Chapter 10: Closing Entries

Question 1

What has to happen to ledger accounts before financial statements can be prepared? (2)

Answer 1

1. balanced

2. apply year end adjustments

Question 2

What is the fist step in the process of preparing financial statements?

Answer 2

open up another ledger account called the income and expense account (profit and loss account)

Question 3

What happens in the profit and loss account?

Answer 3

the business summarizes its results for the period by gathering together all ledger account balances relating to income and expenses.

Question 4

What happens with accounts that represent assets and liabilities (not income or expense)?

Answer 4

they are carried forward in the books of the business. they become opening balances for the next accounting period.

Question 5

When balances are brought forward what does a liability look like?

Answer 5

Credit balance brought forward

Question 6

When balances are brought forward what does an asset look like?

Answer 6

Debit balance brought forward

Question 7

What is collated into the capital account? (3)

Answer 7

1. cash introduced by owner
2. drawings made
3. profit made