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QR Challenge: Completing the Accounting Cycle for a Sole Proprietorship

QuestionAnswer
In what step in the accounting cycle are closing entries made?Eight
What is the normal balance of the Income Summary account?It does not have one
What is the debit side of the Income Summary account used for?Closing expense accounts.
What is the credit side of the Income Summary account used for?Closing revenue accounts
What is an entry called that has two or more debits or two or more credits?Compound entry
What is the purpose of recording closing entries for temporary accounts?To reduce the balances to zero and prepare the accounts for the next period.
Which ledger accounts do not appear on the post-closing trial balance?Temporary capital accounts
Is the post-closing trial balance dated for a point in time or for a period of time? Why?for a point in time - one date - because it identifies ledger balances at the specific date named on the form
What is the eight step in the accounting cycle?to journalize and post closing entries
After all closing entries have been posted, what are the balances of the temporary capital accounts?zero
What is the ninth step in the accounting cycle?preparing a post-closing trial balance
Temporary account balances equal zero at the beginning of an accounting period. Why do temporary accounts need zero balances to start a new accounting period?because their balances apply to only one accounting period
Which accounts are considered temporary accounts?revenue, expense, and withdrawals
Why are temporary accounts closed at the end of the fiscal year?Because they apply to only one fiscal year, they cannot be carried over to the following year
What is the purpose of the Income Summary account?to summarize the revenue and expenses for the period
How does the Income Summary account differ from the other temporary accounts?Income Summary is used only at the end of the period and does not have a normal balance side as other temporary capital accounts do.
Explain the relationship between the Income Summary account and the capital account.Income Summary is a temporary account that records net income or net loss. If Income Summary has a debit balance (loss), capital decreases; if it has a credit balance (income), capital increases.
Why doesn\'t the Income Summary account have a normal balance?Because its balance is either a net income or a net loss.
What is the source of information for the closing entries?the Income Statement section of the worksheet
List the steps for journalizing the closing entries?Step1: Transfer revenue balance to the credit side of the Income Summary account; Step 2: Transfer expense account balances to the debit side of the income summary account; Step 3: Transfer the balance of the income summary account to the capital account; Step 4: Transfer the balance of the withdrawals account to the debit side of the capital account
Classify the Income Summary account (asset, liability, owner\'s equity, revenue, or expense).owner\'s equity
How is the posting procedure for closing entries different from the posting procedure for other general journal entries?The posting procedure for closing entries closes temporary accounts at the end of the accounting period; posting for other general journal entries takes place throughout the accounting period
What is the purpose of the post-closing trial balance?to test that in the ledger total debits equal total credits after closing entries have been posted.
Why does the post-closing trial balance have balances of only permanent accounts?They are the only accounts that have balances.
Make the closing entries for (a) a $5,000 net income for the year ending December 31 and (b) a $4,000 net loss for the quarter ending June 30.(a) Debit Income Summary $5,000 & Credit Capital $5,000; (b) Debit Capital $4,000 and Credit Income Summary $4,000.
Compare and contrast the closing the closing entry for an expense account and the losing entry for the withdrawals account.While both close out accounts, an expense account is closed to the capital account.
What is the value of preparing a post-closing trial balance?A post-closing trial balance ensures that total debits equal total credits in the general ledger after closing entries are posted.

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