Question 1

Which of the following best describes the purpose of the closing process in accounting?

Accepted Answer

To zero out all temporary accounts and transfer their balances to the owner's capital account.

Question 2

A company has total current assets of $$15,000 and total current liabilities of 10$$,000. What is the current ratio, and what does it indicate about the company's liquidity?

Accepted Answer

Current ratio $$= \frac{15,000}{10,000} = 1.5$$, indicating the company can cover its current liabilities 1.5 times with its current assets.

Question 3

Which of the following accounts would NOT appear on a post-closing trial balance?

Accepted Answer

Service Revenue

Question 4

Which of the following is the correct order for preparing financial statements from the adjusted trial balance?

Accepted Answer

Income statement, statement of owner's equity, balance sheet

Question 5

A business has the following balances: Service Revenue $$20,000; Rent Expense 4$$,000; Salaries Expense $$6,000; Owner Withdrawals 2$$,000. What is the correct closing entry to close the revenue account?

Accepted Answer

Debit Service Revenue $$20,000; Credit Income Summary 20$$,000

Question 6

Which of the following best describes a classified balance sheet?

Accepted Answer

A balance sheet that separates assets and liabilities into current and long-term categories.

Question 7

If a company has a net loss for the period, which closing entry is correct for the Income Summary account?

Accepted Answer

Debit Owner, Capital; Credit Income Summary

Question 8

Which of the following is a temporary account that must be closed at the end of the period?

Accepted Answer

Salaries Expense

Question 9

A company’s adjusted trial balance shows: Cash $$5,000; Accounts Receivable 2$$,000; Supplies $$500; Prepaid Rent 1$$,000; Accounts Payable $$1,200; Salaries Payable 800. $$What is the company’s total current assets?

Accepted Answer

$$5,000 + 2$$,000 + $$500 + 1$$,000 = $8,500

Question 10

Which of the following best explains the relationship between the income statement and the statement of owner’s equity?

Accepted Answer

Net income from the income statement is added to owner’s equity on the statement of owner’s equity.

Question 11

Which of the following is NOT a step in the accounting cycle?

Accepted Answer

Prepare the cash flow statement before the income statement

Question 12

A company’s worksheet shows total revenues of $$30,000 and total expenses of 22$$,000. What is the net income, and how is it recorded in the worksheet?

Accepted Answer

Net income is $8,000, recorded as a credit in the income statement section and a debit in the balance sheet section.

Question 13

Which of the following is an example of a long-term asset?

Accepted Answer

Land

Question 14

After closing entries are posted, which of the following accounts will have a zero balance?

Accepted Answer

Rent Expense

Question 15

A company’s current assets are $$25,000 and current liabilities are 20$$,000. If the company pays off $5,000 of its current liabilities using cash, what is the new current ratio?

Accepted Answer

Current ratio $$= \frac{25,000}{15,000} = 1.67$$

Question 16

Which of the following best describes the operating cycle of a business?

Accepted Answer

The time span during which cash is used to acquire goods and services, which are then sold and collected from customers.

Question 17

Which of the following is true about permanent accounts?

Accepted Answer

They carry their balances into the next accounting period.

Question 18

A company’s adjusted trial balance includes: Service Revenue $$40,000; Rent Expense 10$$,000; Salaries Expense $$15,000; Owner Withdrawals 5$$,000. What is the balance in the Income Summary account after closing revenues and expenses?

Accepted Answer

$$40,000 - (10$$,000 + $$15,000) = 15$$,000 credit balance

Question 19

Which of the following best explains why a company would prefer a higher current ratio?

Accepted Answer

A higher current ratio indicates a greater ability to pay current liabilities with current assets.

Chapter 4: Completing the Accounting Cycle – Study Notes

Study Guide - Practice Questions

Study Guide - Flashcards