74) Revenue accounts are temporary accounts that should begin each accounting period with
zero balances.
75) Closing revenue and expense accounts at the end of the accounting period serves to make the
revenue and expense accounts ready for use in the next period.
76) The closing process takes place before financial statements have been prepared.
77) Revenue and expense accounts are permanent (real) accounts and should not be closed at the
end of the accounting period.
78) Closing entries result in the Dividends account being transferred into net income or net loss
for the period ending.
79) The closing process is a step in the accounting cycle that prepares accounts for the next
accounting period.
80) Closing entries are required at the end of each accounting period to close all ledger accounts.
81) Closing entries are designed to transfer the end-of-period balances in the revenue accounts,
the expense accounts, and the dividends account to retained earnings.
82) The Income Summary account is a permanent account that will be carried forward period
after period.
83) Closing entries are necessary so that retained earnings will begin each period with a zero
balance.
84) Permanent accounts carry their balances into the next accounting period.
85) If a company plans to continue business into the future, closing entries are not required.
86) The first step in the accounting cycle is to analyze transactions and events to prepare for
journalizing.
87) The accounting cycle refers to the sequence of steps used in preparing the work sheet.
88) The first five steps in the accounting cycle include analyzing transactions, journalizing,
posting, preparing an unadjusted trial balance, and recording adjusting entries.
89) The last four steps in the accounting cycle include preparing the adjusted trial balance,
preparing financial statements, and recording closing and adjusting entries.
90) A classified balance sheet organizes assets and liabilities into important subgroups that
provide more information to decision makers.
91) An unclassified balance sheet provides more information to users than a classified balance
sheet.
92) Current assets and current liabilities are expected to be used up or come due within one year
or the company’s operating cycle whichever is longer.
93) Intangible assets are long-term resources that benefit business operations that usually lack
physical form and have uncertain benefits.
94) Assets are often classified into current assets, long-term investments, plant assets, and
intangible assets.
95) Current liabilities are cash and other resources that are expected to be sold, collected or used
within one year or the company’s operating cycle whichever is longer.
96) Long-term investments can include land held for future expansion.
97) Intangible assets are assets that are long-term, have physical form, and are used to produce or
sell products and services.
98) Current liabilities include accounts receivable, unearned revenues, and salaries payable.
99) Cash and office supplies are both classified as current assets.
100) Plant assets are usually listed in order by how quickly they can be converted to cash.
101) The current ratio is used to help assess a company’s ability to pay its debts in the near
future.
102) The current ratio is computed by dividing current liabilities by current assets.
103) Trekker Bikes’ current assets are $300 million and its current liabilities are $125 million. Its
current ratio is 0.417.
104) If a company has current assets of $15,000 and current liabilities of $9,500, its current ratio
is 1.6
105) Flo’s Flowers’ current ratio is 1.3. The industry average for the current ratio is 1.2. This
indicates that Flo’s can cover its short term liabilities with its short term assets.
106) A benefit of using a work sheet is that it aids in the preparation of the financial statements.
107) Adjustments must be entered in the journal and posted to the ledger after the work sheet is
prepared.
108) The work sheet is a required report made available to external decision makers.
109) A work sheet contains all of the balances for each account and therefore may be used as a
substitute for the set of financial statements.
110) All necessary amounts needed to prepare the income statement can be taken from the
income statement columns of the work sheet, including the net income or net loss.
111) On a work sheet, if the Debit total exceeds the Credit total of the Income Statement
columns, a net loss is indicated.
112) If all columns of a completed work sheet balance, you can be sure that no errors were made
in its preparation.
113) Normally closing entries are first entered in the general journal and then posted to the work
sheet.
114) Adjusting entries are usually entered in the work sheet before they are entered in the general
journal.
115) On a work sheet, the adjusted balances of revenues and expenses are sorted to the Income
Statement columns of the work sheet.
116) On the work sheet, net income is entered in the Income Statement Credit column as well as
the Balance Sheet or Statement of Retained Earnings Credit column.
117) All necessary amounts to prepare the balance sheet, including ending retained earnings, can
be found in the Balance Sheet columns of the work sheet.
118) A worksheet can be helpful in showing the effects of proposed or “what if” transactions but
not in helping to prepare interim financial statements.
119) Because it is a necessary financial statement, the work sheet must be prepared according to
specified accounting procedures.
120) An expense account is normally closed by debiting Income Summary and crediting the
expense account.
121) The Dividends account is normally closed by debiting it.
122) After posting the entries to close all revenue and expense accounts, the Income Summary
account of Cleaver Auto Services has a $4,000 debit balance. This result implies that Cleaver
earned a net income of $4,000.
123) After posting the entries to close all revenue and expense accounts, Marker Company’s
Income Summary account has a credit balance of $6,000, and its Dividends account has a debit
balance of $2,500. These balances indicate that net income for the current accounting period
amounted to $3,500.
124) When there is a net loss, the Income Summary account would have a credit balance.
125) The Income Summary account is used to close the permanent accounts at the end of an
accounting period.
126) The steps in the closing process are (1) close credit balances in revenue accounts to Income
Summary; (2) close debit balances in expense accounts to Income Summary; (3) close Income
Summary to Retained Earnings; (4) close Dividends to Retained Earnings.
127) During the closing process, Retained Earnings is closed to the Dividends account.
128) A post-closing trial balance is a list of permanent accounts and their balances from the
ledger after all closing entries are journalized and posted.
129) The aim of a post-closing trial balance is to verify that (1) total debits equal total credits for
temporary accounts, and (2) all temporary accounts have zero balances.
130) A company’s post-closing trial balance has total debits of $40,560 and total credits of
$40,650. Accordingly, the company should review for errors in the closing process.
131) Reversing entries are optional.
132) Reversing entries are recorded in response to external transactions that were created in error
during the prior accounting period.
133) Reversing entries overcome the disadvantage of more complex entries to pay accrued
liabilities and collect accrued receivables from the previous accounting period.
134) The time period assumption assumes that an organization’s activities may be divided into
specific reporting time periods including all of the following except:
A) Months.
B) Quarters.
C) Fiscal years.
D) Calendar years.
E) Days.
135) A broad principle that requires identifying the activities of a business with specific time
periods such as months, quarters, or years is the:
A) Operating cycle of a business.
B) Time period assumption.
C) Going-concern assumption.
D) Expense recognition (matching) principle.
E) Accrual basis of accounting.
136) Interim financial statements refer to financial reports:
A) That cover less than one year, usually spanning one, three, or six-month periods.
B) That are prepared before any adjustments have been recorded.
C) That show the assets above the liabilities and the liabilities above the equity.
D) Where revenues are reported on the income statement when cash is received and expenses are
reported when cash is paid.
E) Where the adjustment process is used to assign revenues to the periods in which they are
earned and to match expenses with revenues.
137) The 12-month period that ends when a company’s sales activities are at their lowest level is
called the:
A) Fiscal year.
B) Calendar year.
C) Natural business year.
D) Accounting period.
E) Interim period.
138) The length of time covered by a set of periodic financial statements, primarily a year for
most companies, is referred to as the:
A) Fiscal year.
B) Natural business year.
C) Accounting period.
D) Business cycle.
E) Calendar year.
139) The accounting principle that requires revenue to be recorded when earned is the:
A) Expense recognition (matching) principle.
B) Revenue recognition principle.
C) Time period assumption.
D) Accrual reporting principle.
E) Going-concern assumption.
140) Adjusting entries:
A) Affect only income statement accounts.
B) Affect only balance sheet accounts.
C) Affect both income statement and balance sheet accounts.
D) Affect cash accounts.
E) Affect only equity accounts.
141) The main purpose of adjusting entries is to:
A) Record external transactions and events.
B) Record internal transactions and events.
C) Recognize assets purchased during the period.
D) Recognize debts paid during the period.
E) Correct errors in the accounting records.
142) The broad principle that requires expenses to be reported in the same period as the revenues
that were earned as a result of the expenses is the:
A) Recognition principle.
B) Cost principle.
C) Cash basis of accounting.
D) Expense recognition (Matching) principle.
E) Time period principle.
143) The system of preparing financial statements based on recognizing revenues when the cash
is received and reporting expenses when the cash is paid is called:
A) Accrual basis accounting.
B) Operating cycle accounting.
C) Cash basis accounting.
D) Revenue recognition accounting.
E) Current basis accounting.