Module 4

Question 1

Classified Balance Sheet

Answer 1

A balance sheet that places each asset and each liability into a specific
category.

Question 2

Current Assets

Answer 2

• Expected to be converted to cash, sold, or used during the next 12 months, or
• within the business’s normal operating cycle if the cycle is longer than a year

Question 3

Operating Cycle

Answer 3

The time span when:
1. Cash is used to acquire goods and
services
2. These goods and services are sold to
customers
3. The business collects cash from
customers

Question 4

Long-Term Assets

Answer 4

-Assets that will not be converted to cash or used up within the business’s operating
cycle or one year

Question 5

Current Liabilities

Answer 5

Must be paid with cash or with
goods and services within one year
or within the entity’s operating
cycle

Question 6

Long-Term Liabilities

Answer 6

Does not need to paid

within one year

Question 7

Owner’s Equity

Answer 7

-Represents the owner’s claim to the assets of a business

Question 8

Closing Entries:

Answer 8

Journal Entries posted at the end of an accounting period to reset temporary accounts to zero. The balances are transferred to a permanent account called retained earnings.

Question 9

Closed Books

Answer 9

Get the accounts ready for the

next period = Closing Process

Question 10

Closing Process

Answer 10

• Zeroes out all revenue and expense accounts to measure each
  period’s net income separately from all other periods
• Updates the owner’s capital account balance

Question 11

Time Period Concept

Answer 11

• A business can slice its activities into small time segments for
  specific periods

Question 12

Temporary Accounts

Answer 12

An account that relates to a particular accounting period and is
closed at the end of that period
- Revenues
- Expenses
- Income Summary
- Owner Withdrawals

Question 13

Permanent Accounts

Answer 13

An account that is not closed at the end of the period
and are carried forward into the next period.
- Assets
- Liabilities
- Owner’s Capital

Question 14

Closing Entries

Answer 14

Transfer revenues, expenses, and owner withdrawals balances to the owner’s capital
account to prepare the company’s books for the next period.

Question 15

Post-Closing Trial Balance:

Answer 15

A list of the accounts and their balances
at the end of the period after journalizing and
posting the closing entries.

Question 16

What are the only types of accounts that are included in the post-closing trial balance?

Answer 16

Only the permanent accounts are included
in the post-closing trial balance
–> all of our balance sheet accounts

Question 17

Current Ratio:

Answer 17

Measures a company’s ability to pay its current liabilities with its current assets
Current ratio = Total current assets / Total current liabilities