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Module 2 The Complete Accounting Cycle of a Service Business

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Module 2 The Complete Accounting Cycle of a Service Business

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Questions and Answers

What is the purpose of the accounting cycle?

To make daily transactions

To interpret financial statements

To produce financial reports (correct)

To classify data

Which of the following is a basic financial report in accounting?

Statement of Financial Position (correct)

Statement of Operational Activities

Statement of Marketing Strategies

Statement of Employment Status

What does the Statement of Comprehensive Income (SCI) represent?

Net worth of the company

Company's income from non-core activities

Projected future income

Total income and expenses for a period (correct)

In accounting, what is the purpose of preparing a worksheet?

To finalize financial statements Signup and view all the answers

Which step in the accounting cycle is optional?

Journalizing and posting reversing entries Signup and view all the answers

What is the purpose of the Statement of Cash Flows (CFS)?

To show how cash moves in and out of the business Signup and view all the answers

What is the purpose of a worksheet in accounting?

To record adjusting entries and determine net income or net loss Signup and view all the answers

Which statement is true regarding the worksheet in accounting?

It is called the 'final paper' of accountants Signup and view all the answers

Why is the time period assumption important in accounting?

To help accountants report revenues correctly Signup and view all the answers

What step in the accounting cycle requires dividing the economic life of a business into reporting periods?

Adjusting the books Signup and view all the answers

Which form of worksheet includes ten columns?

Twelve-column worksheet Signup and view all the answers

Why do companies find it difficult to determine when to report revenues and expenses?

Due to the need for proper timing in reporting Signup and view all the answers

What is the purpose of reversing entries in accounting?

To reverse adjusting entries from the prior period Signup and view all the answers

When are reversing entries most commonly used?

For accrual adjustments and deferrals Signup and view all the answers

What does a reversing entry do?

Reverses the debit and credit of a prior adjusting entry Signup and view all the answers

Which step of the accounting cycle is similar to journalizing and posting reversing entries?

Worksheet preparation Signup and view all the answers

Why might a business choose to use reversing entries?

To reduce the need for adjusting entries next period Signup and view all the answers

What is Anthony's primary motivation for reviewing the financial reports prepared by Jose's business?

To understand the difference between service and merchandising businesses Signup and view all the answers