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Chapter 04 Completing the Accounting Cycle
MULTIPLE CHOICE QUESTIONS
1)
Accounts that appear in the balance sheet are often called temporary (nominal) accounts.
A)
True
B)
False
2)
Income Summary is a temporary account only used for the closing process.
A)
True
B)
False
3)
Revenue accounts are temporary accounts that should begin each accounting period with zero
balances.
A)
True
B)
False
4)
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.
A)
True
B)
False
5)
The closing process takes place before financial statements have been prepared.
A)
True
B)
False
6)
Revenue and expense accounts are permanent (real) accounts and should not be closed at the end
of the accounting period.
A)
True
B)
False
7)
Closing entries result in the owner's capital account being transferred into net income or net loss
for the period ending.
A)
True
B)
False
8)
The closing process is a step in the accounting cycle that prepares accounts for the next accounting
period.
A)
True
B)
False
9)
Closing entries are required at the end of each accounting period to close all ledger accounts.
A)
True
B)
False
10)
Closing entries are designed to transfer the end-of-period balances in the revenue accounts, the
expense accounts, and the withdrawals account to owner's capital.
A)
True
B)
False
11)
The Income Summary account is a permanent account that will be carried forward period after
period.
A)
True
B)
False
12)
Closing entries are necessary so that owner's capital will begin each period with a zero balance.
A)
True
B)
False
13)
Permanent accounts carry their balances into the next accounting period.
A)
True
B)
False
14)
If a company plans to continue business into the future, closing entries are not required.
A)
True
B)
False
15)
The first step in the accounting cycle is to analyze transactions and events to prepare for
journalizing.
A)
True
B)
False
16)
The accounting cycle refers to the sequence of steps used in preparing the work sheet.
A)
True
B)
False
17)
The first five steps in the accounting cycle include analyzing transactions, journalizing, posting,
preparing an unadjusted trial balance, and recording adjusting entries.
A)
True
B)
False
18)
The last four steps in the accounting cycle include preparing the adjusted trial balance, preparing
financial statements, and recording closing and adjusting entries.
A)
True
B)
False
19)
A classified balance sheet organizes assets and liabilities into important subgroups that provide
more information to decision makers.
A)
True
B)
False
20)
An unclassified balance sheet provides more information to users than a classified balance sheet.
A)
True
B)
False
21)
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.
A)
True
B)
False
22)
Intangible assets are long-term resources that benefit business operations that usually lack physical
form and have uncertain benefits.
A)
True
B)
False
23)
Assets are often classified into current assets, long-term investments, plant assets, and intangible
assets.
A)
True
B)
False
24)
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.
A)
True
B)
False
25)
Long-term investments can include land held for future expansion.
A)
True
B)
False
26)
Intangible assets are assets that are long-term, have physical form, and are used to produce or sell
products and services.
A)
True
B)
False
27)
Current liabilities include accounts receivable, unearned revenues, and salaries payable.
A)
True
B)
False
28)
Cash and office supplies are both classified as current assets.
A)
True
B)
False
29)
Plant assets are usually listed in order from most liquid to least liquid.
A)
True
B)
False
30)
The current ratio is used to help assess a company's ability to pay its debts in the near future.
A)
True
B)
False
31)
The current ratio is computed by dividing current liabilities by current assets.
A)
True
B)
False
32)
Trekker Bikes' current assets are $300 million and its current liabilities are $125 million. Its current
ratio is 0.417.
A)
True
B)
False
33)
If a company has current assets of $15,000 and current liabilities of $9,500, its current ratio is 1.6
A)
True
B)
False
34)
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.
A)
True
B)
False
35)
A benefit of using a work sheet is that it aids in the preparation of the financial statements.
A)
True
B)
False
36)
Adjustments must be entered in the journal and posted to the ledger after the work sheet is
prepared.
A)
True
B)
False
37)
The work sheet is a required report made available to external decision makers.
A)
True
B)
False
38)
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.
A)
True
B)
False
39)
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.
A)
True
B)
False
40)
On a work sheet, if the Debit total exceeds the Credit total of the Income Statement columns, a net
loss is indicated.
A)
True
B)
False
41)
If all columns of a completed work sheet balance, you can be sure that no errors were made in its
preparation.
A)
True
B)
False
42)
Normally closing entries are first entered in the general journal and then posted to the work sheet.
A)
True
B)
False
43)
Adjusting entries are usually entered in the work sheet before they are entered in the general
journal.
A)
True
B)
False
44)
On a work sheet, the adjusted balances of revenues and expenses are sorted to the Income
Statement columns of the work sheet.
A)
True
B)
False
45)
On the work sheet, net income is entered in the Income Statement Credit column as well as the
Balance Sheet or Statement of Owner's Equity Credit column.
A)
True
B)
False
46)
All necessary amounts to prepare the balance sheet, including ending owner's capital, can be found
in the Balance Sheet columns of the work sheet.
A)
True
B)
False
47)
A worksheet can be helpful in showing the effects of proposed or "what if" transactions but not in
helping to prepare interim financial statements.
A)
True
B)
False
48)
Because it is a necessary financial statement, the work sheet must be prepared according to
specified accounting procedures.
A)
True
B)
False
49)
An expense account is normally closed by debiting Income Summary and crediting the expense
account.
A)
True
B)
False
50)
The withdrawals account is normally closed by debiting it.
A)
True
B)
False
51)
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.
A)
True
B)
False
52)
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 Marker, Withdrawals account has a debit
balance of $2,500. These balances indicate that net income for the current accounting period
amounted to $3,500.
A)
True
B)
False
53)
When there is a net loss, the Income Summary account would have a credit balance.
A)
True
B)
False
54)
The Income Summary account is used to close the permanent accounts at the end of an accounting
period.
A)
True
B)
False
55)
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 Owner's Capital; (4) close Withdrawals to Owner's Capital.
A)
True
B)
False
56)
During the closing process, Owner's Capital is closed to the Owner's Withdrawals account.
A)
True
B)
False
57)
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.
A)
True
B)
False
58)
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.
A)
True
B)
False
59)
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.
A)
True
B)
False
60)
Reversing entries are optional.
A)
True
B)
False
