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Questions and Answers
What are permanent accounts?
What are permanent accounts?
What are temporary accounts used for?
What are temporary accounts used for?
What are closing entries?
What are closing entries?
What is a post-closing trial balance?
What is a post-closing trial balance?
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What does the accounting cycle consist of?
What does the accounting cycle consist of?
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The closing entry for sales involves a debit to _____ and a credit to income summary.
The closing entry for sales involves a debit to _____ and a credit to income summary.
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The closing entry for all expense accounts involves a debit to income summary (total of expenses) and a credit to each individual _____ account.
The closing entry for all expense accounts involves a debit to income summary (total of expenses) and a credit to each individual _____ account.
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When there is a net income, the income summary account will have a _____ balance.
When there is a net income, the income summary account will have a _____ balance.
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What is needed to record the closing entries?
What is needed to record the closing entries?
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The income summary is a permanent account.
The income summary is a permanent account.
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After closing entries are posted, the sales account balance should be:
After closing entries are posted, the sales account balance should be:
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What do the ending account balances of permanent accounts for one fiscal period represent?
What do the ending account balances of permanent accounts for one fiscal period represent?
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Rent expense is an example of a temporary account.
Rent expense is an example of a temporary account.
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Which accounting concept applies when expenses are reported in the same fiscal period that they are used to produce revenue?
Which accounting concept applies when expenses are reported in the same fiscal period that they are used to produce revenue?
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What happens to the owner's capital account after closing entries?
What happens to the owner's capital account after closing entries?
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The accounts listed on a post-closing trial balance are:
The accounts listed on a post-closing trial balance are:
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How many steps are there in the accounting cycle?
How many steps are there in the accounting cycle?
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Study Notes
Accounting Concepts
- Permanent Accounts: Accounts that carry balances over to the next fiscal period.
- Temporary Accounts: Accumulate balances until transferred to the owner's capital account, resetting after each period.
- Closing Entries: Journal entries that prepare temporary accounts for a new fiscal period by resetting their balances.
Trial Balances
- Post-Closing Trial Balance: A trial balance prepared after closing entries, ensuring that debits equal credits post-closing.
Accounting Cycle Components
- Accounting Cycle: A systematic series of accounting activities for recording financial transactions within a fiscal period.
- Source Documents: Original records that verify and provide details for transactions, ensuring accuracy during recording.
Closing Process
- Closing Entry for Sales: Debits sales and credits income summary to close sales accounts.
- Closing Entry for Expenses: Debits income summary for total expenses, credits individual expense accounts to zero them out.
- Closing Entry for Income Summary (Net Income): Debits income summary and credits capital account to transfer net income.
- Closing Entry for Income Summary (Net Loss): Debits capital account and credits income summary in case of a net loss.
- Closing Entry for Drawing Account: Debits capital and credits the drawing account to record withdrawals.
Account Balances
- Ending Balances of Permanent Accounts: These balances become the starting balances for the next fiscal period.
- Sales Account Balance Post-Closing: Should be reset to zero after closing entries are posted.
- Owner's Capital Account Balance Post-Closing: Should match the balance sheet figures at the end of the fiscal period.
Financial Reporting
- Financial Statements Preparation: Derived from the worksheet, summarizing data for the income statement and balance sheet.
Key Entries and Their Balances
- Income Summary as Temporary Account: Used to gather information before finalizing capital accounts during the closing process.
- Credit Balance in Income Summary: Indicates that revenues exceeded expenses, resulting in net income.
Accounting Principles
- Matching Expenses with Revenue: Ensures that expenses are recorded in the same period they help generate revenue, aligning costs with income for accurate financial reporting.
Work Sheet Process
- Worksheet Elements: Includes trial balances and financial statement columns, crucial for summarizing ledger information necessary for financial statement preparation.
Final Steps in the Accounting Cycle
- Post-Closing Trial Balance: Lists all general ledger accounts with balances after closing entries, confirming the accounting records are in order.
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Description
This study guide covers key terms from Accounting Chapter 8, focusing on permanent and temporary accounts, as well as closing entries. Each term is defined to enhance understanding and retention for effective learning. Use these flashcards to prepare for assessments on this chapter.
