Revision: The Accounting Cycle

Question 1

What happens to the income and expense accounts after the Statement of Financial Performanceis prepared?

Answer 1

All income and expense ledger accounts in the General Ledger are closed at the end of the financial year once the financial statements are prepared. This means that the balances in these accounts are not brought forward to the next financial year, and there are no remaining amounts left in these accounts.

Question 2

When is the closing of the income and expense ledger accounts performed?

Answer 2

During the closing phase of the accounting cycle after the reporting phase.

Question 3

How are the accounts linked to the Trading Account closed?

Answer 3

The sales revenue, sales returns and cost of sales accounts in a trading business are closed to the income summary (trading account). These are the accounts that are shown on the trading portion of the Statement of Financial Performance.

Question 4

How are the accounts to the Profit and Loss Account closed?

Answer 4

All other income and expense accounts that are not closed to the trading account are closed to Income Summary (the profit and loss portion).

In a trading business, the gross profit or loss in the trading account is also closed to the Income Summary (profit and loss account).

All income and expense account balances will be zero after the transfer.

Question 5

Where is the profit for the period transferred to?

Answer 5

The capital account.