Chapter 4

Question 1

List the order the financial statements should be prepared

Answer 1

-Income statement, Statement of retained earnings, Balance sheet

Question 2

How is the classified balance sheet different from the unclassified balance sheet?

Answer 2

-In classified balance sheets, assets are shown in order of liquidity and liabilities are classified in the order in which they must be paid (current or long term)

Question 3

How do we distinguish between current asset vs. long-term asset and currently liability vs. long-term liability?

Answer 3

• Current assets will be converted to cash, sold, or end up used during the next 12 months or within the business’s operating cycle if the cycle is longer than a year. Long term assets are all the assets that will not be converted to cash or used up within the operating cycle (typically long term investments, ppe, and intangible assets)
• Current liabilities must be paid either with cash or with goods and services within one year or within the entity’s operating cycle if the cycle is longer than a year. Long term liabilities are liabilities that do not need to be paid within one year or the operating cycle

Question 4

If a company has a net income, the amount of net income would be entered on the _________ (debit or credit) side of the income statement columns on the worksheet.

Answer 4

-Debit

Question 5

If a company has a net loss, the amount of net loss would be entered on the _________ (debit or credit) side of the income statement columns on the worksheet.

Answer 5

-Credit

Question 6

List 4 examples of temporary accounts.

Answer 6

-Revenues, Expenses, Income Summary, Dividends

Question 7

Which type of accounts normally appear on the adjusted trial balance that do not appear on the post-closing trial balance?

Answer 7

-Temporary accounts appear on the adjusted trial balance, but not the post-closing trial balance

Question 8

How many steps are in the accounting cycle (as illustrated in this text)?

Answer 8

-10 steps

Question 9

What is the formula for calculating current ratio?

Answer 9

-Current ratio=Total current assets/Total current liabilities

Question 10

If current assets are $20,000 and current liabilities are $5,000, what is the current ratio?

Answer 10

• Current ratio=Total current assets/Total current liabilities
• CR=20,000/5,000
• CR= $4,000

Question 11

What are reversing entries?

Answer 11

• Special journal entries that ease the burden of accounting for transactions in a later period; are used in conjunction with accrual-type adjustments
• Used only for convenience and to save time