Accounting Basics: Journalizing to Adjusting Entries

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Questions and Answers

What does the income statement primarily demonstrate?

The company's cash inflows and outflows

The financial position of the company at a specific time

Sources of revenue, types of expenses, and net income or loss (correct)

Changes in owner’s equity over the reporting period

Which format is typically used for presenting assets, liabilities, and equity on the balance sheet?

Only report form

Account form with assets on the left and liabilities/equity on the right (correct)

Liabilities first, then assets, followed by equity

Only account form

Which of the following is true about the statement of owner’s equity?

It shows the company’s liabilities to assets ratio

It summarizes operating activities only

It only reflects cash inflows during the period

It reports income or loss alongside withdrawals and investments (correct)

What is the purpose of the Statement of Cash Flows?

To report cash receipts and payments during a period Signup and view all the answers

Which of the following items is NOT typically included in the income statement?

Total assets of the company Signup and view all the answers

Which statement is accurate regarding the single-step income statement?

It lists all revenue items and totals them before expenses Signup and view all the answers

What does the balance sheet provide an overview of?

Financial position at a point in time Signup and view all the answers

Which method can be used to prepare the Statement of Cash Flows?

Direct or Indirect Method Signup and view all the answers

What is the primary purpose of a work sheet in accounting?

To assist in planning adjustments and preparing financial statements Signup and view all the answers

What happens to the cash account when making adjusting entries?

It is almost never affected by adjusting entries Signup and view all the answers

Which of the following is a characteristic of adjusting entries?

They reflect transactions not yet recorded by the end of the accounting period Signup and view all the answers

What is a key feature of prepaid expenses in relation to adjusting entries?

They require adjustment based on actual usage or time elapsed Signup and view all the answers

What does depreciation represent in the accounting process?

The allocation of costs of assets over their expected useful lives Signup and view all the answers

When adjusting for unearned (deferred) revenues, what is the typical adjustment made?

A portion of the revenue is recognized as earned Signup and view all the answers

Which statement best describes accrued expenses?

They need adjustments to reflect expenses incurred but not yet paid Signup and view all the answers

What is the primary function of an income statement?

To summarize the results of operations during an accounting period Signup and view all the answers

What types of accounts are closed at the end of an accounting period?

Income statement accounts Signup and view all the answers

Which accounts are included in a post-closing trial balance?

All permanent accounts Signup and view all the answers

What is the primary purpose of a post-closing trial balance?

To check that total debits equal total credits for permanent accounts Signup and view all the answers

What distinguishes permanent accounts from temporary accounts?

Permanent accounts carry ending balances into the next period. Signup and view all the answers

Which of the following statements is true regarding closing entries?

They are used to reset temporary accounts for the next period. Signup and view all the answers

What accounts are affected by the closing process?

Temporary accounts only Signup and view all the answers

What kind of accounts are typically reported in the balance sheet?

Permanent accounts Signup and view all the answers

Which of the following best describes temporary accounts?

They are used to accumulate data for a single accounting period. Signup and view all the answers

What does the accounting cycle begin with?

The analysis of source documents Signup and view all the answers

What is journalizing in the context of accounting?

Entering transactions into a journal Signup and view all the answers

What is the purpose of a trial balance?

To prove the equality of debit and credit balances Signup and view all the answers

What characterizes the first trial balance prepared in an accounting cycle?

It contains unadjusted amounts. Signup and view all the answers

What occurs after journalizing all transactions in the accounting cycle?

Posting to the general ledger Signup and view all the answers

What is a worksheet used for in the accounting cycle?

To prepare adjusting entries and financial statements Signup and view all the answers

How often can a trial balance be prepared?

Daily, weekly, or whenever desired Signup and view all the answers

What should be done with the amounts entered in the journal?

They should be copied to the ledger accounts Signup and view all the answers

What is the primary purpose of the closing process in accounting?

To reset revenue, expense, and withdrawals account balances to zero Signup and view all the answers

Which of the following activities are considered investing activities?

Purchase and sale of long-term assets Signup and view all the answers

What is one characteristic of temporary (nominal) accounts?

They are reset to zero at the start of each period Signup and view all the answers

Which of the following is NOT a financing activity?

Buying new equipment for operations Signup and view all the answers

What occurs during the closing process to summarizing a period's financial activities?

Preparing a post-closing trial balance Signup and view all the answers

Which of the following is included in operating activities?

Sale of goods and services Signup and view all the answers

What is a key transaction included in financing activities?

Issuing stocks Signup and view all the answers

Which classification of activities involves borrowing and repaying principal amounts?

Financing activities Signup and view all the answers

Study Notes

Journalizing

The process of entering transactions into a journal.
Each entry includes the date, account titles, amounts, and a brief description.

Posting

The process of copying data from the journal to the ledger accounts.
All journal entries must be posted to the general ledger.

Trial Balance

A list of all debit and credit balances in ledger accounts.
Used to prove the equality of debits and credits.
A trial balance can be prepared at any time.
The first trial balance is considered "unadjusted."
After adjusting entries are made and posted, a second "adjusted" trial balance is prepared.

Work sheet

A tool used to organize financial statement data.
Helps in planning adjustments and preparing financial statements.
Not a formal part of the accounting system.
Many accountants use work sheets to organize data.

Adjusting Entries

Necessary to ensure revenues, expenses, assets, and liabilities are reported accurately.
Made at the end of an accounting period to reflect un-recorded transactions or events.
Affect income statement and balance sheet accounts.
Prepaid expenses: Adjust for expenses paid in advance.
Supplies: Adjust for supplies used during the period.
Depreciation: Allocate the cost of assets over their useful lives.
Unearned (deferred) revenues: Adjust for revenues earned but not yet collected.
Accrued expenses: Adjust for expenses incurred but not yet paid.
Accrued revenues: Adjust for revenues earned but not yet collected.

Income Statement

Summarizes the results of operations during an accounting period.
Shows revenues, expenses, and net income or net loss.
Single-step income statement: Lists all revenue first, followed by all expenses.
More suitable for service industries.

Statement of Owner's Equity

Reports changes in equity over an accounting period.
Reflects withdrawals, investments, and income or loss.
Shows beginning balance and adjustments for the period.

Balance Sheet

Reports a company's financial position at a specific point in time.
Presents assets, liabilities, and equity.
Two formats: account form (assets on the left, liabilities and equity on the right) and report form (assets on top, followed by liabilities and equity).

Statement of Cash Flows

Reports cash inflows and outflows during a period.
Categorizes cash flows as operating, investing, and financing activities.
Operating activities: Transactions and events that affect net income.
Investing activities: Transactions and events that affect long-term assets.
Financing activities: Transactions and events that affect long-term liabilities and equity.

Closing Process

Sets temporary account balances to zero at the end of each period.
Summarizes a period's revenues and expenses.
Temporary accounts: Accumulate data for one period and include income statement accounts, withdrawals account, and Income Summary Account.
Closed at the end of the period.
Permanent accounts: Report on activities for one or more future periods, include assets, liabilities, and equity accounts.
Not closed and carry their ending balances into the next period.

Post-Closing Trial Balance

A list of permanent account balances after all closing entries have been posted.
Verifies that total debits equal total credits and all temporary accounts have zero balances.

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Description

Explore the essential processes in accounting, from journalizing transactions to making adjusting entries. This quiz covers the key concepts of posting, trial balances, and the use of worksheets in financial statement preparation. Test your knowledge of these fundamental accounting procedures.