Financial Accounting Chapter 4

question

The Closing Process
answer

-closing entries transfer net income/loss and dividends to RE -must journalize and post closing entries -temporary account (income summary) is used to close revenue and expense accounts
question

Temporary Accounts (Nominal)
answer

-closed -all revenue accounts, all expense accounts, dividends
question

Permanent Accounts (Real)
answer

-not closed -all assets, liabilities, SE
question

The Closing Process-Corporation
answer

1) debit revenues for balance, credit income summary for total revenues 2) debit income summary for total expenses, credit each expense 3) debit (credit) income summary, credit (debit) RE for net income 4) debit RE for dividends, credit dividends for same amount
question

Posting Closing Entries
answer

after closing entries posted: -temporary accounts have a balance of zero -balance in RE represents accumulated undistributed earnings at the end of the accounting period
question

Post-Closing Trial Balance
answer

-prepared after closing entries journalized and posted -proves equality of permanent account balances
question

Steps in the Accounting Cycle
answer

1) analyze business transactions 2) journalize the transactions 3) post to ledger accounts 4) prepare a trial balance 5) journalize and post adjusting entries: prepayments/accruals 6) prepare an adjusted trial balance 7) prepare financial statements: income statement, RE statement, balance sheet 8) journalize and post closing entries 9) prepare a post-closing trial balance
question

Classified Balance Sheet
answer

-assets: current assets, long-term investments, P, P & E, intangible assets -liabilities and SE: current liabilities, long-term liabilities, SE
question

Current Assets
answer

-cash and other resources expected to be realized in cash, sold, or consumed within a year of the date or within the company’s operating cycle -listed on balance sheet in order of liquidity
question

Long-Term Investments
answer

-resources that can be converted to cash -conversion not expected within one year of operating cycle, whichever is longer
question

Property, Plant, & Equipment
answer

tangible resources of a relatively permanent nature used in business and not intended for sale
question

Intangible Assets
answer

-non-current resources lacking physical substance -ex. patents, trademarks, copyrights
question

Current Liabilities
answer

-obligations expected to be paid from existing current assets or by creation of another current liability -within one year or the operating cycle, whichever is longer -ex. A/P, interest payable, wages payable
question

Long-Term Liabilities
answer

-obligations expected to be paid after one year or the operating cycle, whichever is longer -ex. long term notes payable, bonds payable, mortgages payable, lease obligations
question

Stockholders’ Equity
answer

-corporation-common stock, RE -proprietorship-owners capital -partnership-partner one capital, partner two capital
question

Classified Balance Sheet
answer

-helps determine availability of assets to meet debts as they come due -helps determine the claims of short- and long-term creditors on total assets -often in report form-assets above liabilities and SE

Get instant access to
all materials

Become a Member