Question 1

When expenses exceed revenues, there is a net loss and the Income Summary account would have a credit balance.

Accepted Answer

When expenses exceed revenues, there is a net loss and the Income Summary account would have a debit balance.

Question 2

Adjusting entries are normally entered in the general journal before they are posted to the work sheet.

Accepted Answer

The answer of Adjusting entries are normally entered in the...

Question 3

An expense account is normally closed by debiting Income Summary and crediting the expense account.

Accepted Answer

This is true. Closing entries are made at the end of an accounting period to transfer balances from temporary accounts, such as expense accounts, to permanent accounts, such as retained earnings. To close an expense account, its balance is debited to Income Summary (a temporary account) and Income Summary is credited.

Question 4

The Income Summary account is used to close the permanent accounts at the end of an accounting period.

Accepted Answer

The answer of The Income Summary account is used to...

Question 5

The aim of a post-closing trial balance is to verify that (1) total debits equal total credits for temporary accounts, and (2) all temporary accounts have zero balances.

Accepted Answer

The answer of The aim of a post-closing trial balance...

Question 6

All necessary numbers to prepare the balance sheet can be found in the balance sheet columns of the work sheet including ending owner's capital.

Accepted Answer

The answer of All necessary numbers to prepare the balance...

Question 7

Since it is an important financial statement, the trial balance must be prepared according to specified accounting procedures.

Accepted Answer

The trial balance is not considered a formal financial statement; it is an internal report used by accountants to ensure debits and credits match after posting transactions.

Question 8

The withdrawals account is normally closed by debiting it.

Accepted Answer

The answer of The withdrawals account is normally closed by...

Question 9

A worksheet can be helpful in showing the effects of proposed or "what if" transactions, as well as being useful in helping to prepare end-of-period financial statements.

Accepted Answer

A worksheet is a helpful tool in analyzing the effects of proposed transactions and preparing end-of-period financial statements. It allows for adjustments and calculations to be made without affecting the actual accounts in the ledger.

Question 10

After posting the entries to close all revenue and expense accounts, Hatfield Company's Income Summary account has a credit balance of $6,000, and its Hatfield, Withdrawals account has a debit balance of $2,500. These balances indicate that net income for the current accounting period amounted to $3,500.

Accepted Answer

The net income for the current accounting period is actually $6,000, as indicated by the credit balance in the Income Summary account before considering withdrawals. Withdrawals do not affect the calculation of net income; they represent distributions to the owner and are separate from the calculation of net income or loss.

Question 11

The steps in the closing process are (1) close credit balances in revenue accounts to Income Summary; (2) close credit balances in expense accounts to Income Summary; (3) close Income Summary to Owner's Capital; (4) close Withdrawals to Owner's Capital.

Accepted Answer

The correct steps in the closing process are: (1) close credit balances in revenue accounts to Income Summary; (2) close debit balances in expense accounts to Income Summary; (3) close Income Summary to Owner's Capital; (4) close Withdrawals to Owner's Capital. The second step involves closing debit balances in expense accounts, not credit balances.

Question 12

On a work sheet, the adjusted balances of revenues and expenses are sorted to the Income Statement columns of the work sheet.

Accepted Answer

The Income Statement columns of a work sheet are used for calculating the net income or net loss and the adjusted balances of revenues and expenses are sorted in these columns.

Question 13

All necessary numbers to prepare the income statement can be taken from the income statement columns of the work sheet, including the net income or net loss.

Accepted Answer

The income statement columns of the work sheet contain all the necessary figures to prepare the income statement, including the net income or net loss.

Question 14

Closing entries are normally entered in the general journal and then posted to the work sheet.

Accepted Answer

Closing entries are made in the general journal and then posted to the general ledger accounts, not to the work sheet. The work sheet is a tool used for planning and is not part of the formal accounting records.

Question 15

The third closing entry is to close Owner's Capital to the Owner's Withdrawals account.

Accepted Answer

The third closing entry typically involves closing the Income Summary account to the Owner's Capital account, not closing Owner's Capital to the Owner's Withdrawals account.

Question 16

On a work sheet, a loss is indicated if the total of the Income Statement Debit column exceeds the total of the Income Statement Credit column.

Accepted Answer

This statement is true. A loss occurs when the expenses (which are recorded as debits in the income statement) exceed the revenue (which are recorded as credits in the income statement). Therefore, if the total of the Income Statement Debit column exceeds the total of the Income Statement Credit column, it indicates a loss for the period.

Question 17

A post-closing trial balance is a list of permanent accounts and their balances from the ledger after all closing entries are journalized and posted.

Accepted Answer

A post-closing trial balance is created after all temporary accounts have been closed, leaving only the permanent accounts with their balances.

Question 18

After posting the entries to close all revenue accounts and all expense accounts, the Income Summary account of Waif Services has a $4,000 debit balance. This result implies that Waif Services earned a net income of $4,000.

Accepted Answer

A debit balance in the Income Summary account means that the company has generated more revenue than expenses, indicating a net income. However, a $4,000 debit balance in the Income Summary account does not necessarily mean that Waif Services earned a net income of $4,000. It could also mean that there were credits that offset some of the revenue or expenses, or that adjusting entries were not yet made to close all the accounts properly. Further information is needed to determine the exact net income of Waif Services.

Question 19

If all columns balance upon completion of a work sheet, you can be sure that no errors were made in preparing the work sheet.

Accepted Answer

Balancing of columns only ensures that the arithmetic is correct, but it does not guarantee that all accounts have been properly analyzed or that adjustments have been properly made.

Question 20

On the work sheet, net income is entered in the Income Statement Credit column as well as the Balance Sheet or Statement of Owner's Equity Debit column.

Accepted Answer

Net income is entered in the Income Statement Credit column but in the Balance Sheet or Statement of Owner's Equity it is entered in the Credit column as an addition to the owner's equity, not the Debit column.

Quiz 4: Completing the Accounting Cycle