Principles Of Accounting Chapter 4

Questions and Answers

When does the closing process take place?

At the end of an accounting period.

Which of the statements below describe(s) a temporary account? (Check all that apply)

A temporary account is used throughout the year.

A temporary account is closed at the end of an accounting period. (correct)

A temporary account is a permanent record.

A temporary account has a balance for only one period. (correct)

What does closing mean in accounting?

Closing means to bring an account balance to zero.

The Income Summary account is () for the sum of all revenue accounts and is () for the sum of all expense accounts, and its balance will be transferred to the (___) account.

<ol> <li>Credited, 2. Debited, 3. Capital</li> </ol> Signup and view all the answers

The closing process takes place at the () of an accounting period, after the () trial balance is prepared and (___) the financial statements are prepared.

<ol> <li>End, 2. Adjusted, 3. After</li> </ol> Signup and view all the answers

Define the Income Summary account.

It is a temporary account used during the closing process to summarize revenues and expenses. Signup and view all the answers

Which of the following lists contains only temporary accounts? (Check all that apply)

Owner, Withdrawals Signup and view all the answers

Closing means to transfer account balances from () accounts so that they will start with a () balance at the beginning of the next period.

<ol> <li>Temporary, 2. Zero</li> </ol> Signup and view all the answers

Summarize the steps in the closing process.

Close income statement credit balance accounts; close income statement debit balance accounts; close income summary; close withdrawals. Signup and view all the answers

How is the Income Summary account used?

The Income Summary account is used during the closing process to facilitate the closing of revenue and expense accounts. Signup and view all the answers

Which of the following lists steps of the accounting cycle in the correct order? (Note that not all steps are listed)

Adjusting journal entries Signup and view all the answers

A classified balance sheet has several categories for assets and liabilities including: (Check all that apply)

Current assets Signup and view all the answers

Define 'current' as it applies to assets and liabilities on a classified balance sheet.

Current items are those expected to come due within one year or the company's operating cycle, whichever is longer. Signup and view all the answers

A post-closing trial balance is a list of () accounts and their balances from the () () all () entries have been journalized and posted.

<ol> <li>Permanent, 2. Ledger, 3. After, 4. Closing</li> </ol> Signup and view all the answers

Identify which of the following steps in the accounting cycle is optional.

Reversing journal entries. Signup and view all the answers

Identify which of the accounts below would be classified as a current asset. (Check all that apply)

Office supplies Signup and view all the answers

A classified balance sheet can be described as a balance sheet that: (Check all that apply)

Lists current assets in the order of how quickly they can be converted to cash Signup and view all the answers

What defines a long-term investment? (Check all that apply)

Notes receivable and stock and bond investments are assets that are expected to be held for more than one year Signup and view all the answers

Define plant assets by selecting the correct statements below. (Check all that apply)

Plant assets are equipment and other assets that have a life greater than one year Signup and view all the answers

Describe a post-closing trial balance.

It is a listing of all permanent accounts and their balances after closing. Signup and view all the answers

Identify the accounts below that would be classified as a long-term investment. (Check all that apply)

Investments in bonds Signup and view all the answers

Study Notes

Closing Process

Takes place at the end of an accounting period.
Involves bringing temporary accounts to zero.
Occurs after adjusting trial balance and before financial statements are prepared.

Temporary Accounts

Closed at the end of an accounting period.
Holds a balance for only one period.
Includes accounts like Wages Expense and Owner Withdrawals.

Income Summary Account

Temporary account used to summarize revenues and expenses during the closing process.
Credited for total revenue and debited for total expenses.
Balance transferred to the Capital account.

Steps in the Closing Process

Close income statement credit balance accounts.
Close income statement debit balance accounts.
Close the Income Summary account.
Close owner withdrawals.

Current vs. Long-Term Assets

Current assets are expected to come due within one year or the operating cycle.
Includes cash, accounts receivable, office supplies, and prepaid rent.
Long-term investments are held for more than one year, such as stocks and bonds.

Classified Balance Sheet

Organizes assets and liabilities into categories for better clarity.
Categories include current assets, plant assets, long-term investments, and noncurrent liabilities.
Lists current assets in order of liquidity.

Post-Closing Trial Balance

Includes only permanent accounts and their balances after closing entries are made.
Ensures that total debits equal total credits.

Optional Steps

Reversing journal entries are optional in the accounting cycle.

Plant Assets

Tangible assets with a useful life greater than one year.
Includes equipment and property that are difficult to convert into cash quickly.

Long-Term Investments

Defined as assets anticipated to be held for more than one year, such as notes receivable and other investments.

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Description

Test your knowledge on the closing process in accounting with this quiz based on Chapter 4 of Principles of Accounting. Learn about temporary accounts, their definitions, and when the closing process takes place. Perfect for students looking to reinforce their understanding of accounting concepts.