Closing Entries

Question 1

Business Entity Principle

Answer 1

the owner must separate their business and personal assets

Question 1

Cost Principle

Answer 1

assets must be listed on the balance sheet at their purchase price

Question 2

Time-Period Principle

Answer 2

the time period must be consistent

Question 3

Matching Principle

Answer 3

expenses must be recorded in the period in which they helped to earn revenue

Question 4

Objectivity Principle

Answer 4

there must be a source document (evidence) that a transaction has occurred

Question 5

Principle of Materiality

Answer 5

any information that could impact the decision of a person looking at the financial statements should be included on the statements

Question 6

Principle of Conservatism

Answer 6

requires that accountants use caution and show the least favourable bottom line in situations where there are two possible option

Question 7

Current Asset (100s)

Answer 7

assets that will be converted into cash or used up within the year

Question 8

Fixed Asset (100s)

Answer 8

assets that last longer than a year

Question 9

Current Liability (200s)

Answer 9

debt that is due within the year

Question 10

Long-term Liability (200s)

Answer 10

debt that is due more than one year from the borrowing date

Question 11

Owner’s Equity (300s)

Answer 11

includes the owner’s capital account and the owner’s drawings accounts which records the owner’s withdrawals from the business

Question 12

Revenue (400s)

Answer 12

account which records business income

Question 13

Expense (500s)

Answer 13

items that are used in the operation of a the business

Question 14

Contra-asset (100s)

Answer 14

an account that reduces the balance in an asset account (accumlated depreciation)

Question 15

Capital cost allowance

Answer 15

the depreciation rate allowed by the Canadian government

Question 16

Undepreciated cost of an asset

Answer 16

usually the book value at the beginning of the year

Question 17

Accounts that close at the end of the year

Answer 17

temporary accounts which include: revenue, expense and drawings accounts

Question 18

Accounts that do not close at the end of the year

Answer 18

permanent accounts which include assets, liabilities and the owner’s capital account

Question 19

Accumulated depreciation

Answer 19

the total amount of depreciation expense that has been recorded thus far in the life of the asset

Question 20

What are the steps of the accounting cycle?

Answer 20

Receive source documents, journalize entries, post to the ledger, create a worksheet (on the worksheet you will make adjustments), from the worksheet you can create the financial statements and then journalize the adjusting and closing entries, post those adjustments and closing entries to the ledger and create a post-closing trial balance

Question 21

What is the purpose of adjusting and closing entries?

Answer 21

Adjusting entries are made to ensure that account balances are accurate and up-to-date.
Closing entries are used to update the owner’s capital account with any net income or net loss for the period and to ensure that temporary accounts are reset to zero so they are ready to begin the next accounting period.

Question 22

What is Income Summary?

Answer 22

A captial account that is on the credit side.

Income summary is an account that recieves all blaances form temporary accounts (not drawings). Only lasts 3 transactions

Question 23

What are Temporary Accounts?

Answer 23

Will have to be closed by the end of the accounting period so we can start with a $0 balance (revenue, expense and drawings). Also to update the NL/NP and drawings to the captial account

Question 24

What are Pernament Account?

Answer 24

No need to be closed (assets)

Question 25

What is Closing the Books?

Answer 25

the process used to reduce revenue, expense and drawings
accounts to zero at the end of the period and update the owner’s capital account with what has occurred within the period