Questions and Answers
All of the following accounts are temporary except:
The purpose of the closing process is to:
What does an unclassified balance sheet do?
Broadly groups assets, liabilities, and equity
What is the total current assets that would be reported on a classified balance sheet prepared for the company?
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Place the steps in the four-step closing process in the correct order: Step 1: Close the revenue accounts; Step 2: Close the expense accounts; Step 3: Close the income summary account; Step 4: Close the withdrawals account.
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Match the following accounts with their categories: Buildings, Short-term investments, Accounts payable, Trademarks, Wages payable, Land held for future expansion, Franchises, Accounts receivable.
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List the steps of the accounting cycle in their proper order.
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Identify which of the following accounts would be included in a post-closing trial balance.
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Identify which of the following accounts would be included in a post-closing trial balance.
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Study Notes
Temporary vs. Permanent Accounts
- Temporary accounts include revenues, expenses, and withdrawals and are reset each period.
- Permanent accounts include assets, liabilities, and owner’s capital; they carry balances across periods.
Closing Process
- The closing process summarizes a period's revenues and expenses.
- Key purpose is to reset temporary accounts (revenues, expenses) to zero for the next accounting period.
Unclassified Balance Sheet
- Unclassified balance sheets broadly group assets, liabilities, and equity without detailed subcategories.
- GAAP does not allow unclassified balance sheets for formal reporting purposes.
Total Current Assets Calculation
- Total current assets are calculated from cash, merchandise inventory, notes receivable (due in 30 days), prepaid insurance, short-term investments, and supplies.
- Total current assets for the example provided amount to $30,750.
Four-Step Closing Process Order
- Close revenue accounts first, then expense accounts, followed by the income summary account, and finally the withdrawals account.
- Correct ordering of these steps is crucial for accurate financial reporting.
Types of Assets and Liabilities
- Plant assets include buildings, while current assets cover short-term investments and accounts receivable.
- Intangible assets include trademarks and franchises, while current liabilities comprise accounts payable and wages payable.
Account Balances Structure
- The account balance structure includes debit and credit totals to ensure the accounting equation holds (total debits = total credits).
- Essential components include cash, prepaid insurance, notes receivable, buildings, and expenses.
Accounting Cycle Steps
- The accounting cycle involves several critical steps:
- Analyzing and journalizing transactions, posting entries, preparing trial balances, and adjusting entries.
- Final steps include creating financial statements and post-closing trial balances after closing entries are made.
Post-Closing Trial Balance Contents
- Included in a post-closing trial balance are permanent accounts like equipment, accounts receivable, owner capital, and prepaid service fees.
- Temporary accounts like expenses and revenues are not included in the post-closing trial balance.
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Description
Test your knowledge of accounting principles with these flashcards. Each card presents you with definitions and multiple-choice questions that will challenge your understanding of temporary and permanent accounts. Perfect for students studying accounting concepts.
