Question | Answer |
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. |