Question 1

Munoz Co. prepays cash in October for insurance that covers only the month of November. Munoz Co. records the expense in October. Which method of accounting is Munoz Co. using?
A)accrual basis of accounting
B)cash basis of accounting
C)hybrid basis of accounting
D)consolidated basis of accounting

Accepted Answer

Munoz Co. is using the cash basis of accounting, which recognizes transactions when cash is received or paid. In this case, Munoz Co. prepaid for insurance and recorded the expense in October, even though the insurance coverage only applied to November. This is because cash was paid in October, and therefore the expense is recognized in October under the cash basis of accounting.

Question 2

The entry to close Income Summary, assuming a net loss, would involve a
A)credit to cash.
B)debit to net income.
C)credit to Income Summary.
D)credit to capital.

Accepted Answer

To close Income Summary, a credit is required for the amount of the net loss. This credit will be offset by a debit to the appropriate Capital account to reflect the decrease in equity. Option A is incorrect as there is no direct relation between closing Income Summary and cash. Option B is incorrect as Net Income is closed to Income Summary and not the other way around. Option D is incorrect as Capital account is debited to close Income Summary and not credited.

Question 3

Yellow Co. makes a sale to a customer in January but does not receive payment until March. Yellow Co. records the sale in January. Which method of accounting is Yellow Co. using?
A)accrual basis of accounting
B)cash basis of accounting
C)hybrid basis of accounting
D)consolidated basis of accounting

Accepted Answer

Yellow Co. is using the accrual basis of accounting, which records revenues and expenses when they are earned or incurred, regardless of when cash is exchanged. This means that they record the sale in January when it was earned, even though they did not receive payment until March.

Question 4

The _______________ requires that revenue is recorded when it is received in cash and expenses are recorded when they are paid in cash.
A)accrual basis of accounting
B)cash basis of accounting
C)hybrid basis of accounting
D)GAAP basis of accounting

Accepted Answer

The cash basis of accounting requires that revenue is recorded only when it is received in cash and expenses are recorded only when they are paid in cash. This method does not consider accounts receivables or payables, so it is not in line with GAAP. The accrual basis of accounting records revenue when it is earned and expenses when they are incurred, regardless of when the cash transaction occurs. The hybrid basis of accounting combines both the cash and accrual method, which is not a commonly used approach.

Question 5

Which of the following account(s) are real accounts?
A)Cash
B)Accumulated Depreciation
C)Notes Payable
D)Capital
E)All of the accounts listed are real.

Accepted Answer

Real accounts are those found on the balance sheet and include assets, liabilities, and equity accounts. Cash is an asset, Accumulated Depreciation is a contra-asset account, Notes Payable is a liability, and Capital is an equity account. All of these accounts are real accounts because they carry their balances over to the next accounting period and are not closed at the end of the accounting year.

Question 6

The Drawing account should be closed into the __________ account.
A)Income Summary
B)Net Income
C)Expense
D)Capital

Accepted Answer

The Drawing account represents the owner's withdrawals from the business, so it should be closed into the Capital account, which represents the owner's equity in the business.

Question 7

What is the first step in the closing process?
A)Close the expense accounts to income summary.
B)Close the Drawing account into the Capital account.
C)Close the revenue account(s) into Income Summary.
D)Close the Income Summary account into the Capital account.

Accepted Answer

The first step in the closing process is to close the revenue account(s) into Income Summary. This involves transferring the credit balance from revenue accounts to Income Summary account.

Question 8

The closing process causes the account balance of which account to be zeroed out?
A)Cash
B)Account Payable
C)Accumulated Depreciation
D)R.Carson, Drawing

Accepted Answer

Closing process involves transferring the balances of temporary accounts (revenue, expense, and drawing accounts) to the owner's capital account. R.Carson, Drawing is a drawing account which is a temporary account, so its balance needs to be zeroed out through the closing process.

Question 9

Collins Co. uses the cash basis of accounting. Collins Co. prepays cash in April for insurance that covers only the month of May. Which of the following is true?
A)Collins Co.should record the Insurance Expense in April.
B)Collins Co.should record the Insurance Expense in May.
C)Collins Co.should record the payment of cash in May.
D)None of the answers listed.

Accepted Answer

The answer of Collins Co. uses the cash basis of...

Question 10

The second step in the closing process is to close the _____________ account(s) into the ___________ account(s).
A)expense, income summary
B)income summary, expense
C)expense, net income
D)revenue, income summary

Accepted Answer

The second step in the closing process involves closing expense accounts into the income summary account. This step is crucial for transferring the year's expenses to a temporary account to facilitate the calculation of net income or loss.

Question 11

___________ are prepared during the fiscal year and cover a period of time less than twelve months.
A)Fiscal statements
B)Annual statements
C)Interim statements
D)Closing statements

Accepted Answer

Interim statements are prepared during the fiscal year and cover a period of time less than twelve months. The purpose of these statements is to provide regular updates on a company's financial performance between the annual statements.

Question 12

The entry to close expenses would involve (a)
A)debit to Income Summary
B)debit to drawing.
C)credit to net income.
D)debits to expense accounts.

Accepted Answer

The entry to close expenses involves debiting the Income Summary account and crediting each individual expense account to bring their balances to zero, transferring the total expenses into the Income Summary account.

Question 13

When using the work sheet to prepare closing entries, which of the following statement is correct?
A)You should use all balances listed in the balance sheet columns.
B)You should use all balances listed in the balance sheet columns and the income statement columns.
C)You should use all balances listed in the income statement columns.
D)None of the answers listed

Accepted Answer

Closing entries are made to transfer the balances from temporary accounts (which are reported in the income statement columns, such as revenues and expenses) to permanent accounts (like retained earnings). The balances in the balance sheet columns are not affected by closing entries.

Question 14

The first step in the closing process is to close the _____________ account(s) into the ___________ account(s).
A)revenue, net income
B)income summary, revenue
C)expense, net income
D)revenue, income summary

Accepted Answer

The first step in the closing process is to close the revenue accounts into the income summary account, which is then transferred into the retained earnings account. Therefore, the correct choice is D, revenue accounts into the income summary account.

Question 15

Which of the following are all permanent accounts?
A)Cash, Rent Expense, owner's drawing
B)Accumulated Depreciation, Notes Payable, owner's drawing
C)Cash, Prepaid Insurance, Notes Payable
D)Owner's capital, owner's drawing, Rent Expense

Accepted Answer

Permanent accounts are those that carry their balances over into the next accounting period. Cash, Prepaid Insurance, and Notes Payable are all examples of permanent accounts because their balances are not closed out at the end of the accounting period but are carried forward. Rent Expense and owner's drawing are examples of temporary accounts, which are closed at the end of the accounting period.

Question 16

Boulder Co. uses the accrual basis of accounting. Boulder Co. receives cash from customers in October for services to be performed in December. Which of the following is true?
A)Boulder Co.should record revenue in October.
B)Boulder Co.should record revenue in December.
C)Boulder Co.should record the receipt of cash in December.
D)None of the answers listed.

Accepted Answer

According to the accrual basis of accounting, revenue should be recognized when it is earned, regardless of when the cash is received. Since the services are to be performed in December, the revenue will be earned in December and should be recorded at that time. Therefore, Boulder Co. should record revenue in December.

Question 17

Which of the following accounts would not be shown on the post-closing trial balance?
A)owner's drawing
B)Notes Payable
C)Accumulated Depreciation
D)owner's capital

Accepted Answer

Owner's drawing is a temporary account that is closed at the end of the accounting period, so it would not appear on the post-closing trial balance. The other accounts listed are permanent accounts that carry over from one period to the next and would be included on the post-closing trial balance.

Question 18

The _______________ requires that revenue is recorded when earned and expenses are recorded when incurred.
A)accrual basis of accounting
B)cash basis of accounting
C)hybrid basis of accounting
D)GAAP basis of accounting

Accepted Answer

The accrual basis of accounting is the only option that requires revenue to be recorded when earned and expenses to be recorded when incurred. The other options do not have such requirements.

Question 19

Which of the following accounts would be shown on the post-closing trial balance?
A)owner's drawing
B)Rent Expense
C)Accumulated Depreciation
D)All of the accounts listed would be shown.

Accepted Answer

Only permanent accounts are shown on the post-closing trial balance, which includes Accumulated Depreciation. Owner's Drawing and Rent Expense are temporary accounts and are closed at the end of the accounting period.

Question 20

The fourth step in the closing process is to close the _____________ account(s) into the ___________ account(s).
A)Income Summary, Capital
B)Capital, Drawing
C)Drawing, Capital
D)Drawing, Income Summary

Accepted Answer

The fourth step in the closing process involves closing the Drawing account(s) into the Capital account(s). This step is taken to adjust the owner's equity for any withdrawals made during the period.

Quiz 5: Closing Entries and the Post-Closing Trial Balance Including Appendix

Munoz Co. prepays cash in October for insurance that covers only the month of November. Munoz Co. records the expense in October. Which method of accounting is Munoz Co. using?

The entry to close Income Summary, assuming a net loss, would involve a

Yellow Co. makes a sale to a customer in January but does not receive payment until March. Yellow Co. records the sale in January. Which method of accounting is Yellow Co. using?

The _______________ requires that revenue is recorded when it is received in cash and expenses are recorded when they are paid in cash.

Which of the following account(s) are real accounts?

The Drawing account should be closed into the __________ account.

What is the first step in the closing process?

The closing process causes the account balance of which account to be zeroed out?

Collins Co. uses the cash basis of accounting. Collins Co. prepays cash in April for insurance that covers only the month of May. Which of the following is true?

The second step in the closing process is to close the ___ account(s) into the _ account(s) .

___________ are prepared during the fiscal year and cover a period of time less than twelve months.

The entry to close expenses would involve (a)

When using the work sheet to prepare closing entries, which of the following statement is correct?

The first step in the closing process is to close the ___ account(s) into the _ account(s) .

Which of the following are all permanent accounts?

Boulder Co. uses the accrual basis of accounting. Boulder Co. receives cash from customers in October for services to be performed in December. Which of the following is true?

Which of the following accounts would not be shown on the post-closing trial balance?

The _______________ requires that revenue is recorded when earned and expenses are recorded when incurred.

Which of the following accounts would be shown on the post-closing trial balance?

The fourth step in the closing process is to close the ___ account(s) into the _ account(s) .