True / False Questions
1. Accounts that appear in the balance sheet are often called temporary (nominal) accounts.
2. Income Summary is a temporary account only used for the closing process. 3. Revenue accounts should begin each accounting period with zero balances. 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. 5. The closing process takes place after financial statements have been prepared. 6. Revenue and expense accounts are permanent (real) accounts and should not be closed at the end of the accounting period.
7. Closing entries result in revenues and expenses being reflected in the owner's capital account.
8. The closing process is a step in the accounting cycle that prepares accounts for the next accounting period.
9. The closing process is a two-step process. First revenue, expense, and withdrawals are set to a zero balance. Second, the process summarizes a period's assets and expenses.
10. Closing entries are required at the end of each accounting period to close all ledger accounts.
11. 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. 12. The Income Summary account is a permanent account that will be carried forward period after period.
13. Closing entries are necessary so that owner's capital will begin each period with a zero balance.
14. Permanent accounts carry their balances into the next accounting period.
Moreover, asset, liability and revenue accounts are not closed as long as a company continues in business.
15. The first step in the accounting cycle is to analyze transactions and events to prepare for journalizing.
16. The accounting cycle refers to the sequence of steps in preparing the work sheet. 17. The first five steps in the accounting cycle include analyzing transactions,
journalizing, posting, preparing an unadjusted trial balance, and recording adjusting entries.
18. The last four steps in the accounting cycle include preparing the adjusted trial balance, preparing financial statements and recording closing and adjusting entries. 19. A classified balance sheet organizes assets and liabilities into important subgroups that provide more information to decision makers.
20. An unclassified balance sheet provides more information to users than a classified balance sheet.
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.
22. Intangible assets are long-term resources that benefit business operations that usually lack physical form and have uncertain benefits.
23. Assets are often classified into current assets, long-term investments, plant assets, and intangible assets.
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.
25. Long-term investments can include land held for future expansion.
26. Plant assets and intangible assets are usually long-term assets used to produce or sell products and services.
27. Current liabilities include accounts receivable, unearned revenues, and salaries payable.
28. Cash and office supplies are both classified as current assets.
29. Plant assets are also called fixed assets or property, plant, and equipment. 30. The current ratio is used to help assess a company's ability to pay its debts in the near future.
Multiple Choice Questions
64. Another name for temporary accounts is: A. Real accounts. B. Contra accounts. C. Accrued accounts.
D. Balance column accounts. E. Nominal accounts.
65. When closing entries are made:
A. All ledger accounts are closed to start the new accounting period. B. All temporary accounts are closed but not the permanent accounts. C. All real accounts are closed but not the nominal accounts.
D. All permanent accounts are closed but not the nominal accounts. E. All balance sheet accounts are closed.
66. Revenues, expenses, and withdrawals accounts, which are closed at the end of each accounting period are: A. Real accounts.
B. Temporary accounts. C. Closing accounts. D. Permanent accounts. E. Balance sheet accounts.
67. Which of the following statements is incorrect?
A. Permanent accounts is another name for nominal accounts.
B. Temporary accounts carry a zero balance at the beginning of each accounting period.
C. The Income Summary account is a temporary account.
D. Real accounts remain open as long as the asset, liability, or equity items recorded in the accounts continue in existence.
E. The closing process applies only to temporary accounts.
68. Assets, liabilities, and equity accounts are not closed; these accounts are called: A. Nominal accounts. B. Temporary accounts. C. Permanent accounts. D. Contra accounts. E. Accrued accounts.
69. Closing the temporary accounts at the end of each accounting period:
A. Serves to transfer the effects of these accounts to the owner's capital account on the balance sheet.
B. Prepares the withdrawals account for use in the next period. C. Gives the revenue and expense accounts zero balances.
D. Causes owner's capital to reflect increases from revenues and decreases from expenses and withdrawals. E. All of these.
70. Journal entries recorded at the end of each accounting period to prepare the revenue, expense, and withdrawals accounts for the upcoming period and to update the owner's capital account for the events of the period just finished are referred to as: A. Adjusting entries. B. Closing entries. C. Final entries.
D. Work sheet entries. E. Updating entries.
71. The closing process is necessary in order to:
A. calculate net income or net loss for an accounting period.
B. ensure that all permanent accounts are closed to zero at the end of each accounting period.
C. ensure that the company complies with state laws.
D. ensure that net income or net loss and owner withdrawals for the period are closed into the owner's capital account.
E. ensure that management is aware of how well the company is operating.
72. Closing entries are required:
A. if management has decided to cease operating the business.
B. only if the company adheres to the accrual method of accounting. C. if a company's bookkeeper forgets to prepare reversing entries.
D. if the temporary accounts are to reflect correct amounts for each accounting period. E. in order to satisfy the Internal Revenue Service.
73. The recurring steps performed each reporting period, starting with analyzing and recording transactions in the journal and continuing through the post-closing trial balance, is referred to as the: A. Accounting period. B. Operating cycle. C. Accounting cycle. D. Closing cycle.
E. Natural business year.
74. Which of the following is the usual final step in the accounting cycle? A. Journalizing transactions.
B. Preparing an adjusted trial balance. C. Preparing a post-closing trial balance. D. Preparing the financial statements. E. Preparing a work sheet.
75. A classified balance sheet:
A. Measures a company's ability to pay its bills on time. B. Organizes assets and liabilities into important subgroups. C. Presents revenues, expenses, and net income.
D. Reports operating, investing, and financing activities.
E. Reports the effect of profit and withdrawals on owner's capital.
76. The assets section of a classified balance sheet usually includes:
A. Current assets, long-term investments, plant assets, and intangible assets. B. Current assets, long-term assets, revenues, and intangible assets. C. Current assets, long-term investments, plant assets, and equity.
D. Current liabilities, long-term investments, plant assets, and intangible assets. E. Current assets, liabilities, plant assets, and intangible assets.
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