Question 1

Which of the following statements is incorrect?

Accepted Answer

Permanent accounts are also known as real accounts, while nominal accounts are temporary accounts.

Question 2

A columnar working paper used to prepare a company's unadjusted trial balance, adjusting entries, adjusted trial balance, and financial statements, and which is an optional tool in the accounting process is a(n) :

Accepted Answer

A work sheet is a columnar working paper that is an optional tool in the accounting process. It is used to prepare a company's unadjusted trial balance, adjusting entries, adjusted trial balance, and financial statements. The other options listed are different financial statements or trial balances that are prepared using information from the work sheet.

Question 3

Closing entries are required:

Accepted Answer

Closing entries are necessary to transfer the balances of temporary accounts such as revenues, expenses, and dividends into the permanent accounts. This process ensures that the income statement reflects the correct figures for the accounting period and prepares the temporary accounts for the next period. This process is essential, regardless of the accounting method used, and is not related to any external requirements.

Question 4

All of the following regarding current ratio are except:

Accepted Answer

Current ratio can affect a creditor's decision about lending money to a company but it does not affect their decision on when to allow the company to buy on credit.

Question 5

Another name for temporary accounts is:

Accepted Answer

Temporary accounts are also known as Nominal accounts. These accounts are used to track revenue, expenses, gains, and losses incurred by a business during a specific period. They are closed at the end of the accounting period and their balances are transferred to the retained earnings account in the balance sheet. Real accounts, Contra accounts, Accrued accounts, and Balance column accounts are not synonyms for temporary accounts.

Question 6

Assets, liabilities, and equity accounts are not closed; these accounts are called:

Accepted Answer

Assets, liabilities, and equity accounts are not closed at the end of an accounting period because they represent the ongoing financial positions of a company. These accounts are called permanent accounts because they are carried forward to subsequent accounting periods. Nominal accounts and temporary accounts, on the other hand, are closed at the end of an accounting period because they represent revenues, expenses, gains, and losses that relate to a specific period. Contra accounts are used to offset the balance of another account, and accrued accounts represent expenses or revenues that have been earned or incurred but for which payment or collection has not yet been made.

Question 7

Which of the following is the usual final step in the accounting cycle?

Accepted Answer

The usual final step in the accounting cycle is preparing a post-closing trial balance. This step is done after all the financial statements have been prepared and all temporary accounts have been closed to ensure that the ledger is balanced and ready for the next accounting period.

Question 8

The closing process is necessary in order to:

Accepted Answer

The closing process involves transferring net income or net loss and owner withdrawals to the owner's capital account, resetting temporary accounts to zero for the next period.

Question 9

A classified balance sheet:

Accepted Answer

A classified balance sheet organizes assets and liabilities into important subgroups such as current assets, long-term investments, property, plant and equipment, current liabilities, long-term liabilities, and owner's equity. It does not present revenues, expenses, or net income, report operating, investing, and financing activities or report the effect of profit and withdrawals on owner's capital.

Question 10

The recurring steps performed each reporting period, starting with analyzing and recording transactions in the journal and continuing through the post-closing trial balance, is referred to as the:

Accepted Answer

The accounting cycle refers to the steps taken in each reporting period to analyze and record transactions, adjust accounts, prepare financial statements, and close the books. It is an important process for ensuring accurate and reliable financial reporting.

Question 11

The Unadjusted Trial Balance columns of a company's work sheet show the balance in the Office Supplies account as $750. The Adjustments columns show that $425 of these supplies were used during the period. The amount shown as Office Supplies in the Balance Sheet columns of the work sheet is:

Accepted Answer

The amount shown as Office Supplies in the Balance Sheet columns would be $325 debit, calculated as the original balance of $750 minus the $425 of supplies used during the period. This reflects the remaining value of office supplies.

Question 12

The assets section of a classified balance sheet usually includes:

Accepted Answer

The assets section of a classified balance sheet usually includes current assets, long-term investments, property, plant and equipment, and intangible assets. These are categorized under different headings to provide clear information about the different types of assets owned by the company.

Question 13

Journal entries recorded at the end of each accounting period to prepare the revenue, expense, and withdrawals accounts for the upcoming period and to update the owner's capital account for the events of the period just finished are referred to as:

Accepted Answer

Closing entries are recorded at the end of each accounting period to prepare revenue, expense, and withdrawal accounts for the upcoming period by transferring their balances to the owner's capital account. This includes closing revenue, expense, and withdrawal accounts to zero and updating the owner's capital account for the events of the period just finished. Adjusting entries are recorded to update accounts for unrecorded or incomplete transactions, work sheet entries are used to prepare financial statements, and final entries aren't commonly used in accounting terminology. Therefore, the best choice is B - Closing entries.

Question 14

The current ratio:

Accepted Answer

The current ratio is used to evaluate a company's ability to pay its debts in the near future. It is calculated by dividing current assets by current liabilities.

Question 15

The usual order for the asset section of a classified balance sheet is:

Accepted Answer

The usual order for the asset section of a classified balance sheet is current assets, followed by long-term investments, then property, plant and equipment, and finally intangible assets. Prepaid expenses are generally included within current assets. Choice C follows this order correctly.

Question 16

A classified balance sheet differs from an unclassified balance sheet in that

Accepted Answer

A classified balance sheet presents information in a manner that makes it easier to calculate a company's current ratio by grouping assets and liabilities into current and non-current categories. An unclassified balance sheet does not provide this level of detail and may simply list assets and liabilities in the order of liquidity. The other options are not true.

Question 17

Closing the temporary accounts at the end of each accounting period does all of the following except:

Accepted Answer

Closing temporary accounts involves transferring their balances to the owner's capital account, affecting it by reflecting the period's net income or loss and withdrawals. Thus, saying it has no effect on the owner's capital account is incorrect.

Question 18

Two common subgroups for liabilities on a classified balance sheet are:

Accepted Answer

The two common subgroups for liabilities on a classified balance sheet are current liabilities, which are debts that are due within one year or the operating cycle, whichever is longer, and long-term liabilities, which are debts that are due over a period longer than one year or the operating cycle. Therefore, the best choice is E, current liabilities and long-term liabilities.

Question 19

Revenues, expenses, and withdrawals accounts, which are closed at the end of each accounting period are:

Accepted Answer

Revenues, expenses, and withdrawals accounts are temporary accounts that are closed at the end of each accounting period to transfer the balances to the owner's equity account. Real and permanent accounts are not closed at the end of the accounting period, and balance sheet accounts include both temporary and permanent accounts. Closing accounts is not a recognized term in accounting.

Question 20

When closing entries are made:

Accepted Answer

Closing entries are made to transfer the balances of temporary or nominal accounts such as revenue, expenses, and dividends to the retained earnings account in the equity section of the balance sheet. Permanent or real accounts such as assets, liabilities, and equity balances are not closed because their balances continue in the new accounting period. Therefore, choice B is the best answer.

Quiz 4: Completing the Accounting Cycle