reduce net income.

Question 11

Which of the following accounts is considered a "temporary" account?

Accepted Answer

Rent Expense is considered a temporary account because it is an expense incurred during a specific period and is closed out at the end of that period. Inventory and Accounts Payable are considered permanent accounts because they are carried forward from one accounting period to the next. Common Stock is a component of equity and is also a permanent account.

Question 12

Closing entries transfer net income or loss and dividends paid to:

Accepted Answer

Closing entries transfer net income or loss and dividends paid to Retained Earnings, which is a component of stockholders' equity that reflects the accumulated earnings of a company that have not been distributed to shareholders as dividends.

Question 13

Liabilities are classified as current or long-term.

Accepted Answer

Liabilities are classified as current or long-term based on their due dates. Current liabilities are due within one year, while long-term liabilities are due in more than one year.

Question 14

The following accounts are listed in order of liquidity. Which of the following is CORRECT?

Accepted Answer

Cash is the most liquid asset as it can be easily converted to any other asset. Accounts Receivable can be converted to cash easily, but not as easily as cash. Inventory can be sold and turned into cash, but it takes time and effort. Furniture is the least liquid asset as it can't be easily converted to cash. Therefore, the correct order of liquidity is Cash, Accounts Receivable, Inventory, and Furniture, which is represented by option B.

Question 15

Kincaid Company's Retained Earnings balance on January 1 was $6,000. During the current year, Kincaid earned $3,400 in revenues and incurred $4,200 in expenses. Kincaid paid $2,500 in dividends, all in cash. After the closing entries are made, Kincaid's Retained Earnings balance on December 31 will be:

Accepted Answer

To calculate the Retained Earnings balance on December 31, we need to start with the Retained Earnings balance on January 1 and then adjust for the current year's revenues, expenses, and dividends.

Retained Earnings balance on January 1 = $6,000
Add: Current year's revenues = $3,400
Subtract: Current year's expenses = $4,200
Subtract: Dividends paid = $2,500

Retained Earnings balance on December 31 = $6,000 + $3,400 - $4,200 - $2,500 = $2,700

Therefore, the correct answer is D) $2,700.

Question 16

The Dividends account is closed by an entry crediting Retained Earnings and debiting Net Income.

Accepted Answer

The Dividends account is closed by debiting Retained Earnings and crediting Dividends, not Net Income.

Question 17

To close Dividends, the entry would be to:

Accepted Answer

Dividends are payments made to shareholders out of the company's profits, so they are debited to the Retained Earnings account (which is part of shareholders' equity) and credited to cash. This reduces the retained earnings balance and the company's total shareholder equity. Therefore, to close Dividends, the entry would be to debit Retained Earnings (or a separate account called Dividends paid) and credit Dividends.

Question 18

Accounts that relate to a limited period are called:

Accepted Answer

Temporary accounts relate to a limited period and are closed at the end of an accounting period. Asset and liability accounts are permanent accounts that carry over from period to period. Real accounts are also permanent accounts that track the value of assets, liabilities, and equity over time.

Question 19

To close the books of a company, you should:

Accepted Answer

To close the books of a company, we need to transfer the balances of revenue and expense accounts to the Income Summary account. Since revenues have a credit balance, we need to debit them, while expenses have a debit balance, and we need to credit them. The Income Summary account will have a credit balance if the revenues are greater than expenses, and a debit balance if the expenses are greater than revenues. Then, we transfer the balance of the Income Summary account to Retained Earnings by debiting Income Summary and crediting Retained Earnings. Finally, we close the Dividends account by crediting it, since it is a contra-equity account. Therefore, the correct answer is to debit each revenue account, credit each expense account, and credit the dividends account (option C).

Question 20

The closing entries set the following accounts back to zero at the end of the period.

Accepted Answer

Closing entries reset temporary accounts like revenues, expenses, and dividends to zero to prepare for the next accounting period.

Quiz 3: Accrual Accounting Income