True / False Questions
1. Accounts that appear in the balance sheet are often called temporary (nominal) accounts. FALSE 2. Income Summary is a temporary account only used for the closing process. TRUE
3. Revenue accounts should begin each accounting period with zero balances. TRUE
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. TRUE
5. The closing process takes place after financial statements have been prepared. TRUE
6. Revenue and expense accounts are permanent (real) accounts and should not be closed at the end of the accounting period. FALSE 7. Closing entries result in revenues and expenses being reflected in the owner's capital account. TRUE
8. The closing process is a step in the accounting cycle that prepares accounts for the next accounting period. TRUE
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. FALSE
10. Closing entries are required at the end of each accounting period to close all ledger accounts. FALSE
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. TRUE
12. The Income Summary account is a permanent account that will be carried forward period after period. FALSE
13. Closing entries are necessary so that owner's capital will begin each period with a zero balance. FALSE
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. FALSE
15. The first step in the accounting cycle is to analyze transactions and events to prepare for journalizing. TRUE
16. The accounting cycle refers to the sequence of steps in preparing the work sheet. FALSE
17. The first five steps in the accounting cycle include analyzing transactions,
journalizing, posting, preparing an unadjusted trial balance, and recording adjusting entries. TRUE
18. The last four steps in the accounting cycle include preparing the adjusted trial balance, preparing financial statements and recording closing and adjusting entries. FALSE
19. A classified balance sheet organizes assets and liabilities into important subgroups that provide more information to decision makers. TRUE
20. An unclassified balance sheet provides more information to users than a classified balance sheet. 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. TRUE 22. Intangible assets are long-term resources that benefit business operations that usually lack physical form and have uncertain benefits. TRUE
23. Assets are often classified into current assets, long-term investments, plant assets, and intangible assets. TRUE 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. FALSE
25. Long-term investments can include land held for future expansion. TRUE
26. Plant assets and intangible assets are usually long-term assets used to produce or sell products and services. TRUE
27. Current liabilities include accounts receivable, unearned revenues, and salaries payable. FALSE
28. Cash and office supplies are both classified as current assets. TRUE
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