U3, AOS 2 - Closing the ledger Flashcards
What is the primary purpose of closing the ledger at the end of the reporting period?
To prepare the accounts for the next reporting period and ensure accurate financial reporting.
True or False: The P&L Summary Account is used to summarize revenues and expenses for the period.
True
Fill in the blank: The process of transferring balances from temporary accounts to the P&L Summary Account is called __________.
closing entries
What types of accounts are typically closed at the end of the reporting period?
Temporary accounts, such as revenues, expenses, and dividends.
Multiple Choice: Which of the following accounts is NOT closed at the end of the reporting period? A) Revenue B) Assets C) Expenses D) Dividends
B) Assets
What is the first step in the closing process?
Close revenue accounts by transferring their balances to the P&L Summary Account.
True or False: The P&L Summary Account is a permanent account.
False
What happens to the balances of temporary accounts after they are closed?
They are reset to zero for the next reporting period.
Fill in the blank: After closing entries are made, the __________ account reflects the net income or loss for the period.
P&L Summary
Multiple Choice: What is the last step in the closing process? A) Close expense accounts B) Post adjusting entries C) Prepare financial statements D) Transfer to retained earnings
D) Transfer to retained earnings
What is the effect of closing entries on the accounting equation?
It does not affect the accounting equation; it only reallocates amounts within the equity section.
True or False: The closing process is only required for public companies.
False
What is the purpose of the P&L Summary Account in the closing process?
To aggregate net income or loss from the period before transferring it to retained earnings.
Fill in the blank: The income summary account is also known as the __________ account.
P&L Summary
Multiple Choice: Which of the following is a step in the closing process? A) Record depreciation B) Close revenue accounts C) Post transactions D) Create a budget
B) Close revenue accounts
What is the typical frequency of the closing process?
At the end of each reporting period, typically monthly, quarterly, or annually.
True or False: All accounts need to be closed at the end of the reporting period.
False
What is the result of closing expense accounts?
Their balances are transferred to the P&L Summary Account, reducing net income.
Fill in the blank: The final balance in the P&L Summary Account is transferred to the __________ account.
Retained earnings
