Ch 4

Question 1

Closing the books

Answer 1

Involves bringing the balances in all revenue, expense, and drawings accounts to zero, and updating the balance in the owners capital account

Question 2

Temporary accounts

Answer 2

The accounts that relate to only one accounting period

Question 3

Temporary accounts

Answer 3

The accounts that relate to only one accounting period

Question 4

Examples of temporary accounts

Answer 4

All revenue, expense, and drawings accounts

Question 5

Permanent accounts

Answer 5

One or more accounting periods

Question 6

Example of permanent account

Answer 6

Balance sheet accounts

Question 7

Are temporary or permanent accounts closed

Answer 7

Temporary

Question 8

Final two steps of accounting cycle

Answer 8

Closing of accounts and preparation of post closing trial balance

Question 9

Closing entries

Answer 9

The journal entries used to close the temporary accounts

Question 10

How to find Profit/Loss

Answer 10

Revenue - Expenses

Question 11

Balance in income summary must equal _____

Answer 11

The profit or loss for the period

Question 12

How to close revenue accounts

Answer 12

Debit each individual revenue account for its balance, and credit income summary for total revenues

Question 13

How to close expense accounts

Answer 13

Debit income summary for total expenses, and credit each individual expense account for its balance

Question 14

How to close income summary accounts

Answer 14

Debit income summary for its balance (or credit if there’s a loss) and credit (debit) the owners capital account

Question 15

How to close drawings account

Answer 15

Debit the owners capital account and credit the owners drawings account for the balance in drawings

Question 16

Post closing trial balance

Answer 16

After all closing entries have been journalists and posted, another trial balance is prepared from the ledger.

Question 17

Post closing trial balance accounts

Answer 17

Permanent

Question 18

Optional steps in accounting cycle

Answer 18

Worksheets and reversing entries

Question 19

Reversing entry

Answer 19

Opposite of the adjusting entry made in the previous period

Question 20

Prior period adjustment

Answer 20

A correcting entry that fixes an error from a previous accounting year

Question 21

Classified balance sheet

Answer 21

Groups together similar assets and similar liabilities, using standard classifications

Question 22

Classified balance sheet groupings

Answer 22

Current assets, non current assets, current liabilities, non current liabilities, owners equity

Question 23

Goodwill

Answer 23

Results from the acquisition of another company when the price paid for the company is higher than the fair value of the purchase company’s net assets

Question 24

Liquidity

Answer 24

The company’s ability to pay its obligations as they come due within the next year and to meet unexpected needs for cash.

Question 25

Solvency ratio

Answer 25

Measure a company’s ability to pay its total liabilities and survive over a long period of time

Question 26

The three liquidity ratios

Answer 26

Working capital, current ratio, acid test ratio

Question 27

Working capital

Answer 27

Difference between current assets and current liabilities, important because it shows a company’s ability to pay its short term debts

Question 28

Current ratio

Answer 28

Current assets divided by current liabilities, more dependable ratio than working capital

Question 29

Acid test ratio

Answer 29

Measure of a company’s immediate short term liquidity, calculated by dividing the sum of cash, short term investments, and receivables by current liabilities