Accounting Chapter 4 Flashcards

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Questions and Answers

Which of the following accounts is a temporary account?

Owner's Capital

Accounts Payable

Inventory

Salaries Expense (correct)

Revenues, expenses, and withdrawals accounts, which are closed at the end of each accounting period are called?

Temporary accounts

Permanent account is another name for revenue accounts.

False

Journal entries recorded at the end of each accounting period to prepare the revenue, expense, and withdrawals accounts for the upcoming period are referred to as?

Closing entries Signup and view all the answers

The closing process is necessary in order to?

Ensure that net income or net loss and owner withdrawals for the period are closed into the owner's capital account Signup and view all the answers

Closing entries are required only if the temporary accounts are to reflect correct amounts for each accounting period.

True Signup and view all the answers

The steps performed each reporting period in preparing financial statements are referred to as the?

Accounting cycle Signup and view all the answers

Which of the following is the usual final step in the accounting cycle?

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

A classified balance sheet differs from an unclassified balance sheet in that?

A classified balance sheet presents information in a manner that makes it easier to calculate a company's current ratio Signup and view all the answers

Two common subgroups for liabilities on a classified balance sheet are?

Current liabilities and noncurrent liabilities Signup and view all the answers

Which of the following is classified as a current asset?

Accounts receivable Signup and view all the answers

Which of the following is classified as a plant asset?

Equipment Signup and view all the answers

All of the following regarding the current ratio are true except?

False Signup and view all the answers

The special account used only in the closing process to temporarily hold the amounts of revenues and expenses is called?

Income Summary account Signup and view all the answers

The Income Summary account is used to?

Close the revenue and expense accounts Signup and view all the answers

It is obvious that an error occurred in the preparation and/or posting of closing entries if all balance sheet accounts have zero balances.

True Signup and view all the answers

The trial balance prepared after all closing entries have been journalized and posted is called the?

Post-closing trial balance Signup and view all the answers

Which of the following accounts showing a balance on the post-closing trial balance indicates an error?

Depreciation Expense-Office Equipment Signup and view all the answers

A post-closing trial balance reports?

All permanent ledger accounts with balances Signup and view all the answers

Which of the following statements is true?

False Signup and view all the answers

Which of the following types of businesses might have an operating cycle longer than one year?

Commercial airplane manufacturer Signup and view all the answers

Palmer Company is at the end of its annual accounting period. The next step in the accounting cycle is?

Close temporary accounts Signup and view all the answers

Which of the following accounts could not be classified as a current liability?

Notes payable (due in 5 years) Signup and view all the answers

Which of the following accounts is a permanent account?

Accounts payable Signup and view all the answers

A classified balance sheet?

Organizes assets and liabilities into important subgroups that provide more information Signup and view all the answers

Assets, liabilities, and equity accounts that are not closed are called?

Permanent accounts Signup and view all the answers

The usual order for the asset subgroups of a classified balance sheet is?

Current assets, long-term investments, plant assets, intangible assets Signup and view all the answers

Study Notes

Temporary and Permanent Accounts

Temporary accounts include revenues, expenses, and withdrawals, which are closed at the end of each accounting period.
Salaries expense is identified as a temporary account.
A permanent account is incorrectly referred to as a revenue account.

Closing Process

Closing entries are recorded at the end of each accounting period to prepare temporary accounts and update the owner’s capital account.
The closing process is essential for reflecting net income, net loss, and owner withdrawals in the owner's capital account.
Closing entries ensure correct amounts for temporary accounts in each period.

Accounting Cycle

The accounting cycle encompasses steps for preparing financial statements, beginning from transaction analysis and recording up to the post-closing trial balance.
The final step of the accounting cycle involves preparing a post-closing trial balance.

Balance Sheet Classifications

A classified balance sheet presents information that aids in calculating a company's current ratio, unlike an unclassified balance sheet.
Liability subgroups consist of current liabilities and noncurrent liabilities.
Current assets examples include accounts receivable, while plant assets include equipment.

Current Ratio

The current ratio impacts creditor decisions regarding credit, as it reflects the company's short-term financial health.
An incorrect statement suggests the current ratio does not influence a creditor's decision to extend credit.

Income Summary Account

The Income Summary account is specifically used to temporarily hold revenues and expenses before adjustments to the owner's capital account.
This account facilitates the closing of revenue and expense accounts.

Post-Closing Trial Balance

The post-closing trial balance reveals all permanent ledger accounts that have balances.
A balance in accounts such as Depreciation Expense-Office Equipment on the post-closing trial balance indicates an error, as this account should not have a balance after closing entries are posted.
Only permanent accounts should be included in the post-closing trial balance.

Operating Cycle and Accounting Period End

Commercial airplane manufacturers may have an operating cycle that extends beyond one year, reflecting the complexity of their business operations.
At the end of the accounting period, after journalizing and posting all transactions, the next step for an accountant is to close temporary accounts.

Liability Classifications

Notes payable due in five years cannot be classified as a current liability, as current liabilities must be settled within one year.
Accounts payable is an example of a permanent account, as these accounts remain open across accounting periods.

Classified Balance Sheet Structure

A classified balance sheet organizes assets and liabilities into structured subgroups for more informative reporting.
The typical order of asset subgroups in a classified balance sheet is: current assets, long-term investments, plant assets, and intangible assets.

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Description

Test your knowledge of temporary and permanent accounts with these flashcards from Accounting Chapter 4. This quiz covers key concepts such as salaries expense, revenues, and journal entries, helping reinforce vital accounting terminology. Perfect for students preparing for exams or needing a quick review!