Chapter 5 - College Accounting: A Practical Approach Flashcards
(27 cards)
What is another name for a permanent account?
A real account
What is an example of a permanent account?
Assets, Liabilities and capital
What is the main character trait of a permanent / real account?
They carry year to year
What is another name for a temporary account?
Nominal
What are some examples of Temporary accounts?
Withdrawals, revenues & expense accounts
What is the main character trait of a temporary / nominal account?
Account balances do not carry forward / zero out at the beginning of each accounting period
What is the main purpose of closing entries?
To zero out all the temporary accounts for the beginning of the next accounting period
What is the closing entry acronym?
REID
What does REID stand for?
Revenue, Expenses, Income Summary, Drawings
How many steps to the closing process are there?
4 steps
What is the first step of the closing entries?
Clear revenue to income summary
What is the second step of the closing entries?
Clear expenses to the income summary
What is the third step of the closing entries?
Clear balance of the income summary to capital account
What is the final step of the closing entries?
Clearing the withdrawals to the capital account
Is the income summary temporary or permanent?
Temporary
How do you clear the revenue balance to the income summary?
Debit revenue and credit income summary
How do you clear the expenses to the income summary?
Credit the expense and debit income summary
What comes first in a journal entry, debits or credits?
Debits
How do you clear the balance of the income summary if there is a net income?
Debit income summary and credit capital
How do you clear the income summary if there is a net loss?
Credit income summary and debit capital
How do you clear the balance of the withdrawals account to the capital account?
Credit withdrawals and debit the capital account
Why is the withdrawals not transferred to the income summary?
Because it is not relevant to business activity
What is the last step in the accounting cycle?
Post closing trial balance
What is the purpose of a post closing trial balance?
Aids in ensuring accuracy of the adjustments and closing entries / process
