Chapter 4: Completing the Accounting Cycle

Question 1

Preparing a WORKSHEET

Answer 1

• FIVE STEPS
• Optional tool

Question 2

Net Loss

Answer 2

• In the Income Statment: DEBIT > CREDIT (DEBIT BALANCE)
• Moves to the Debit Column in the Balance Sheet

Question 3

Closing the Books:

TEMPORARY Account

Answer 3

MUST BE ZERO!!!

• All Revenue & Expense Accounts
• Dividends

Question 4

Closing the Books:

PERMANT

Answer 4

These accounts are not closed

• All Assets accounts
• All liabilty accounts
• Equity

Question 5

Badwill

Answer 5

• You pay less than it is acutally worht
• HGB: Shown as a liability
• IFRS: Shown as a profit

Question 6

Intangible Assets

Answer 6

• Assets that do not have physical substance

Question 7

Long Term Investments

Answer 7

• Investments in ordinary shares and bonds of other companies
• Investment in non-current assets such as land or building that a company is not ussing in its operating activities

Question 8

Current Assets

Answer 8

• Assets that a company expects to convert to cash or use up within one year or the operating cycle, whichever is longer

Question 9

Operating Cycle

Answer 9

The average time it takes from the purchase of invetory to the collection of cash from customers

Question 10

Equity for

• Propiertorship
• Partnership
• Corporations

Answer 10

• Propiertorship -> one capital account
• Partnership -> capital account for each partner
• Corporations -> Share Capital and Retained Earnings

Question 11

Hot to show Net Income in the WORKSHEET

Debit/Credit Income Statement

Debit/Credit Statement of Financial Position

Answer 11

• Income Statement: Debit
• Statement of Financial Position: Credit

Question 12

Closing the Books

“Income Summary” Account

Answer 12

• Another Temporary Account
• Zwischenschritt zwischen Expenses/Revenue und Retained Earnings

1. Close Revenues to Income Summary
2. Close Expenses to Income Summary
3. Close Income Summary to Retained Earnings

4. Close Dividends to Retained Earnings

Question 13

Purpose of a Post-Closing Trial Balance

Answer 13

• Is to prove the equailty of the permanent account balances carried forward into the next accounting period after journalizing and posting of closing entres
• Shows ONLY PERMANENT ACCOUNTS!

Question 14

Name the 9 Steps in the Accounting Cycle

Answer 14

Step 1-9: For the hole fiscal year

Step 1-7: For the interim circles

Question 15

Correcting Entries

Answer 15

• Made whenever an error is discovered
• Must be posted before closing entries
• Unnecessary if the records are error-free

Question 16

Reversing Entries

Answer 16

​Auflösung der Rückstellung

• Often helpful to reverse some of the adjusting entries before recording the regular transactions of the next period
• At the beginning of the NEXT Accounting period
• EXACT Opposite of the adjusting entry made in the previous period
• The use of reversing entries does not change the amounts reported in the financial statements

Question 17

Classified Statement of Financial Positions

Answer 17

• Groups togehter similar assets and similar liabilitiesm, using a number of standard classifications and sections

Assets

• Intangible Assets
• Property, plant and Equipments
• Long-Term Investments
• Current Assets

Equity and Liabilites

• Equity
• Non-Current Liabilities
• Current Liabilites

Question 18

Relationship between Current Assets and Current Liabilites

Answer 18

Relationship is important in evaluation a companys liquidity (its ability to pay obligations expected to be due within the next year)

Current Assets > Current Liabilites

• The likelihoood for paying the liabilites is favorable