Chapter 4 - The Closing Process Flashcards
How are permanent accounts used?
Name the 3 main account types.
How are they used during the closing process?
They carry forward to the next accounting period.
Capital
Assets
Liabilities
Capital account receives balances from temporary accounts.
How long do temporary accounts last?
Name the 3 main types of accounts and what happens to them during the closing process.
One accounting period.
Revenue
Expenses
Withdrawals
Balances are transferred to Capital Account in the closing process.
Two Goals of the Closing Process?
- Bring temporary accounts to zero.
2. Transfer Net Income and withdrawals to the Capital Account.
Describe what’s on a Post closing trial balance.
- Only permanent accounts remain.
- Temporary accounts have zero balances. (Close them)
- System is ready to begin next accounting cycle.
What does a “Classified Balance” sheet do?
It organizes information to make it more helpful to the users of the statements.
Name the 4 “Assets” in a Classified Balance sheet.
- Current Assets - used up or converted to cash in less than 1 years rom the balance sheet date.
- Long Term Investments - last more than 1 year and are not used in operations.
- Plant Assets - Last more than 1 year and are used in operations.
- Intangible Assets - last more than 1 year and are used in operations. Their value comes from privileges or rights they give to the owner. (Trademarks, logos, franchises, patents, etc).
Name the two Liabilities in a Classified Balance Sheet.
- Current Liabilities - Are due in less than 1 year from the balance sheet date.
- Long-Term Liabilities - Are due in more than one year from the balance sheet date.
What’s is “Equity” on a Classified Balance Sheet?
Owners Capital
How do you figure “Current Ratio”?
Current Assets
Current Ratio = —————————-
Current Liabilities
