Accounting Chap 6

Question 1

Used for three major end-of-period activities:
 Journalizing adjusting entries
 Preparing financial statements
 Journalizing closing entries

Answer 1

THE WORK SHEET

Question 2

PREPARING FINANCIAL STATEMENTS

Answer 2

1st: Prepare the income statement.
2nd: Prepare the statement of owner’s
equity.
3rd: Prepare the balance sheet.

Question 3

The Financial Statements
Appearance
1. Dollar signs are placed at the \_\_\_ and \_\_\_ rulings.
2. Single rulings indicate \_\_\_.
3. Double rulings are placed under \_\_\_.
4. Headings contain the:
a) company name
b) statement title
c) period ended or date

Answer 3

top of each column
beneath

addition or subtraction

totals

Question 4

___ of financial statements relate to who, what, and when.

Answer 4

Headings

Question 5

___ columns of the work sheet provide the information needed to prepare the income statement.
___ is listed first on income statement.

Answer 5

Income Statement

Revenue

Question 6

___ are listed after revenue on income statement.

a) They could be listed in the ___ that they appear in the chart of accounts.
b) They could be listed in ___ order by dollar amount.
c) Amounts are itemized in the ___ column, when two columns are used.
d) Subtotals appear in the ___ column.

Answer 6

Expenses

same order

descending

left

right

Question 7

Income Statement Equation

___ – ___ = Net Income or Net Loss

Answer 7

Revenues

Expenses

Question 8

The Statement of Owner’s Equity Information is taken from the ___ columns of the work sheet and Net income/loss from the ____.

Answer 8

Balance Sheet

Income Statement

Question 9

What information is taken from the Balance Sheet columns of the work sheet to prepare the Statement of Owner’s Equity

Answer 9

Capital account balance & Drawing account balance

Question 10

The Balance Sheet Information is taken from the ___ columns of the work sheet and Ending balance from the ____.

Answer 10

Balance Sheet

Statement of Owner’s Equity

Question 11

Types of balance sheets

Answer 11

a) Report form
b) Account form
c) Classified balance sheet

Question 12

1st important feature of Balance sheet type where The liabilities and owner’s equity are shown below the assets section.

Answer 12

Report form balance sheets

Question 13

Balance sheet type where

(1) The assets are listed on the left.
(2) The liabilities and owner’s equity sections are listed on the right.

Answer 13

Account form balance sheets

Question 14

2nd important feature of Balance sheet type where
(1) Similar items are grouped together.
(2) The major balance sheet classifications are
generally used ie: Current assets, Property, plant, equipment, Current Liabilities, Long-term liabilities or long-term debt

Answer 14

Classified balance sheet

Question 15

___ include cash and items that will be converted into cash within one year or the normal operating cycle of the business whichever is longer.

Answer 15

Current assets

Question 16

An ___ is the period of time required to purchase supplies and services and convert them back into cash.

Answer 16

operating cycle

Question 17

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

Answer 17

plant assets

long-term

Question 18

___ include accounts payable, wages payable, and other items due within one year or the normal operating cycle.

Answer 18

Current liabilities

Question 19

___ or ___ are obligations that are not expected to be paid within a year and do not require the use of current assets

Answer 19

Long-term liabilities

long-term debt

Question 20

CLASSIFIED BALANCE SHEET

Answer 20

 Similar items are grouped together
 Assets are classified as:
    Current Assets
    Property, Plant, and Equipment
 Liabilities are classified as:
    Current Liabilities
    Long-Term Liabilities

Question 21

Assets (including cash) that will be converted into cash or consumed within one year or the normal operating cycle, whichever is longer
Examples:
 Cash, accounts receivable, supplies, and prepaid insurance

Answer 21

CURRENT ASSETS

Question 22

Assets that are expected to serve the business for many years
 Also called plant assets or long-term assets
Examples:
 Land, buildings, and equipment

Answer 22

PROPERTY, PLANT, AND EQUIPMENT

Question 23

Liabilities that are due within one year or the normal operating cycle of the business, whichever is longer
 They will be paid out of current assets
 Examples:
 Accounts payable
 Wages payable

Answer 23

CURRENT LIABILITIES

Question 24

Obligations that are not expected to be paid within a year and do not require the use of current assets
Also called long-term debt
 Example:
 A mortgage on an office building

Answer 24

LONG-TERM LIABILITIES

Question 25

 Gives temporary accounts "zero" balances so they are prepared to accumulate new information for the next accounting period  Involves "four" closing journal entries  The income summary (expense and revenue summary) account is used to aid in the closing process

Answer 25

THE CLOSING PROCESS

Question 26

Contain the results of all transactions since the business started, their balances are carried forward to each new accounting period. All accounts reported on the balance sheet  Assets (including contra-assets)  Liabilities  Capital account  These accounts are ___ at end of fiscal year

Answer 26

PERMANENT ACCOUNTS NOT CLOSED

Question 27

Accumulate information for a specific (one) accounting period All accounts not on the balance sheet  Revenues  Expenses  Drawing  These accounts are ___ at end of fiscal year

Answer 27

TEMPORARY ACCOUNTS CLOSED

Question 28

Accounts reported on the balance sheet are ___ and remain ___. All other accounts (those reported on the income statement and drawing) are ___ and ___.

Answer 28

permanent open temporary closed

Question 29

Income Summary is a ___ owner’s equity account used in the closing process to give accounts which are temporary a zero balance.

Answer 29

temporary

Question 30

Steps in the Closing Process

Answer 30

Step 1: Close Revenue Accounts to Income Summary Step 2: Close Expense Accounts to Income Summary Step 3: Close Income Summary to Owner’s Capital Account Step 4: Close Drawing to the Owner’s Capital Account

Question 31

Close Revenue Accounts to Income Summary. a) ___ the revenue accounts. b) ___ Income Summary.

Answer 31

Debit Credit

Question 32

Close Expense Accounts to Income Summary. a) ___ Income Summary. b) ___ the expense accounts.

Answer 32

Debit Credit

Question 33

Close Income Summary to Owner’s Capital Account If Net income (credit bal) (1) ___ Income Summary. (2) ___ the owner’s capital account. If Net loss (debit bal) (1) ___ the owner’s capital account (2) ___ Income Summary.

Answer 33

Debit Credit Debit Credit

Question 34

Close Drawing to the Owner’s Capital Account. a) ___ the owner’s capital account. b) ___ Drawing.

Answer 34

Debit Credit

Question 35

Journalize Closing Entries

Answer 35

1. Journalize the closing entries on the year-end date. 2. Write “Closing Entries” in the Description column prior to making the first closing entry. 3. Explanations are not required in the Description column for individual closing entries. 4. Make one compound entry to close the expense accounts.

Question 36

Post the Closing Entries

Answer 36

1. Post to the general ledger in the same manner as all other entries. 2. Write “Closing” in the Item column of the general ledger to identify the closing entries. 3. Zero account balances are recorded by drawing a line in both the Balance Debit and Credit columns.

Question 37

Prepared after closing entries To prove the equality of the debit and credit balances in the general ledger accounts Only permanent accounts that remain open are listed

Answer 37

POST-CLOSING TRIAL BALANCE

Question 38

All amounts reflected on the post-closing trial balance are the ___ as in the Balance Sheet columns of the work sheet except ___ and ___ which are changed during the closing process.

Answer 38

same drawing capital

Question 39

The Accounting Cycle (During Accounting Period)

Answer 39

1. Analyze source documents. 2. Journalize the transactions. 3. Post to the general ledger accounts.

Question 40

Operating Cycle for a Service Business

Answer 40

1. Start with Cash 2. Purchase Supplies and Services 3. Provide Services for Cash and "On Account" 4. Collect Receivables 5. Back to Cash

Question 41

One benefit of using the ___ account is that its balance before closing to the capital account equals the net income or net loss for the period. It can serve as a check of the accuracy of the closing entries for revenues and expenses even though not really needed for closing process.

Answer 41

Income Summary

Question 42

Steps involved in accounting for all of the business activities during an accounting period. Begins with analysis of source documents and ends with post-closing trial balance.

Answer 42

Accounting cycle

Question 43

The Accounting Cycle (End of Accounting Period) | *Performed as of the last day

Answer 43

4. Prepare a trial balance. 5. Determine and prepare the needed adjustments on the work sheet. 6. Complete an end-of-period work sheet. 7. Journalize and post the adjusting entries. 8. Prepare an income statement, a statement of owner’s equity, and a balance sheet. 9. Journalize and post the closing entries. 10. Prepare a post-closing trial balance.