Question 1

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

Accepted Answer

To prepare the accounts for the next period by transferring end-of-period balances in revenue, gain, expense, loss, and withdrawals accounts to the capital account.

Question 2

A company has current assets of $$120,000 and current liabilities of 80$$,000. What is its current ratio?

Accepted Answer

$$\frac{120,000}{80,000} = 1.5 $$

Question 3

Which of the following is NOT a characteristic of intangible assets?

Accepted Answer

They are expected to be sold or used within one year.

Question 4

After all closing entries are posted, which accounts will appear on the post-closing trial balance?

Accepted Answer

Only permanent accounts such as assets, liabilities, and equity.

Question 5

A company’s operating cycle is 15 months. Which of the following would be classified as a current asset?

Accepted Answer

An asset expected to be sold within 15 months.

Question 6

Which of the following best describes the function of the income summary account?

Accepted Answer

It is a temporary account used only in the closing process to which the balances of revenue and expense accounts are transferred.

Question 7

Which of the following is a plausible reason for a company to use robotic process automation (RPA) in its accounting processes?

Accepted Answer

To automate repetitive and rule-based tasks, improving efficiency and reducing errors.

Question 8

Which of the following statements about permanent accounts is correct?

Accepted Answer

Permanent accounts include assets, liabilities, and equity accounts.

Question 9

A company has the following balances: Current assets = $$50,000; Current liabilities = 25$$,000; Long-term liabilities = $100,000. What is the current ratio?

Accepted Answer

$$\frac{50,000}{25,000} = 2 $$

Question 10

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

Accepted Answer

Notes receivable not used in operating activities.

Question 11

Which step in the accounting cycle involves preparing a spreadsheet to draft an unadjusted trial balance, adjusting entries, adjusted trial balance, and financial statements?

Accepted Answer

Work sheet preparation.

Question 12

A company records an adjusting entry for accrued expenses at year-end. What is the purpose of a reversing entry at the beginning of the next period?

Accepted Answer

To prepare the accounts for the usual journal entries as if adjusting entries had not occurred in the prior period.

Question 13

Which of the following would NOT appear on a classified balance sheet?

Accepted Answer

Temporary accounts such as revenues and expenses.

Question 14

A company’s classified balance sheet includes the following: Current assets = $$70,000; Noncurrent assets = 130$$,000; Current liabilities = $$40,000; Long-term liabilities = 90$$,000. What is the company’s total assets?

Accepted Answer

$$70,000 + 130,000 = 200,000 $$

Question 15

Which of the following best describes the operating cycle?

Accepted Answer

The time between paying cash for merchandise or employee services and receiving cash from customers.

Question 16

Which of the following is true regarding temporary accounts?

Accepted Answer

They are closed at the end of each period.

Question 17

A company’s classified balance sheet shows: Current assets = $$60,000; Current liabilities = 30$$,000; Long-term liabilities = $70,000. What is the company’s current ratio and what does it indicate?

Accepted Answer

$$\frac{60,000}{30,000} = 2 $$; The company can pay its short-term obligations twice over.

Question 18

Which of the following is a key difference between a classified and an unclassified balance sheet?

Accepted Answer

A classified balance sheet presents assets and liabilities in relevant subgroups, including current and noncurrent classifications.

Question 19

Which of the following is the correct sequence of steps in the accounting cycle?

Accepted Answer

Analyze transactions, record journal entries, prepare work sheet, record adjusting entries, prepare financial statements, record closing entries, prepare post-closing trial balance.

Question 20

A company’s post-closing trial balance includes the following accounts: Cash, Accounts Receivable, Equipment, Accounts Payable, and Capital. Which of the following accounts should NOT appear on this list?

Accepted Answer

Service Revenue

Completing the Accounting Cycle: Key Terms and Concepts

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