Chapter 3 (2/2)

Question 1

Unadjusted Trial Balance

Answer 1

list of accts and balances before adjustments are recorded

Question 2

Adjusted Trial Balance

Answer 2

list of accts and balances after adjustments are recorded

Question 3

Steps to Prepare Financial Statements

Answer 3

1. Prepare Income Statement
2. Prepare Statement of Retained Earnings
3. Prepare Balance Sheet
4. Prepare Statement of Cash Flows

Question 4

Closing Process

Answer 4

occurs at the end of an acct period after financial statements are completed

Question 5

Closing Process layout

Answer 5

1. Identify accts for closing
2. Record/post closing entries
3. prepare a post-closing trial balance

Question 6

Purposes of Closing Process

Answer 6

1. to reset rev, exp, and div, acct balances to 0 at the end of each period
2. helps summarize a period’s rev and exp

Question 7

Temporary Accounts

Answer 7

relate to one accting period.

includes following accts:

• income statement (rev & exp)
• dividends
• income summary

Question 8

T/F: Closing process only applies to temporary accounts

Answer 8

True

Question 9

Permanent Accounts

Answer 9

report on activities related to 1+ future accting periods

includes following accts:

• assets
• liabilities
• equity (common stock & ret. earnings)

Question 10

Closing Entries

Answer 10

transfer the end-of-period balances in rev, exp, and div accts to the permanent Ret Earnings acct

Question 11

Reasons for Closing Entries

Answer 11

1. rev, exp, div accts must begin each period w/ balance of zero
2. retained earnings must reflect prior periods’ rev, exp, div

Question 12

CLOSING ENTRIES LAYOUT: REV

Answer 12

Revenue (debit)
Income Summary (credit)

result: rev closed

Question 13

CLOSING ENTRIES LAYOUT: EXP

Answer 13

inc summary (debit)
expenses (credit)

result: exp closed

Question 14

CLOSING ENTRIES LAYOUT: INC SUMMARY

Answer 14

inc summary (debit)
ret. earnings (credit)

result: inc summary closed

Question 15

CLOSING ENTRIES LAYOUT: DIVIDENDS

Answer 15

ret. earnings (debit)
dividends (credit)

result: dividends closed

Question 16

Income statements report…

Answer 16

…rev and exp for a specific accounting period

Question 17

At the end of closing process…

Answer 17

1. asset and liability accts will carry forward to next period
2. equity accts will be zeroed out before going to next period

Question 18

Post-Closing Trial Balance

Answer 18

a list of permanent accts and their balances after all closing entries; only balance sheet (permanent) accts are on this

Question 19

Accounting Cycle definition

Answer 19

steps in preparing financial statements; called a cycle bc steps are repeated each reporting period

Question 20

Accounting Cycle steps

Answer 20

1. analyze transactions
2. journalize
3. post
4. prep unadjusted trial balance
5. adjust and post accts
6. prep adjusted trial balance
7. prep fin statements
8. close accts
9. prep post-closing trial balance
10. reverse and post (optional)

Question 21

Unclassified Balance Sheet

Answer 21

broadly groups accts into assets, liabilities, equity

Question 22

Classified Balance Sheet

Answer 22

organizes assets and liabilities into subgroups

Question 23

Operating Cycle

Answer 23

time span from when CASH IS USED to acquire goods/services, until CASH IS RECEIVED from the sale of goods/servies

Question 24

Current Assets

Answer 24

cash/other resources that are expected to be sold, collected, or used within a year or the company’s operating cycle (whichever is longer)

Question 25

Long-Term Investments

Answer 25

includes notes receivable and investments (stocks/bonds) when they’re expected to be held for more than the longer of: one year or the operating cycle

Question 26

Intangible Assets

Answer 26

long-term assets that benefit business operations but lack physical form

ex: patents, trademarks, copyrights

Question 27

Current Liabilities

Answer 27

liabilities due to be paid/settled within a year or the operating cycle, whichever is longer; typically settled by paying out cash

ex: accts payable, notes payable, wages payable, taxes payable, interest payable, unearned rev

Question 28

Long-Term Liabilities

Answer 28

liabilities not due within one year or the operating cycle, whichever is longer

ex: notes payable, mortgages payable, bonds payable, lease obligations

Question 29

Profit Margin (return on sales) def

Answer 29

ratio of net income to net sales

Question 30

Profit Margin equ

Answer 30

(Net Income) / (Net Sales)