The Accounting Cycle and Closing Entries
37 Questions
0 Views

The Accounting Cycle and Closing Entries

Created by
@AdequateScandium8349

Podcast Beta

Play an AI-generated podcast conversation about this lesson

Questions and Answers

What are temporary accounts typically referenced as?

  • Asset and liability accounts
  • Permanent accounts
  • Secured accounts
  • Revenue and expense accounts (correct)

    • What is the purpose of the post-closing trial balance?

  • To list only temporary account balances
  • To prove that all revenue accounts are closed
  • To ensure that all transactions are recorded
  • To list permanent accounts and their balances (correct)

    • Which statement accurately reflects the characteristics of a post-closing trial balance?

  • It includes only closed accounts
  • It summarizes annual income
  • It proves the accuracy of the ledger
  • It contains account balances not closed (correct)

    • Which of the following is NOT one of the four major closing entries?

    <p>Close asset accounts</p> Signup and view all the answers

    What limitation does the post-closing trial balance have?

    <p>It cannot be relied upon to ensure all transactions are recorded</p> Signup and view all the answers

    What is the first step in the accounting cycle?

    <p>Analyze transactions</p> Signup and view all the answers

    In which order do the steps of the accounting cycle occur?

    <p>Analyze, Journalize, Post</p> Signup and view all the answers

    After closing accounts, which report is prepared next?

    <p>Post-closing trial balance</p> Signup and view all the answers

    What step follows the preparation of the unadjusted trial balance?

    <p>Prepare adjusted trial balance</p> Signup and view all the answers

    Which step is essential for ensuring the accounts are ready for the next accounting period?

    <p>Closing the accounts</p> Signup and view all the answers

    Which of the following is typically the last step in the accounting cycle?

    <p>Preparing financial statements</p> Signup and view all the answers

    Which of the following steps occurs immediately after preparing the adjusted trial balance?

    <p>Preparing financial statements</p> Signup and view all the answers

    Which is a necessary step before preparing the adjusted trial balance?

    <p>Preparing the unadjusted trial balance</p> Signup and view all the answers

    What is the first step in the accounting cycle?

    <p>Analyze transactions</p> Signup and view all the answers

    Which of the following groups of assets is not typically reported on a classified balance sheet?

    <p>Future investments</p> Signup and view all the answers

    What is the purpose of calculating the current ratio?

    <p>To assess liquidity</p> Signup and view all the answers

    What step follows preparing statements in the accounting cycle?

    <p>Close</p> Signup and view all the answers

    Which section of the classified balance sheet represents the owner's investment in the business?

    <p>Capital account</p> Signup and view all the answers

    What does the debt to equity ratio measure?

    <p>Financial leverage</p> Signup and view all the answers

    Which step in the accounting cycle is optional?

    <p>Reversing entries</p> Signup and view all the answers

    In addition to current liabilities, which type of liabilities is reported on a classified balance sheet?

    <p>Long-term liabilities</p> Signup and view all the answers

    What is the total amount of current assets reported?

    <p>$143,713 million</p> Signup and view all the answers

    Which of the following is not classified as a current asset?

    <p>Bonds held to maturity</p> Signup and view all the answers

    What does the classification of non-current investments primarily depend on?

    <p>Management's strategic intent</p> Signup and view all the answers

    Which of the following is an example of a non-current investment?

    <p>Non-current notes receivable</p> Signup and view all the answers

    Which current asset has the highest reported value?

    <p>Vendor non-trade receivables</p> Signup and view all the answers

    What distinguishes current from non-current assets?

    <p>The intent to convert assets into cash</p> Signup and view all the answers

    Which of the following current assets is NOT considered liquid?

    <p>Inventories</p> Signup and view all the answers

    What type of assets include 'land that is not being used in operations'?

    <p>Non-current investments</p> Signup and view all the answers

    What is the primary purpose of closing temporary accounts at the end of each accounting period?

    <p>To prepare revenue, expense, and withdrawals accounts for the next reporting period.</p> Signup and view all the answers

    Which of the following steps is NOT part of the closing entry process?

    <p>Close the Withdrawals account to Income Summary.</p> Signup and view all the answers

    What type of accounts are included in a post-closing trial balance?

    <p>Permanent accounts, including asset, liability, and equity accounts.</p> Signup and view all the answers

    Why is it important to verify that total debits equal total credits in the post-closing trial balance?

    <p>To confirm that the accounting equation is maintained.</p> Signup and view all the answers

    What happens to the balances of temporary accounts after the closing process?

    <p>They are reset to zero.</p> Signup and view all the answers

    What is the first step in the closing entry process?

    <p>Close credit balances in revenue accounts to Income Summary.</p> Signup and view all the answers

    What is the significance of the post-closing trial balance?

    <p>It lists the balances of permanent accounts and checks for accuracy.</p> Signup and view all the answers

    Which of the following describes a temporary account?

    <p>An account that accumulates results for a specific period and resets afterward.</p> Signup and view all the answers

    Study Notes

    The Accounting Cycle

    • The accounting cycle is a series of steps that are performed to process financial transactions and prepare financial statements.
    • The steps in the accounting cycle are: analyze transactions, journalize, post, prepare an unadjusted trial balance, adjust, prepare an adjusted trial balance, prepare financial statements, close, and prepare a post-closing trial balance.

    Closing Entries

    • Closing entries are journal entries that are made at the end of an accounting period to transfer the balances of temporary accounts (revenue, expense, and withdrawal accounts) to the permanent accounts (asset, liability, and equity accounts).
    • The purpose of closing entries is to prepare the temporary accounts for the next accounting period by setting them to zero.
    • The four steps involved in preparing closing entries include:
      • Close credit balances in revenue accounts to Income Summary.
      • Close debit balances in expense accounts to Income Summary.
      • Close Income Summary to Owner’s Capital.
      • Close the Withdrawals account to Owner’s Capital.

    Post-Closing Trial Balance

    • A post-closing trial balance is a list of permanent accounts and their balances after all closing entries are journalized and posted.
    • It verifies that total debits equal total credits for permanent accounts and that all temporary accounts have zero balances.

    Classified Balance Sheet

    • A classified balance sheet is a balance sheet that groups similar assets and liabilities together to make it easier to analyze a company’s financial position.
    • The main categories of assets listed on a classified balance sheet include:
      • Current Assets: Cash and equivalents, short-term marketable securities, accounts receivable, net, inventories, vendor non-trade receivables, and other current assets.
      • Non-Current Investments: Investments management intends to hold to maturity.
      • Property, plant, and equipment: Land, buildings, machinery, trucks, and other equipment used in operations.
      • Intangible Assets: Items such as patents, copyrights, trademarks, and goodwill.
    • The main categories of liabilities listed on a classified balance sheet include:
      • Current Liabilities: Obligations that are expected to be paid within one year.
      • Non-Current Liabilities: Obligations that are expected to be paid after one year.

    Financial Ratios

    • The current ratio is a financial ratio that measures a company’s ability to pay its current liabilities out of current assets. It is calculated by dividing current assets by current liabilities.
    • The debt to equity ratio is a financial ratio that measures the amount of debt a company has relative to its equity. It is calculated by dividing total liabilities by total equity.

    Studying That Suits You

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

    Quiz Team

    Related Documents

    Completing the Accounting Cycle and Classifying Accounts PDF

    Description

    Explore the critical steps in the accounting cycle, which include analyzing transactions, journalizing, and preparing financial statements. Additionally, learn about closing entries, their purpose, and the steps needed to prepare them for the next accounting period. This quiz will test your understanding of these fundamental accounting concepts.

    More Like This

    Proceso Contable: Diario, Mayor y Cierre
    12 questions

    Proceso Contable: Diario, Mayor y Cierre

    ThrivingVictory avatar
    ThrivingVictory
    Accounting Cycle Steps
    9 questions

    Accounting Cycle Steps

    ModestClarity avatar
    ModestClarity
    Accounting Chapter 8 Flashcards
    29 questions

    Accounting Chapter 8 Flashcards

    GrandDwarf5939 avatar
    GrandDwarf5939
    Accounting Cycle and Financial Statements
    19 questions

    Accounting Cycle and Financial Statements

    StatuesquePrimrose avatar
    StatuesquePrimrose
    Use Quizgecko on...
    Browser
    Open
    Browser
    Browser