Accounting Closing Entries and Principles
8 Questions
0 Views

Accounting Closing Entries and Principles

Created by
@TrustedTan9012

Podcast Beta

Play an AI-generated podcast conversation about this lesson

Questions and Answers

Which account is considered a permanent account?

  • Income Summary
  • Owner's Capital (correct)
  • Service Revenue
  • Drawings
  • What is the purpose of closing entries?

  • To prepare the income statement
  • To transfer profit or loss to the Owner's Capital account (correct)
  • To record daily transactions
  • To adjust asset values
  • What happens if all balance sheet accounts have zero balances due to closing entries?

  • The entries were correctly processed
  • The company is financially stable
  • It indicates fiscal responsibility
  • An error has occurred in the closing entry process (correct)
  • What is an example of a temporary account that will be closed at the end of the accounting period?

    <p>Service Revenue</p> Signup and view all the answers

    Which step in the accounting cycle is typically not performed daily?

    <p>Prepare adjusting entries</p> Signup and view all the answers

    How is the current ratio calculated?

    <p>Current assets divided by current liabilities</p> Signup and view all the answers

    How are current assets typically listed on a classified balance sheet?

    <p>In the order of liquidity</p> Signup and view all the answers

    What will be affected by a reclassification of liabilities from current to non-current?

    <p>Working capital</p> Signup and view all the answers

    Study Notes

    Closing Entries

    • Transfer profit or loss and Owner's Drawings to the Owner's Capital account.
    • Occur after financial statements are prepared.
    • Result in zero balances for all balance sheet accounts if done correctly.
    • An error in closing entries can overstate assets and revenue.

    Owner's Capital Account

    • A permanent account.

    Temporary Accounts

    • Examples include Service Revenue.
    • Closed to Income Summary at the end of the accounting period.

    Accounting Cycle

    • Involves analyzing transactions as the first step.
    • Preparing adjusting entries is generally not done daily.
    • Preparing a post-closing trial balance is the final step.

    Balance Sheet

    • Current assets are listed in order of liquidity.
    • Office equipment is classified as property, plant, and equipment.
    • Current assets are expected to be converted to cash, sold, or consumed within one year.
    • Intangible assets derive value from their rights and privileges.
    • Liabilities are classified as current and non-current.

    Liquidity

    • The relationship between current assets and current liabilities is important for evaluating a company's liquidity.
    • The current ratio is calculated by dividing current assets by current liabilities.
    • Reclassifying liabilities from current to non-current affects working capital.

    Studying That Suits You

    Use AI to generate personalized quizzes and flashcards to suit your learning preferences.

    Quiz Team

    Related Documents

    Accounting Test Chapter 4 PDF

    Description

    Test your knowledge on closing entries, owner's capital accounts, and the accounting cycle. This quiz covers key concepts such as temporary accounts, balance sheet classifications, and the final steps of financial processes. Ideal for students learning accounting fundamentals.

    More Like This

    Use Quizgecko on...
    Browser
    Browser