Chapter 4 – Completing the Accounting Cycle
1. Cross-referencing is useful in assuring that the debits and credits are in balance.
a.
True
b.
False
2. When accounts do not appear on the unadjusted trial balance but are needed to post adjustments, they are simply added
to the account title column.
a.
True
b.
False
3. Once the adjusted trial balance is in balance, the flow of accounts will now go into the financial statements.
a.
True
b.
False
4. After analyzing transactions, the next step would be to post the transactions in the ledger.
a.
True
b.
False
5. The income statement is prepared from the adjusted trial balance or the Income Statement columns of the end-of-period
spreadsheet.
a.
True
b.
False
6. There is really no benefit in preparing financial statements in any particular order.
a.
True
b.
False
7. On the income statement, miscellaneous expenses are usually presented as the last item without regard to the dollar
amount.
a.
True
b.
False
8. The usual presentation of the retained earnings statement is (1) Beginning balance, (2) Net income or loss, (3)
Dividends, (4) Stockholders’ contributions, (5) Ending balance.
a.
True
b.
False
Chapter 4 – Completing the Accounting Cycle
9. Cash and other assets that may reasonably be expected to be realized in cash, sold, or consumed through the normal
operations of a business, usually longer than one year, are called current assets.
a.
True
b.
False
10. The difference between a classified balance sheet and one that is not classified is that the classified one has
subheadings.
a.
True
b.
False
11. Prepaid Insurance is an example of a current asset.
a.
True
b.
False
12. Land is an example of a plant asset.
a.
True
b.
False
Chapter 4 – Completing the Accounting Cycle
13. Liabilities that will be due within one year or less and that are to be paid out of current assets are called current
liabilities.
a.
True
b.
False
14. The amount of the net income for a period appears on both the income statement and the balance sheet for that period.
a.
True
b.
False
15. Accrued taxes payable are generally reported on the balance sheet as a current liability.
a.
True
b.
False
16. Office Equipment is an example of a current asset account.
a.
True
b.
False
Chapter 4 – Completing the Accounting Cycle
17. Common stock and dividends are reported in the stockholders’ equity section of the balance sheet.
a.
True
b.
False
18. Prepaid expenses that benefit a relatively short period of time are listed on the balance sheet as current assets.
a.
True
b.
False
19. Unearned revenues that will be earned in a relatively short period of time are listed on the balance sheet as current
assets.
a.
True
b.
False
20. Accrued expenses are ordinarily listed on the balance sheet as current assets.
a.
True
b.
False
Chapter 4 – Completing the Accounting Cycle
21. Accrued revenues are ordinarily listed on the balance sheet as current liabilities.
a.
True
b.
False
22. Examples of temporary accounts are Supplies and Prepaid Expenses, which are in the ledger for just a short time
before they expire.
a.
True
b.
False
23. Accumulated Depreciation is a permanent account.
a.
True
b.
False
24. The dividends account is a temporary account.
a.
True
b.
False
Chapter 4 – Completing the Accounting Cycle
25. The balance sheet accounts are referred to as real or permanent accounts.
a.
True
b.
False
26. Journalizing and posting the adjustments and closing entries updates the ledger for the new accounting period.
a.
True
b.
False
27. The income summary account is closed to the retained earnings account.
a.
True
b.
False
28. The accumulated depreciation account is closed to the income summary account.
a.
True
b.
False
Chapter 4 – Completing the Accounting Cycle
29. The dividends account is closed to the income summary account.
a.
True
b.
False
30. The trial balance prepared after all the closing entries have been posted is called a pre-closing trial balance.
a.
True
b.
False
31. Entries required to close the balances of the temporary accounts at the end of the period are called final entries.
a.
True
b.
False
32. Journalizing and posting closing entries must be completed before financial statements can be prepared.
a.
True
b.
False
Chapter 4 – Completing the Accounting Cycle
33. During the closing process, some balance sheet accounts are closed and end the period with a zero balance.
a.
True
b.
False
34. Closing entries are entered directly on the end-of-period spreadsheet.
a.
True
b.
False
35. The post-closing trial balance will generally have fewer accounts than the trial balance.
a.
True
b.
False
36. A post-closing trial balance contains only asset and liability accounts.
a.
True
b.
False
Chapter 4 – Completing the Accounting Cycle
37. A post-closing trial balance should be prepared before the financial statements are prepared.
a.
True
b.
False
38. Assets, liabilities, and stockholders’ equity accounts are real accounts and do not get closed at the end of the period.
a.
True
b.
False
39. The income summary account is also known as the clearing account.
a.
True
b.
False
40. All income statement accounts will be closed at the end of the period.
a.
True
b.
False
Chapter 4 – Completing the Accounting Cycle
41. Accounts reported on the balance sheet that are carried forward from year to year are known as permanent accounts.
a.
True
b.
False
42. Balance sheet accounts are not considered real accounts.
a.
True
b.
False
43. Real accounts are not permanent accounts.
a.
True
b.
False
44. It is not necessary to post the closing entries to the general ledger.
a.
True
b.
False
Chapter 4 – Completing the Accounting Cycle
45. The closing process is sometimes referred to as closing the books.
a.
True
b.
False
46. Once an account has been closed for the period, inserting a line in the balance columns zeros out the account, making
it ready for the following period.
a.
True
b.
False
47. The last step of the accounting cycle is to prepare a post-closing trial balance.
a.
True
b.
False
48. The most important output of the accounting cycle is the financial statements.
a.
True
b.
False
Chapter 4 – Completing the Accounting Cycle
LEARNING OBJECTIVES:
49. The accounting cycle begins with preparing an unadjusted trial balance.
a.
True
b.
False
LEARNING OBJECTIVES:
50. Financial statements should be prepared before the closing entries are journalized and posted.
a.
True
b.
False
LEARNING OBJECTIVES:
51. The unadjusted, adjusted, and final trial balances are prepared during the accounting cycle of a period.
a.
True
b.
False
LEARNING OBJECTIVES:
52. Any twelve-month accounting period adopted by a company is known as its fiscal year.
a.
True
b.
False
Chapter 4 – Completing the Accounting Cycle
53. A fiscal year that ends when business activities have reached their lowest point is called the natural business year.
a.
True
b.
False
54. All companies must use a calendar year as their fiscal year.
a.
True
b.
False
55. The majority of businesses end their fiscal year on December 31.
a.
True
b.
False
Chapter 4 – Completing the Accounting Cycle
56. Working capital is the ratio of the current assets of a business to its current liabilities.
a.
True
b.
False
57. The current ratio is more useful than working capital in comparing across companies or with industry averages.
a.
True
b.
False
58. The balances of the equity accounts from the Adjusted Trial Balance of the end-of-period spreadsheet are extended to
the Retained Earnings Statement columns.
a.
True
b.
False
59. The end-of-period spreadsheet is not considered a part of the formal accounting records.
a.
True
b.
False
Chapter 4 – Completing the Accounting Cycle
60. The end-of-period spreadsheet is a tool that accountants can use to summarize adjusting entries and the account
balances for the financial statements.
a.
True
b.
False
61. The trial balance may be listed on the end-of-period spreadsheet instead of being prepared separately.
a.
True
b.
False
62. The totals of the Adjusted Trial Balance columns on an end-of-period spreadsheet will always be the sum of the Trial
Balance column totals and the Adjustments column totals.
a.
True
b.
False
63. A end-of-period spreadsheet heading is dated for a period of time.
a.
True
b.
False
Chapter 4 – Completing the Accounting Cycle
64. On the end-of-period spreadsheet, the common stock and dividends account balances are extended to the Balance
Sheet columns.
a.
True
b.
False
65. After the account balances have been extended from the Adjusted Trial Balance columns on the end-of-period
spreadsheet, the difference between the initial totals of the Balance Sheet debit and credit columns is Net Income or Net
Loss.
a.
True
b.
False
66. After Net Income or Loss is entered on the end-of-period spreadsheet, the debit column total must equal the credit
column total for the Balance Sheet pair of columns.
a.
True
b.
False
Chapter 4 – Completing the Accounting Cycle
67. A net loss is shown on the end-of-period spreadsheet in the credit columns of both the Income Statement columns and
the Balance Sheet columns.
a.
True
b.
False
68. Net income is shown on the end–of-period spreadsheet in the Income Statement debit column and the Balance Sheet
credit column.
a.
True
b.
False
69. If the totals of the Income Statement Debit and Credit columns of an end–of-period spreadsheet are $27,000 and
$29,000, respectively, after all account balances have been extended, the amount of the net loss is $2,000.
a.
True
b.
False
Chapter 4 – Completing the Accounting Cycle
70. Since the adjustments are entered on the end-of-period spreadsheet, it is not necessary to record them in the journal or
post them to the ledger.
a.
True
b.
False
71. The chart of accounts, the journal, and the ledger are essential parts of the accounting system.
a.
True
b.
False
72. A reversing entry recorded on the first day of the current accounting period is exactly the same as the related adjusting
entry from the last day of the prior accounting period.
a.
True
b.
False
73. What is the major difference between the unadjusted trial balance and the adjusted trial balance?
a.
The adjusted trial balance will show the net income (loss) as an additional account.
b.
Unlike the adjusted trial balance, the unadjusted trial balance will continue with the end-of-period processing
even if it is not in balance.
c.
The adjusted trial balance includes the postings of the adjustments for the period in the balance of the
accounts.
d.
The adjusted trial balance will be used to record the adjustments for the period.
Chapter 4 – Completing the Accounting Cycle
74. Once the adjusting entries are posted, the adjusted trial balance is prepared to
a.
verify that the debits and credits are in balance
b.
verify that the net income correctly flows into the statement of stockholders’ equity from the income statement
c.
verify that the net income (loss) is correct for the period
d.
verify the correct flow of accounts into the financial statements
75. Accumulated Depreciation appears on the
a.
balance sheet in the current assets section
b.
balance sheet in the property, plant, and equipment section
c.
balance sheet in the long-term liabilities section
d.
income statement as an operating expense
76. Notes receivable due in 390 days appear on the
a.
balance sheet in the current assets section
b.
balance sheet in the noncurrent assets section
c.
balance sheet in the current liabilities section
d.
income statement as an expense