Question 1

End of year records from Abbi's Boutique show: $$\begin{array} { l r } 
& \$ \
\text { Cash } & 20 \
\text { GST Outlays } & 35 \
\text { Salaries Payable } & 10 \
\text { Rent Expense } & 100 \
\text { Interest Expense } & 50 \
\text { Prepaid Rent } & 30 \
\text { Salary Expense } & 20 \
\text { Rent Collected in Advance } & 20
\end{array}$$ During the closing process the total debit to the Profit and Loss Summary account would be:

Accepted Answer

The total debit to the Profit and Loss Summary account includes all expenses: Rent Expense ($100), Interest Expense ($50), and Salary Expense ($20), totaling $170.

Question 2

In the closing process which accounts are closed?

Accepted Answer

Only income and expense accounts are closed in the closing process by transferring their balances to the retained earnings or capital account. Asset, liability, and equity accounts are not closed as they carry forward to the next accounting period. All ledger accounts are not closed as some of them are permanent accounts that do not need to be closed, such as the cash account, accounts receivable, accounts payable, etc. The accounts that have been adjusted are not necessarily closed, as some of them may be permanent accounts or accounts that carry forward to the next period.

Question 3

Interim statements are:

Accepted Answer

Interim statements are prepared between the annual reports, usually half-yearly, quarterly or monthly. They provide a summary of the company's financial performance during a particular period, and can be used by stakeholders to make important decisions about the company. They are not necessarily prepared by junior staff, nor are they used by creditors to deal with emergencies.

Question 4

This is Kululu's year-end trial balance: $$\begin{array} { l c } 
& \$ \
\text { Cash } & 50 \
\text { Sales Revenue } & 80 \
\text { Accounts Payable } & 30 \
\text { Equity } & 70 \
\text { Interest Expense } & 60 \
\text { Interest Receivable } & 50 \
\text { Interest Revenue } & 40
\end{array}$$ How many of the above are temporary accounts?

Accepted Answer

Temporary accounts include Sales Revenue, Interest Expense, and Interest Revenue, totaling three accounts.

Question 5

What is the closing entry for drawings of $25 000?

Accepted Answer

Drawings reduce the owner's equity, so the correct closing entry is to debit the owner's capital account and credit the drawings account.

Question 6

Closing the accounts refers to:

Accepted Answer

Closing the accounts involves transferring the balances from revenue and expense accounts to the profit and loss summary account, which is then closed to the equity account. This process helps to reset the accounts for the next accounting period. Therefore, option D is the best choice. Options A and C are incorrect because simply establishing zero balances in the balance sheet or ledger accounts does not involve the closing process. Option B is also incorrect as closing the accounts does not necessarily involve the cash at bank account specifically.

Question 7

Closing entries are made:

Accepted Answer

Closing entries are made in both the journal and the ledger. They are recorded in the journal to provide a permanent record of the transactions, and then posted to the ledger accounts to update the balances and prepare them for the next accounting period. The other two options, A and D, are not correct as closing entries are not solely recorded in the ledger or on the worksheet. Option C is also incorrect as it suggests that closing entries are only recorded in the journal, which is not the case.

Question 8

Which of these is not recorded on a worksheet?

Accepted Answer

Closing entries are not recorded on a worksheet. A worksheet is a tool used for planning and adjusting entries before they are formally recorded in the general ledger. Closing entries, however, are part of the formal process of closing the books at the end of an accounting period and are recorded in the general ledger, not on the worksheet.

Question 9

The major purpose of a post-closing trial balance is to:

Accepted Answer

The post-closing trial balance is prepared to ensure that all temporary accounts have been closed and that the ledger is balanced, confirming the readiness for the new accounting period.

Question 10

Before calculating the profit for the period,the totals of the income statement debit and credit columns on the worksheet are $60 000 and $80 000 respectively.What is the amount of the profit or loss?

Accepted Answer

The profit is calculated as the difference between the credit and debit columns. Since the credit column ($80,000) is greater than the debit column ($60,000), there is a profit of $20,000.

Question 11

Which of these accounts is closed to the profit and loss summary account?

Accepted Answer

Depreciation expense is a temporary account that is closed to the profit and loss summary account at the end of the accounting period.

Question 12

The balance in the Profit and Loss Summary account before it is closed represents:

Accepted Answer

The balance in the Profit and Loss Summary account before it is closed represents the profit or loss for the period. This represents the difference between total income and total expenses incurred during the accounting period. This balance is then transferred to the owner's equity account and becomes the retained earnings of the business. The cash drawings of the owner are not taken into consideration while calculating the profit or loss of the business.

Question 13

Closing which of these accounts results in a credit to the Profit and Loss Summary account?

Accepted Answer

Sales is a revenue account, and closing it involves transferring its balance to the Profit and Loss Summary account, resulting in a credit to that account.

Question 14

Accounting entries made to reduce the temporary accounts to zero balances are known as:

Accepted Answer

Closing entries are made at the end of an accounting period to zero out the temporary accounts, which include revenues, expenses, and dividends. This process transfers the balances of these accounts to the retained earnings account, leaving them with zero balances to start the next accounting period.

Question 15

On a worksheet if the opening balance of the salaries expenses account was $7000,a reversing entry for $800 was completed for salaries accrued in the previous year and $600 of salaries were prepaid in the current year the balance of salaries expense transferred to the Income statement column would be:

Accepted Answer

The answer of On a worksheet if the opening balance...

Question 16

Income and expense accounts can be referred to as:

Accepted Answer

Income and expense accounts are temporary accounts because their balance is reset to zero at the end of each accounting period. They are used to track revenues and expenses for a specific period and are closed out and transferred to retained earnings or another equity account at the end of the period. Permanent accounts, also known as real accounts, are those that are not reset to zero at the end of the accounting period, such as asset, liability, and equity accounts. Deferred accounts refer to accounts where income or expenses are postponed to a later period, such as prepaid expenses or deferred revenue.

Question 17

Which statement relating to closing entries is incorrect?

Accepted Answer

Closing entries are not made each time a trial balance is prepared. They are typically made at the end of an accounting period to transfer balances from temporary accounts to permanent accounts, not every time a trial balance is prepared.

Question 18

Which of these is not a permanent account?

Accepted Answer

Prepaid insurance, loan, and owner's capital account are all examples of permanent accounts because they reflect long-term and ongoing financial transactions. Rent expense, on the other hand, is a temporary account that only reflects short-term transactions, so it is not a permanent account.

Question 19

If cleaning expenses for the year are $8 200,made up of cash payments of $7 900 and accrued cleaning of $300 what is the amount of cleaning that is closed to the profit and loss summary account?

Accepted Answer

The total cleaning expenses for the year, which include both cash payments and accrued expenses, amount to $8,200. This is the amount that should be closed to the profit and loss summary account.

Question 20

The correct closing entry for a profit of $105 300 is:

Accepted Answer

The correct closing entry for a profit involves transferring the profit to the owner's capital account by debiting the profit and loss summary account and crediting the owner's capital account.

Quiz 5: Completing the Accounting Cycle