Question 1

A revenue account is closed with a credit to the revenue account and a debit to Income Summary.

Accepted Answer

False

Question 2

Permanent accounts are also known as real accounts.

Accepted Answer

Permanent accounts are also called real accounts because they represent assets, liabilities, and equity. These accounts are not closed at the end of the accounting year and their balances are carried forward to the next year. Examples of permanent accounts include cash, accounts receivable, accounts payable, and owner's equity.

Question 3

The term post means entering transactions into the journal.

Accepted Answer

The term post means transferring information from the journal entries to the corresponding accounts in the ledger.

Question 4

The only accounts that are closed are income statement accounts.

Accepted Answer

Both income statement and balance sheet accounts can be closed, but the process and purpose are different. Income statement accounts are closed to transfer their balances to the retained earnings account, while balance sheet accounts may be closed to adjust for errors or finalize financial statements.

Question 5

Financial statements cannot be prepared correctly until the accounts have been adjusted.

Accepted Answer

Adjustments are necessary to ensure that all revenue and expenses are recognized in the correct accounting period and that assets and liabilities are properly valued. Without these adjustments, the financial statements will not provide an accurate picture of the company's financial performance and position.

Question 6

Accounts Receivable is a real account.

Accepted Answer

Accounts Receivable is a real account as it represents the amount of money owed to a company by its customers for goods or services provided on credit.

Question 7

Adjusting the accounts is part of the processing stage of the accounting cycle.

Accepted Answer

Adjusting the accounts is a necessary step in the processing stage of the accounting cycle. It involves making any necessary changes to account balances to ensure accuracy and completeness of financial statements. Other steps in the accounting cycle include analyzing transactions, recording transactions, and preparing financial statements.

Question 8

Cash is a nominal account.

Accepted Answer

The answer of Cash is a nominal account....

Question 9

Nominal account balances are reduced to zero by closing entries.

Accepted Answer

Nominal accounts such as revenue, expenses, and gains/losses are temporary accounts that are closed at the end of the accounting period to prepare for the next period. The closing entries involve transferring the balances of these accounts to retained earnings or an appropriate capital account, which results in zeroing out the balances of the nominal accounts. This process ensures that the revenue, expense, and gain/loss balances from the previous period do not affect the financial statements of the next period.

Question 10

Closing entries result in the transfer of net income or net loss into the owner's Capital account.

Accepted Answer

Closing entries involve transferring net income or net loss to the owner's Capital account, among other adjustments to close out temporary accounts and prepare for the next accounting period.

Question 11

In the accounting cycle, closing entries are prepared before adjusting entries.

Accepted Answer

Adjusting entries are prepared before closing entries in the accounting cycle. Adjusting entries are made to update accounts to their correct balances before financial statements are prepared. Once adjusting entries are made, closing entries are prepared to transfer the balances of temporary accounts (revenues, expenses, and dividends) to the retained earnings account.

Question 12

After all closing entries have been entered and posted, the balance of the Income Summary account will be zero.

Accepted Answer

The purpose of the Income Summary account is to close out all temporary accounts and transfer their balances to the Retained Earnings account. Once this transfer is complete, the balance of the Income Summary account will be zero.

Question 13

Closing entries deal primarily with the balances of real accounts.

Accepted Answer

Closing entries are made to transfer the balances of temporary accounts (revenues, expenses, and dividends) to a permanent equity account, typically the retained earnings account, not real accounts. Real accounts, like assets, liabilities, and equity accounts, are not closed at the end of the accounting period.

Question 14

An expense account is closed with a debit to the expense account and a credit to Income Summary.

Accepted Answer

Expense accounts are closed with a credit to the expense account and a debit to the Income Summary to transfer the expense balance to the Income Summary.

Question 15

Trial balances are prepared primarily to ensure that no entries have been omitted.

Accepted Answer

Trial balances are prepared to ensure that the total debits equal total credits, indicating that the ledger is mathematically balanced, not specifically to check for omitted entries.

Question 16

A temporary account is also known as a nominal account.

Accepted Answer

A temporary account, such as revenue and expense accounts, are also known as nominal accounts. This is because they are only used to record activity for a specific period of time and are closed at the end of that period, unlike permanent accounts like assets, liabilities, and equity.

Question 17

Supplies Expense is a temporary account.

Accepted Answer

Supplies Expense is a type of expense account that tracks the cost of supplies consumed during the accounting period. As it reflects expenses incurred during a specific period, it is classified as a temporary account, which means it is closed at the end of the accounting period by transferring its balance to the Income Summary account.

Question 18

In the accounting cycle, information from source documents is initially recorded in the journal.

Accepted Answer

In the accounting cycle, information from source documents is initially recorded in the journal. This is the first step in the process of recording business transactions. The journal is a chronological record of all transactions, and it serves as the basis for making entries in the ledger accounts.

Question 19

Analyzing business transactions from source documents constitutes the communication stage of the accounting cycle.

Accepted Answer

Analyzing business transactions from source documents is part of the recording stage, not the communication stage, which involves preparing financial statements and reports.

Question 20

Depreciation Expense-Buildings is a permanent account.

Accepted Answer

Depreciation Expense-Buildings is a temporary account, as it is closed at the end of each accounting period to reflect the expense for that period.

Quiz 4: Completing the Accounting Cycle