question

List the steps of the Accounting Cycle in the correct order: Page 162

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(1) Transactions analyzed & recorded in journal (2) Transactions posted to the ledger (3) Un-adjusted trial balance prepared (4) Adjustment data assembled & analyzed (5) Optional end-of-period spreadsheet prepared (6) Adjusting entries journalized & posted to ledger (7) Adjusted trial balance prepared (8) Financial statements prepared (9) Closing entries journalized & posted to ledger (10) Post-closing trial balance prepared

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Purpose of a Work Sheet:

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1) Tool to assist with end-of-accounting-period work 2) Information to prepare adjusting entries & financial statements on one continuous form 3) Format that is easily adapted to a computer spreadsheet program

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To complete the columns of a worksheet (End-of-Period Spreadsheet): Page 176

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Step 1: - List all account balances from the ledger in the Trial Balance columns - Total the Debit & Credit columns (they should be equal) Step 2: - Record the adjusting entries in the Adjustments columns - Total the Debit & Credit columns (they should be equal) Step 3: - Enter the balance of each account, after computing any changes due to adjusting entries, in the Adjusted Trial Balance columns - Total the Debit & Credit columns (they should be equal) Step 4: - Enter the balance of all revenue & expense accounts in the Income Statement columns - Total the Debit & Credit columns (they should be equal) Step 5: - Enter the balance of assets, liabilities, capital stock, & dividends in the Balance Sheet columns - Total the Debit & Credit columns - Net income must be added to the Credit column (or net loss to the Debit column) to make the Balance Sheet columns balance

question

Name a few accounts that would flow into the Income Statement: Page 152

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Revenues: - Fees Earned - Rent Revenue Expenses: - Wages Expense - Utilities Expense - Rent Expense - Insurance Expense - Depreciation Expense - Miscellaneous Expense - Net Income

question

Name a few accounts that would flow into the Retained Earnings Statement: (Page 153)

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- Dividends

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Name a few accounts that would flow into the Balance Sheet: Page 153

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Current Assets: - Cash - Accounts Receivable - Supplies - Prepaid Insurance Assets: - Land - Office Equipment - Accumulated Depreciation (Equipment) Current Liabilities: - Accounts payable - Wages Payable - Unearned Rent Stockholders' Equity: - Capital Stock - Retained Earnings

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Assets are commonly divided into two sections on the Balance Sheet: (Page 153)

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(1) Current Assets (2) Property, Plant, & Equipment

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Current Assets may include:

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- Cash - Notes Receivable - Accounts Receivable - Supplies - Other Prepaid Expenses

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Fixed (Plant) Assets may include:

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- Equipment - Machinery - Buildings - Land

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Liabilities are commonly divided into two sections on the Balance Sheet:

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(1) Current Liabilities (2) Long-Term Liabilities

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Current Liabilities may include:

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- Notes Payable (most common) - Accounts Payable (most common) - Wages Payable - Interest Payable - Taxes Payable - Unearned Fees - Unearned Rent

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Long-Term Liabilities may include:

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- Mortgage Note Payable - Mortgage Payable - Notes Payable (due in 2018)

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Stockholders' Equity may include:

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- Capital Stock - Retained Earnings

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Permanent (Real) Accounts may include:

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- Cash - Accounts Receivable - Equipment - Accumulated Depreciation - Accounts Payable - Capital Stock - Retained Earnings

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Temporary (Nominal) Accounts may include the balances of the:

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- Accounts reported on the Income Statement: - Fees Earned - Revenues - Expenses - Dividends account on the Retained Earnings Statement

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Name the step-by-step process of how to prepare an Expanded End-of-Period Spreadsheet: Page 176

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(1) Enter the title: - Name of the business - Type of working paper - The period of time (2) Enter the Un-adjusted Trial Balance (3) Enter the Adjustments: - Supplies - Prepaid Insurance - Unearned Rent - Accrued Fees - Wages - Depreciation (4) Enter the Adjusted Trial Balance (5) Extend the Accounts to the Income Statement & Balance Sheet Columns (6) Total the Income Statement & Balance Sheet Columns, Compute the Net Income/Net Loss, & Complete the Spreadsheet

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Why are closing entries prepared:

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- To reset the temporary account balances to zero

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Why do we use Income Summary when preparing closing entries:

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- The Income Summary account is used as a clearing account & provides a balance check prior to transferring Net Income to the Retained Earnings account - Closing revenue & expense accounts to Income Summary will result in a balance equal to Net Income (or net loss) for the period - If the balance after step two is NOT equal to New Income (or net loss), then a mistake has been made in closing either the revenue or expense accounts

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Why are closing entries prepared after financial statements:

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- If the Income Statement accounts (temporary/nominal accounts) are closed prior to Financial Statements, then no revenue or expense accounts would have a balance& therefore no Net Income would be reported

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What are some examples of temporary accounts that would be closed for a physician:

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- Temporary revenue accounts could include: - Office Exam Fees - Hospital Visit Fees - Surgery Fees - Temporary expense accounts could include: - Medical Staff Wages Expense - Administrative Staff Wages Expense - Rent Expense - Utilities Expense - Do NOT forget the Dividends account

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What three classes of accounts will not appear on a Post-Closing Trial Balance:

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(1) Revenues (2) Expenses (3) Dividends

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What accounts will appear on a Post-Closing Trial Balance:

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(1) Assets (2) Liabilities (3) Capital Stock/Retained Earnings

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If a temporary account was overlooked in the closing process, wold the Post-Closing Trial Balance still balance:

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Yes, but the balance of the Retained Earnings account would not agree with the amount shown on the balance sheet

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The "transactions analyzed & record in journals" step requires:

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- Source documents

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The "transactions posted to the ledger" step requires:

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- Completed journal entries

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The "Un-adjusted Trial Balance prepared" step requires:

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- Steps 1 & 2 are completed - Account names & balances are obtained from the ledger

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The "Adjustment data assembled & analyzed" step requires:

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- Once the adjustment accounts have been identified, these tend to repeat in subsequent financial periods

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The "Optional End-of-Period spreadsheet prepared" step requires:

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- Data from the Un-adjusted Trial Balance & the adjustment data in order to start & complete the spreadsheet

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The "Adjusting entries journalized & posted to ledger" step requires:

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- The input from step 4 to complete - If the End-of-Period spreadsheet is completed, the adjusting data can be taken from the spreadsheet in order to journalize the adjustments - The posting of the adjustments is a required sted

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The "Adjusted Trial Balance prepared" step requires:

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- Step 6 be completed - The data is then obtained from the ledger once the adjusting data has been posted to update the account balances - If the optional End-of-Period spreadsheet is completed, this step maybe skipped since the spreadsheet contains an adjusted trial balance as part of the completion process

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The "Financial statements prepared" step requires:

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- The adjusted trial balance - The optional spreadsheet

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The "Closing entries journalized & posted to ledger" step requires:

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- The ledger, trial balance, or spreadsheet - Temporary accounts are closed in the process described earlier

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The "Post-Closing Trial Balance prepared" step requires:

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- The finalization of the closing process - The accounts & their balances can be found in the ledger once all closing entries are posted - All temporary accounts should have zero balances - Only permanent (balance sheet) accounts will have a positive balance; therefore, the Post-Closing Trial Balance will include only: - Asset Account - Liability Account - Capital Stock/Retained Earnings Accounts

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At the end of an Accounting Cycle, steps must be taken to ready the accounting system to move to a new period:

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(1) Adjusting entries are recorded (2) Financial statements are prepared (3) temporary accounts are closed - Closing leaves the permanent accounts with balances that agree with the Balance Sheet, to carry forward to the next period - Just like all journal entries, closing entries acre recorded in the general journal - Closing entries are dated as of the last day of the period

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Permanent (Real) Accounts include:

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- Assets - Liabilities - Stockholders' Equity

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Temporary (Nominal) Accounts include:

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- Revenues - Expenses - Divideneds

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These Temporary Accounts are just "containers" for tracking its 3 accounts; at the end of the year the containers being closed are "dumped" into:

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Retained Earnings

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Purpose of Closing Entries:

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To clean out Temporary Accounts to get ready for the new period, thus, the Closing Entries are in reverse of normal balance of that account

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Only close Income Statement accounts to:

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Income Summary

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Only close Dividends straight to:

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Retained Earnings

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Steps for closing the Temporary Accounts:

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(1) Use one closing entry to close all Revenue accounts: - Each Revenue is DEBITED individually with one CREDIT to Income Summary (2) Use a second entry to close all Expense accounts: - Each Expense is CREDITED individually with one DEBIT to Income Summary (3) Then close Income Summary: - Reverse the balance (to zero it out) (4) Final entry to close Dividends:

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Once Closing Entries are done, the only accounts that have a balance on the Post-Closing Trial Balance are the:

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Permanent Accounts

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Name some accounts that should be closed to Income Summary at the end of the Fiscal Year:

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- Depreciation Expense - Equipment - Fees Earned - Supplies Expense - Wages Expense

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Name some accounts that will usually appear in the Post-Closing Trial Balance:

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- Accounts Payable - Accumulated Depreciation - Capital Stock - Cash - Office Equipment - Salaries Payable - Supplies

question

Name 3 accounts that will be closed to Income Summary at the end of the fiscal year:

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(1) Depreciation Expense (2) Fees Earned (3) Salaries Expense

question

Name 1 account that will NOT be closed to Income Summary at the end of the fiscal year:

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(1) Unearned Rent

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Which of the following account groups are all considered Nominal Accounts: (a) Rent Revenue, Fees Earned, Miscellaneous Expense (b) Cash, Retained Earnings, Wages Payable (c) Prepaid Insurance, Property, Plant, & Equipment (d) Capital Stock, Dividends, Income Summary

answer

(a) - Rent Revenue - Fees Earned - Miscellaneous Expense

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Unearned Fees appear on the:

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Balance Sheet as a Current Liability

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Which of the following accounts should be closed to Income Summary at the end of the fiscal year: (a) Merchandise Inventory (b) Accumulated Depreciation (c) Cost of Merchandise Sold (d) Drawing

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(c) Cost of Merchandise Sold

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The entry to close the appropriate insurance account at the end of the accounting period is:

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- Debit Income Summary - Credit Insurance Exepense

question

The Accounting Cycle requires three trial balances be done. In what order should they be prepared:

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(1) Un-adjusted (2) Adjusted (3) Post-Closing

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Which of the following accounts will be closed to the Retained Earnings account at the end of the fiscal year: (a) Depreciation Expense (b) Rent Expense (c) Fees Earned (d) Income Summary

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(d) Income Summary

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On which Financial Statement will Income Summary be shown: (a) Retained Earnings Statement (b) Income Statement (c) Balance Sheet (d) None of these

answer

(d) None of these

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Prepaid Insurance is reported on the Balance Sheet as a:

answer

Current Liability

question

There are 4 Closing Entries. The first one is to close __(a)__, the second one is to close __(b)__, the third one is to close __(c)__, and the last one is to close__(d)__:

answer

(a) Revenues (b) Expenses (c) Income Summary (d) Dividneds

question

What is the major difference between the Un-adjusted Trial Balance & the Adjusted Trial Balance:

answer

The Adjusted Trial Balance includes the postings of the adjustments for the period in the balance of the accounts

Exam Two: Chapter 4 – Flashcards

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