Questions and Answers
What are adjusting entries?
What are permanent accounts?
Accounts used to accumulate information from one fiscal period to the next.
What are temporary accounts?
Accounts used to accumulate information until it is transferred to the owner's capital account.
What are closing entries?
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What is the post-closing trial balance?
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What is the accounting cycle?
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When is the adjusting entry for supplies posted?
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From where is information needed for journalizing the adjusting entries obtained?
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Preparing a work sheet at the end of each fiscal period to summarize the general ledger information needed to prepare financial statements is an application of the accounting concept accounting period cycle.
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A source document is prepared for adjusting entries.
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The ending account balances of permanent accounts for one fiscal period are the beginning account balances for the next fiscal period.
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At the end of a fiscal period, the balances of temporary accounts are summarized and transferred to the owner's capital account.
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Temporary accounts must start each fiscal period with a zero balance.
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Journal entries used to prepare temporary accounts for a new fiscal period are closing entries.
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To close a temporary account, an amount equal to its balance is recorded in the account on the side opposite to its balance.
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The income summary account has a normal debit balance.
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The balances of the expense accounts must be reduced to zero to prepare the accounts for the next fiscal period.
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The drawing account is a permanent account.
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The capital account's new balance after all closing entries are posted is verified by checking it with the amount of capital shown on the balance sheet at the end of the fiscal period.
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A post-closing trial balance verifies the equality of debits and credits in a general ledger after the closing entries are posted.
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What is the journal entry to adjust supplies?
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What is the balance for supplies after the adjusting entry has been posted?
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What accounts are used to accumulate information from one fiscal period to the next?
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What must temporary accounts begin each new fiscal period with?
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When the total expenses are greater than the total revenue, the income summary account has a debit balance.
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What is the journal entry to close income summary when there is a net income?
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Which accounting concept applies when a worksheet is prepared at the end of each fiscal cycle to summarize the general ledger information needed to prepare financial statements?
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What is income summary classified as?
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After the closing entries are posted, where should the owner's capital account balance be shown?
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Study Notes
Adjusting Entries
- Journal entries made at the end of a fiscal period to update general ledger accounts.
Account Types
- Permanent Accounts: Used to carry information across fiscal periods.
- Temporary Accounts: Hold information until it is transferred to the owner's capital account.
Closing Process
- Closing Entries: Prepare temporary accounts for a new fiscal period through journal entries.
- Post-Closing Trial Balance: A balance statement prepared after all closing entries have been recorded.
Accounting Cycle
- The entire series of activities involved in recording financial information over a fiscal period.
Accounting Period Concept
- A work sheet is prepared at the end of each fiscal cycle to summarize general ledger information for financial statements.
Supplies Adjustments
- The balance of the supplies account after adjusting entries reflects the value of supplies on hand at fiscal period end.
- Information for journalizing adjustments originates from the work sheet's adjustments columns.
True/False Principles
- Preparing a work sheet reflects the accounting period concept.
- Adjusting entries do not require source documents.
- Permanent account balances at period-end become the starting balances for the next period.
- Temporary account balances are reset to zero at the beginning of each fiscal period.
- Closing entries help to prepare temporary accounts for new fiscal periods.
Income Summary
- The income summary normally has a credit balance unless expenses exceed revenues.
- Closing entries for income summary involve debiting income summary and crediting owner's capital when there is net income.
Owner's Capital Account
- The new balance after closing entries must match the amount shown on the balance sheet for verification.
Journal Entries for Adjustments
- Adjusting supplies involves debiting supplies expense and crediting supplies for an accurate up-to-date balance.
Characteristics of Accounts
- Temporary accounts start with a zero balance at the start of each new fiscal period.
- Income summary is categorized as a temporary account.
Studying That Suits You
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Description
Test your knowledge of key accounting concepts in Chapter 8 with these flashcards. This quiz covers adjusting entries, permanent accounts, and temporary accounts, providing definitions to reinforce your understanding. Ideal for students looking to review essential accounting terminology.
