Q: A company paid $1,200 for a one-year insurance policy on December 1. At year-end, what adjusting entry should be made?

$$ \begin{align*} \text{Debit Insurance Expense } & \100$$ \\ \text{Credit Prepaid Insurance } & \$$100 \end{align*} $$

Q: Which journal entry correctly closes the Service Revenue account with a $5,000 credit balance at year-end?

$$ \begin{align*} \text{Debit Service Revenue } & \5$$,000 \\ \text{Credit Income Summary } & \$$5,000 \end{align*} $$

Q: Which of the following is the correct formula for calculating net income on the income statement?

$$\text{Net Income} = \text{Total Revenues} - \text{Total Expenses}$$

Q: Which of the following entries is an example of a reversing entry?

$$ \begin{align*} \text{Debit Salaries Payable } & \1$$,000 \\ \text{Credit Salaries Expense } & \$$1,000 \end{align*} $$

Question 1

Which of the following best describes the purpose of adjusting entries in the accounting cycle?

Accepted Answer

To record transactions that have not yet been journalized at the end of the period.

Question 2

A company paid $1,200 for a one-year insurance policy on December 1. At year-end, what adjusting entry should be made?

Accepted Answer

$$
\begin{align*}
	ext{Debit Insurance Expense } & \100$$ \
	ext{Credit Prepaid Insurance } & \$$100 
\end{align*}
$$

Question 3

Which of the following accounts would NOT be closed at the end of the accounting period?

Accepted Answer

Owner's Capital

Question 4

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

Accepted Answer

Salaries Expense

Question 5

Which of the following is the correct order for preparing financial statements from the worksheet?

Accepted Answer

Income Statement, Statement of Owner’s Equity, Balance Sheet

Question 6

A reversing entry is typically made for which of the following types of adjusting entries?

Accepted Answer

Accrued expenses

Question 7

If a company fails to record an adjusting entry for accrued revenues, what is the effect on the financial statements?

Accepted Answer

Assets and revenues are understated.

Question 8

Which journal entry correctly closes the Service Revenue account with a $5,000 credit balance at year-end?

Accepted Answer

$$
\begin{align*}
	ext{Debit Service Revenue } & \5$$,000 \
	ext{Credit Income Summary } & \$$5,000 
\end{align*}
$$

Question 9

Which of the following statements about the worksheet is TRUE?

Accepted Answer

It is an internal document used to aid in the preparation of financial statements.

Question 10

A company has the following balances before closing: Service Revenue $$10,000, Rent Expense 2$$,000, Owner's Withdrawals $$1,000, Owner's Capital 5$$,000. What is the balance of Owner's Capital after closing entries if net income is $8,000?

Accepted Answer

$$12,000 - 1$$,000 = $11,000

Question 11

Which of the following is NOT a purpose of closing entries?

Accepted Answer

To adjust asset and liability accounts to their correct balances

Question 12

If an adjusting entry for accrued salaries of $2,000 is not made, what is the effect on the financial statements?

Accepted Answer

Liabilities and expenses are understated.

Question 13

Which of the following is the correct formula for calculating net income on the income statement?

Accepted Answer

$$	ext{Net Income} = 	ext{Total Revenues} - 	ext{Total Expenses}$$

Question 14

Which of the following entries is an example of a reversing entry?

Accepted Answer

$$
\begin{align*}
	ext{Debit Salaries Payable } & \1$$,000 \
	ext{Credit Salaries Expense } & \$$1,000 
\end{align*}
$$

Question 15

Which of the following best describes the effect of a reversing entry?

Accepted Answer

It cancels the effect of an adjusting entry made in the previous period.

Question 16

A company earned $3,000 in service revenue on account in December, but did not receive payment until January. What adjusting entry should be made at December 31?

Accepted Answer

$$
\begin{align*}
	ext{Debit Accounts Receivable } & \3$$,000 \
	ext{Credit Service Revenue } & \$$3,000 
\end{align*}
$$

Question 17

Which of the following is a real-world example of when a reversing entry would be useful?

Accepted Answer

When salaries are accrued at year-end and paid in the next period.

Question 18

If the adjusted trial balance shows Supplies Expense of $$1,500 and Supplies on hand of 500$$, what was the beginning balance of Supplies?

Accepted Answer

$2,000

Question 19

Which of the following is the correct closing entry for the Withdrawals account with a $2,000 debit balance?

Accepted Answer

$$
\begin{align*}
	ext{Debit Owner's Capital } & \2$$,000 \
	ext{Credit Withdrawals } & \$$2,000 
\end{align*}
$$

Step-by-Step Guidance for Preparing Financial Statements and Journal Entries

Study Guide - Practice Questions

Study Guide - Flashcards