2-7 Post Closing Entries

Question 1

Closing Entries

Answer 1

Transfer the balances of temporary accounts to retained earnings by reducing these accounts to zero balances

Question 2

Temporary Accounts

Answer 2

Revenues, Expenses, Gains, Losses, and Dividends

closed

Question 3

Permanent Accounts

Answer 3

Assets, Liabilities, and Stockholder’s Equity

balances carry forward

Question 4

What is Step 8 of the Accounting Cycle?

Answer 4

Prepare and Post Closing Entries

Question 5

Why do we close balances of temporary accounts at the end of an accounting period?

Answer 5

If we didn’t the performance of one period would be jumbled with the performance of other periods

Question 6

Income Summary Account

Answer 6

A temporary clearing account, to accumulate the balances of revenues, expenses, gains, and losses

Question 7

What is Step 9 of the Accounting Cycle?

Answer 7

Prepare a Post-Closing Trial Balance

Question 8

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

Answer 8

To prove debit-credit equity after closing entries

only permanent accounts remain

Question 9

What are the responsibilities of managers to determine in the accounting cycle?

Answer 9

• method used (cash vs. accrual)
• accounting software used
• chart of accounts
• when is the fiscal year end
• accounting policies to follow
• whether or not to use reversing entries
• internal vs. external reports

Question 10

Why is setting up a chart of accounts an important step in the accounting process?

Answer 10

It determines how detailed and specific information will be summarized in financial reports
(Can be tailored to specific industries)

Question 11

Big Data

Answer 11

Can be used to gain competitive advantage if you can analyze the information effectively
Links financial and non-financial information together
Allows for integrated reporting and more reliable forecasts