unit 3

Question 1

What is net income? How is it calculated?

Answer 1

A net income is the total income after all expenses are paid. It is calculated by total revenues minus total expenses

Question 2

What are the four basic financial statements?

Answer 2

The four basic financial statements are income statement, statement of owners’ equity, balance sheet, and statement of cash flow. These statements are prepared in this order.

Question 3

What information is reported on an income statement?

Answer 3

An income statement describes a company’s revenues and expenses. It also includes the net income or net loss.

Question 4

What information is reported on a balance sheet?

Answer 4

The balance sheet describes the company’s current financial situation. It indicates the types and amounts of assets, liabilities and, equity at a specific point in time.

Question 5

List the five steps used when preparing a worksheet.

Answer 5

Step 1 enter the unadjusted trial balance, step 2 enter adjustments, step 3 prepare adjusted trial balance, step 4 sort adjusted trial balance amounts to financial statements, step 5 total statement columns, compute income or loss, and balance columns.

Question 6

What is the purpose of closing entries?

Answer 6

Closing entries are used to close temporary accounts at the end of an accounting cycle to be used as a reference for how the business preformed and used resources in the given period. You close out temporary accounts and start fresh at the beginning of the next cycle.

Question 7

What are the four (4) steps to recording closing entries?

Answer 7

Step 1 credit balances in revenue accounts to income summery, step 2 close debit balances in expense accounts to income summery, step 3 close income summery to the capitol account, step 4 close withdraws account to owner’s capitol.

Question 8

What accounts are affected by closing entries?

Answer 8

You close the revenue, expense, and withdraws accounts with closing entries at the end of the fiscal period.

Question 9

What accounts are not affected by closing entries?

Answer 9

The company’s assets, liabilities, and equity accounts are not closed at the end of each fiscal period. Only the temporary accounts that will be emptied into the capital accounts.