Far 1

Question 1

What is the purpose of closing entries in financial accounting?

Answer 1

To reset temporary accounts for the next accounting period

Closing entries help summarize the financial activity of a period and prepare accounts for the next period.

Question 2

What does an adjusted trial balance show?

Answer 2

The balances of all general ledger accounts after adjusting entries have been made

It ensures that total debits equal total credits before financial statements are prepared.

Question 3

What is the accrual method of accounting?

Answer 3

An accounting method where revenue and expenses are recorded when they are earned or incurred, regardless of when cash is exchanged

This method provides a more accurate picture of a company’s financial position.

Question 4

Fill in the blank: The __________ method of accounting recognizes revenue when cash is received.

Answer 4

cash

The cash method records income only when cash is received, leading to potential discrepancies in financial reporting.

Question 5

What is double-entry bookkeeping?

Answer 5

An accounting system where every transaction affects at least two accounts, maintaining the accounting equation

This method helps ensure that the accounting equation (Assets = Liabilities + Equity) remains balanced.

Question 6

List the steps in the accounting cycle.

Answer 6

• Identify transactions
• Prepare journal entries
• Post to general ledger
• Prepare unadjusted trial balance
• Make adjusting entries
• Prepare adjusted trial balance
• Prepare financial statements
• Make closing entries

These steps provide a systematic approach to recording and reporting financial information.

Question 7

What are adjusting entries?

Answer 7

Entries made at the end of an accounting period to allocate income and expenses to the correct period

Adjusting entries ensure that financial statements reflect the true financial position of a company.

Question 8

What is a journal entry?

Answer 8

A record of a transaction in the accounting system that includes the date, accounts affected, debits, and credits

Journal entries provide a detailed account of all financial transactions.

Question 9

What is the accounting equation?

Answer 9

Assets = Liabilities + Equity

This fundamental equation represents the relationship between a company’s resources and its obligations.

Question 10

True or False: The unadjusted trial balance includes all adjustments for the accounting period.

Answer 10

False

The unadjusted trial balance is prepared before adjustments are made.

Question 11

What is the significance of the T-account in accounting?

Answer 11

A visual representation of individual accounts, showing debits on the left and credits on the right

T-accounts help in understanding the effects of transactions on accounts.

Question 12

What types of accounts are affected by expenses?

Answer 12

Expense accounts are typically debited

This reflects the decrease in equity due to incurred expenses.

Question 13

What is the role of accounts receivable in accounting?

Answer 13

Represents money owed to a company by its customers for goods or services delivered

Accounts receivable are considered an asset on the balance sheet.

Question 14

What is the purpose of financial statements?

Answer 14

To provide a summary of a company’s financial performance and position

Financial statements include the income statement, balance sheet, and cash flow statement.

Question 15

What is a closing entry?

Answer 15

An entry made to transfer the balances of temporary accounts to permanent accounts at the end of an accounting period

Closing entries help reset the balances of revenue and expense accounts for the next period.