Deck 6: Financial Statements and the Closing Process

Question 1

Long-term liabilities may also be called long-term debt.

Answer 1

True

Question 2

The purpose and use of the income summary account is to summarize the difference between revenues and expenses.

Answer 2

True

Question 3

A statement of owner's equity is a statement summarizing all of the changes in owner's equity during a specified period of time.

Answer 3

True

Question 4

A separate explanation of each closing entry is necessary.

Question 5

The income summary account is an account used only during the closing process.

Question 6

The income summary account appears on the income statement at the end of the accounting period.

Question 7

To close a revenue account with a credit balance,debit the account for its balance and credit the income summary account.

Question 8

To close the income summary account with a credit balance,debit the account for its balance and credit the drawing account.

Question 9

A form of balance sheet that lists the assets at the left and the liabilities and owner's equity at the right is called a report form of balance sheet.

Question 10

The Account Title and Balance Sheet columns of the work sheet provide all of the information necessary to prepare the statement of owner's equity.

Question 11

Property,plant,and equipment are assets that are expected to serve the business for many years.

Question 12

Long-term liabilities are liabilities that are due in a period longer than one year.

Question 13

Expenses on the income statement could be listed in alphabetical order by dollar amount.

Question 14

The statement of owner's equity is prepared from information from the asset and liability accounts.

Question 15

To close an expense account with a debit balance,debit the account for its balance and credit the income summary account.

Question 16

An income statement is an itemized statement that provides information regarding the status of the assets,liabilities,and owner's equity of a business enterprise as of a specified date.

Question 17

Adjustments at the end of the period are not formally entered in the journal or posted to the accounts.

Question 18

A mortgage on an office building is an example of a property,plant,and equipment asset.

Question 19

The income statement includes all changes in owner's equity except those resulting from investments or withdrawals of assets by the owner.

Question 20

The steps involved in handling all of the transactions and events completed during an accounting period,beginning with placing data in a book of original entry and ending with a post-closing trial balance,are referred to collectively as the accounting cycle.

Question 21

The amounts in the financial statements must agree with the ledger account balances.

Question 22

Closing entries are made in the journal and posted to the ledger accounts.

Question 23

A post-closing trial balance is used to prove the equality of debit and credit balances in the general ledger accounts after the closing entries have been posted.

Question 24

Obligations that need not be paid for a long time,usually more than one year,are classified as current liabilities.

Question 25

After posting the adjusting entries,the balance of the depreciation expense account should agree with the amount shown on the income statement.

Question 26

Assets,liabilities,and the owner's capital account are closed at the end of the accounting period.

Question 27

The effect of drawing transactions on the capital account is formalized at any time during the accounting period.

Question 28

To close the drawing account with a debit balance,credit the account for its balance and debit the owner's capital account.

Question 29

The three types of business activities are operating activities,investing activities,and capital activities.

Question 30

Adjusting entries are recorded and posted after closing entries.

Question 31

A balance sheet that classifies (or groups)items by similarities is called a unified balance sheet.

Question 32

Revenue and expense account are permanent accounts.

Question 33

The heading for a balance sheet includes the name of the business,the title of the statement,and a period of time.

Question 34

The end-of-period work sheet is completed after adjusting entries have been recorded and posted.

Question 35

Expenses on the income statement could be listed in the same order as they appear in the chart of accounts.

Question 36

A form of balance sheet that shows the liabilities and owner's equity sections below the assets section is called an account form of balance sheet.

Question 37

Current assets include cash and other assets that will be converted into cash or consumed within one year or the normal operating cycle of the business,whichever is longer.

Question 38

Revenues and expenses are temporary accounts and are closed at the end of the accounting period.

Question 39

An income statement is an itemized statement for the purpose of providing information regarding the results of operations during a specified period of time.

Question 40

The accuracy of the statement of cash flows can be proved by comparing the cash provided by operating activities with the change in the cash balance.

Question 41

Changes in owner's equity that result from investments or withdrawals of assets by the owner are included in the

A) statement of owner's equity.
B) income statement.
C) balance sheet.
D) chart of accounts.

Question 42

After the accounts are closed and the journal entries have been posted,which of the following accounts would have a balance?

A) Payroll Taxes Expense
B) Miscellaneous Expense
C) Professional Expense
D) Supplies

Question 43

The journal entry to close the income summary account (showing a net loss)includes

A) debiting the drawing account and crediting Income Summary.
B) debiting Income Summary and crediting the drawing account.
C) debiting the owner's capital account and crediting Income Summary.
D) debiting Income Summary and crediting the owner's capital account.

Question 44

After the closing entries are journalized and posted,which of the following accounts would NOT have a balance?

A) Cash
B) Office Supplies
C) Accounts Payable
D) Service Revenue

Question 45

Which step is taken at the end of the accounting period?

A) analyze source documents
B) post to the general ledger accounts
C) prepare a trial balance
D) prepare a post-closing trial balance

Question 46

When recording closing entries in the general journal,which of the following is written in the Description column?

A) "closing entries"
B) a description of the transaction
C) nothing
D) "zero out accounts"

Question 47

A form of balance sheet that lists the liabilities and the owner's equity sections below the assets section is called the

A) account form.
B) journal form.
C) report form.
D) current form.

Question 48

The journal entry to close expense accounts includes

A) debiting the expense accounts and crediting Income Summary.
B) debiting Income Summary and crediting the expense accounts.
C) debiting the expense accounts and crediting the owner's capital account.
D) debiting the expense accounts and crediting the drawing account.

Question 49

After the closing entries have been posted,which of the following accounts would still have a balance?

A) Miscellaneous Revenues
B) Accumulated Depreciation Equipment
C) Salaries Expense
D) Supplies Expense

Question 50

Owner's equity can be increased through

A) withdrawals by the owner.
B) investments by the owner.
C) expenses exceeding revenues.
D) purchases of assets for cash.

Question 51

The journal entry to close the income summary account (showing a profit)includes

A) debiting the drawing account and crediting Income Summary.
B) debiting Income Summary and crediting the drawing account.
C) debiting the owner's capital account and crediting Income Summary.
D) debiting Income Summary and crediting the owner's capital account.

Question 52

The order in which financial statements should be prepared is

A) balance sheet,income statement,statement of owner's equity.
B) income statement,balance sheet,statement of owner's equity.
C) statement of owner's equity,balance sheet,income statement.
D) income statement,statement of owner's equity,balance sheet.

Question 53

The total revenue of the month of June amounted to $7,500; total expenses amounted to $3,500; and withdrawals amounted to $600.The net income for the month amounted to

A) $7,500.
B) $3,400.
C) $4,000.
D) $3,500.

Question 54

The total assets amount to $26,000 and the total liabilities amount to $18,000.The amount of the owner's equity is

A) $18,000.
B) $44,000.
C) $26,000.
D) $8,000.

Question 55

Which of the following steps of the accounting cycle are in the correct order?

A) prepare a trial balance,post to general ledger accounts,journalize adjusting and closing entries
B) make adjustments,complete a work sheet,post to general ledger accounts
C) prepare financial statements,make adjustments,prepare a trial balance
D) prepare a trial balance,make adjustments,prepare financial statements

Question 56

The amount reported in the Balance Sheet columns of the work sheet for the owner's capital represents the

A) ending balance that should be reported on the balance sheet.
B) beginning balance.
C) beginning balance plus additional investments.
D) beginning balance less withdrawals.

Question 57

The balance in an expense account is closed to a(n)

A) capital account.
B) revenue account.
C) drawing account.
D) income summary account.

Question 58

The owner's equity in a business amounted to $52,000 at the beginning of the year and $100,000 at the end of the year.The owner had made no additional investments and had withdrawn $19,000 during the year.The net income for the year amounted to

A) $81,000.
B) $67,000.
C) $48,000.
D) $171,000.

Question 59

To prove the equality of the debit and credit balances in the general ledger accounts after the closing entries have been journalized and posted,prepare the

A) balance sheet.
B) income statement.
C) adjustments.
D) post-closing trial balance.

Question 60

The journal entry to close revenue accounts includes

A) debiting the revenue accounts and crediting Income Summary.
B) debiting Income Summary and crediting the revenue accounts.
C) debiting the revenue accounts and crediting Cash.
D) debiting the revenue accounts and crediting the drawing account.

Question 61

The account to which revenue and expenses are closed is called

A) Cash.
B) Drawing.
C) Income Summary.
D) Net Income.

Question 62

A balance sheet that groups similar items is called a(n)

A) report form of balance sheet.
B) account form of balance sheet.
C) classified balance sheet.
D) temporary balance sheet.

Question 63

From the following partial work sheet for Walter Searing,journalize the closing entries necessary for month-end and prepare a post-closing trial balance.
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$$\begin{array} { | l | l | l | } \hline \text { Account Title } & \text { Debit } & \text { Credit } \\\hline & & \\\hline & & \\\hline & & \\\hline & & \\\hline & & \\\hline & & \\\hline & & \\\hline & & \\\hline & & \\\hline & & \\\hline & & \\\hline & & \\\hline\end{array}$$

Question 64

The Income Summary account is used to

A) close the revenue accounts only.
B) close the revenue accounts and expense accounts only.
C) close the drawing account.
D) close revenue accounts and expense accounts and update the owner's capital account.

Question 65

(Appendix)A utility bill for $315 was paid.This activity is classified as

A) operating.
B) investing.
C) financing.
D) paying.

Question 66

From the partial work sheet,prepare an income statement,a statement of owner's equity,and a classified balance sheet.The owner made no additional investments in the business during the month.

Question 67

Use the adjusted trial balance below.
a.
For each account,open a T account,title the account,and place its balance in it.
b.
Prepare closing entries in general journal format.
c.
Post closing entries to the T accounts.Give each entry a reference letter.
d.
Prepare a post-closing trial balance.
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$\begin{array}{c}\text { Adjusted Trial Balance }\\\\\begin{array}{lr} \underline{\text { Account Title} } & \underline{\text { Debit} } & \underline{\text { Credit }}\\\text { Cash } & 26,000 \\\text { Accounts Receivable } & 3,300 \\\text { Prepaid Insurance } & 6,600 \\\text { Supplies } & 1,200 \\\text { Land } & 42,300 \\\text { Equipment } & 5,700\\\text { Accumulated Depreciation-Equipment } && 5,500 \\\text { Accounts Payable } && 5,300 \\\text { Owner, Capital } && 73,900\\\text { Owner, Drawing } & 3,200 & \\\text { Service Fees } & & 20,000 \\\text { W7ages Expense } & 8.500 & \\\text { Supplies Expense } & 2,100 \\\text { Utilities Expense } & 200 \\\text { Insurance Expense } & 100 \\\text { Depreciation Expense-Equipment } & \underline{ 5.500} &\underline{\quad\quad}\\&104,700&104,700\end{array}\end{array}$

Question 68

Cash and other assets that will be converted into cash within one year or the normal operating cycle of the business,whichever is longer,are called

A) property.
B) plant.
C) equipment.
D) current assets.

Question 69

From the following adjusted trial balance,journalize the necessary closing entries.Prepare a post-closing trial balance.
$\begin{array}{c}\text { Adjusted Trial Balance }\\\begin{array}{lr} \underline{\text { Account Title}}& \underline{\text { Debit}}& \underline{\text { Credit}}\\\text { Cash } & 1,500 \\\text { Accounts Receivable } & 1,460 \\\text { Prepaid Insurance } & 800 \\\text { Supplies } & 900 \\\text { Equipment } & 5,500\\\text { Accumulated Depreciation-Equipment } && 550 \\\text { Accounts Payable } && 1,300 \\\text { Wages Payable } && 760 \\\text { Owner, Capital } && 6,550\\\text { Owner, Drawing } & 1,400 & \\\text { Service Revenue } & & 8,900 \\\text { Wages Expense } & 3,000 &\\\text { Rent Expense } & 1,500 \\\text { Supplies Expense } & 900 \\\text { Utilities Expense } & 600 \\\text { Depreci ation Expense-Equipment } & \underline{500}&\underline{\quad\quad} \\&18,060&18,060\end{array}\end{array}$

Question 70

What is the correct sequence for closing the temporary accounts?

A) revenue accounts,expense accounts,Income Summary,drawing account
B) expense accounts,revenue accounts,Income Summary,drawing account
C) revenue accounts,expense accounts,drawing account,Income Summary
D) drawing account,revenue accounts,expense accounts,Income Summary

Question 71

(Appendix)Business transactions can be classified as

A) operating,investing,and accounting.
B) operating,financing,and lending.
C) operating,investing,and financing.
D) operating,lending,and borrowing.

Question 72

The account to which the drawing account is closed is called

A) Revenue.
B) Income Summary.
C) Owner's Capital.
D) Cash.

Question 73

Number in their proper order the following steps in the accounting cycle.

Question 74

The journal entry to close the drawing account includes

A) debiting the owner's capital account and crediting the drawing account.
B) debiting the drawing account and crediting the owner's capital account.
C) debiting Income Summary and crediting the drawing account.
D) debiting the drawing account and crediting Income Summary.

Question 75

The body of the income statement consists of an itemized list of

A) assets and liabilities.
B) assets and owner's equity.
C) cash and revenues.
D) revenues and expenses.

Question 76

The steps involved in handling all of the transactions and events completed during an accounting period,beginning with placing data in a book of original entry and ending with a post-closing trial balance,are referred to collectively as

A) input.
B) processing.
C) output.
D) the accounting cycle.

Question 77

(Appendix)A company receives cash from a bank loan.This activity is classified as

A) operating.
B) investing.
C) financing.
D) borrowing.

Question 78

On December 31,20--,after adjustments,Tuscany Company's general ledger contains the account balances as shown on the partially completed work sheet below.Journalize the (four)closing entries necessary at the end of December.
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Question 79

What is the purpose of the post-closing trial balance?

A) to prove no errors were made while recording entries in the journal
B) to prove the equality of the debit and credit balances in the general ledger accounts
C) to prove the closing entries were recorded correctly in the journal
D) to prove the balances in the general ledger accounts are correct

Question 80

Capital at the beginning of the month amounted to $4,000; net income for the month amounted to $1,000; and withdrawals for personal use during the month amounted to $2,000.Capital at the end of the month is

A) $3,000.
B) $2,000.
C) $7,000.
D) $5,000.