Question 1

Closing entries are required at the end of each accounting period to close all ledger accounts.

Accepted Answer

Closing entries are required to close temporary accounts like revenues, expenses, and dividends, not all ledger accounts. Permanent accounts like assets, liabilities, and equity are not closed.

Question 2

Closing entries are necessary so that owner's capital will begin each period with a zero balance.

Accepted Answer

Closing entries are necessary to reset temporary accounts (revenues, expenses, and dividends) to zero, not the owner's capital, which carries over to the next period.

Question 3

The closing process is a step in the accounting cycle that prepares accounts for the next accounting period.

Accepted Answer

The closing process involves closing temporary accounts such as revenue and expenses to retained earnings, which prepares the accounts for the next accounting period.

Question 4

If a company plans to continue business into the future, closing entries are not required.

Accepted Answer

Closing entries are required at the end of every accounting period, regardless of whether a company plans to continue business in the future. The purpose of closing entries is to transfer the balances of temporary accounts to the permanent accounts and to prepare the accounts for the next accounting period.

Question 5

The first step in the accounting cycle is to analyze transactions and events to prepare for journalizing.

Accepted Answer

Analyzing transactions and events is the first step in the accounting cycle before journalizing, therefore the statement is true.

Question 6

Closing entries are designed to transfer the end-of-period balances in the revenue accounts, the expense accounts, and the withdrawals account to owner's capital.

Accepted Answer

Closing entries serve the purpose of transferring the balances of temporary accounts (revenue, expense, and withdrawals) to the permanent owner's equity account.

Question 7

Income Summary is a temporary account only used for the closing process.

Accepted Answer

Income Summary is used in the closing process to transfer the balances of revenue and expense accounts to Retained Earnings, which is a permanent account. It is a temporary account that is closed at the end of each accounting period.

Question 8

The first five steps in the accounting cycle include analyzing transactions, journalizing, posting, preparing an unadjusted trial balance, and recording adjusting entries.

Accepted Answer

These are the correct first five steps in the accounting cycle.

Question 9

The last four steps in the accounting cycle include preparing the adjusted trial balance, preparing financial statements, and recording closing and adjusting entries.

Accepted Answer

The last four steps in the accounting cycle are preparing the adjusted trial balance, preparing financial statements, recording closing entries, and preparing a post-closing trial balance. Adjusting entries are recorded before the adjusted trial balance.

Question 10

Closing entries result in the owner's capital account being transferred into net income or net loss for the period ending.

Accepted Answer

Closing entries result in the net income or net loss being transferred into the owner's capital account, not the other way around.

Question 11

The closing process takes place before financial statements have been prepared.

Accepted Answer

The closing process takes place after financial statements have been prepared, as it involves adjusting entries to update account balances and prepare the accounts for the next accounting period.

Question 12

Permanent accounts carry their balances into the next accounting period.

Accepted Answer

Permanent accounts, such as assets, liabilities, and equity, carry their balances into the next accounting period, unlike temporary accounts which are closed out at the end of each accounting period.

Question 13

An unclassified balance sheet provides more information to users than a classified balance sheet.

Accepted Answer

A classified balance sheet provides more detailed information as it separates assets, liabilities, and equity into subcategories, whereas an unclassified balance sheet groups them together. The subcategories allow the users to analyze and understand the financial position of the company in more detail.

Question 14

Accounts that appear in the balance sheet are often called temporary (nominal) accounts.

Accepted Answer

Accounts that appear in the income statement are temporary (nominal) accounts, while those that appear in the balance sheet are permanent (real) accounts.

Question 15

Closing revenue and expense accounts at the end of the accounting period serves to make the revenue and expense accounts ready for use in the next period.

Accepted Answer

Closing revenue and expense accounts transfers the balance to the retained earnings account, which resets the revenue and expense accounts for use in the next accounting period.

Question 16

The accounting cycle refers to the sequence of steps used in preparing the work sheet.

Accepted Answer

The accounting cycle refers to the complete process of recording, classifying, and summarizing business transactions to produce financial statements. The work sheet is only a tool used during the process, but it is not the accounting cycle itself.

Question 17

Revenue and expense accounts are permanent (real) accounts and should not be closed at the end of the accounting period.

Accepted Answer

Revenue and expense accounts are temporary (nominal) accounts and should be closed at the end of the accounting period to reset their balances for the next period.

Question 18

A classified balance sheet organizes assets and liabilities into important subgroups that provide more information to decision makers.

Accepted Answer

A classified balance sheet organizes assets and liabilities into subgroups such as current assets, long-term assets, current liabilities, long-term liabilities, and equity, providing more detailed information to users of financial statements.

Question 19

Revenue accounts are temporary accounts that should begin each accounting period with zero balances.

Accepted Answer

Revenue accounts are temporary accounts that track the money earned by a business during a specific accounting period. At the beginning of each accounting period, these accounts should have zero balances to accurately track the revenue earned during that period.

Question 20

The Income Summary account is a permanent account that will be carried forward period after period.

Accepted Answer

The Income Summary account is a temporary account that is used to summarize revenues and expenses for the period and transfer the net income or loss to the retained earnings account. It is not a permanent account that is carried forward from period to period.

Quiz 4: Completing the Accounting Cycle