Question 1

Reversing entries are optional.

Accepted Answer

Reversing entries are not mandatory, and companies may choose to use them or not based on their accounting practices and needs.

Question 2

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 useful tool for analyzing the impact of potential transactions and for preparing financial statements.

Question 3

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

Accepted Answer

Closing entries are made at the end of an accounting period to transfer the balances of temporary accounts (revenue, expenses, and dividends) to the permanent Retained Earnings account. Expenses are closed by debiting Income Summary and crediting the expense account.

Question 4

Reversing entries are recorded in response to accrued assets and accrued liabilities that were created by adjusting entries at the end of the prior accounting period.

Accepted Answer

Reversing entries are recorded at the beginning of the new accounting period to reverse the effects of adjusting entries made at the end of the prior period. They are typically used for accruals and deferrals, and their purpose is to avoid duplicate recognition of revenues or expenses in the new period. So, the statement that reversing entries are recorded in response to accrued assets and accrued liabilities that were created by adjusting entries at the end of the prior accounting period is true.

Question 5

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

Accepted Answer

The Income Summary account is used to close temporary accounts, not permanent accounts, at the end of an accounting period.

Question 6

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 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

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

The Income Summary account serves as a temporary account for closing revenue and expense accounts. Its balance reflects the difference between the total revenue and total expenses for the period. A debit balance in the Income Summary account means that the total expenses exceeded the total revenue, resulting in a net loss instead of net income. Therefore, Waif Services incurred a net loss of $4,000 (not earned net income).

Question 9

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

Accepted Answer

Adjusting entries are typically recorded in the work sheet first to ensure the financial statements are accurate before they are entered into the general journal.

Question 10

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 indeed a list of permanent accounts and their balances from the ledger after all closing entries are completed.

Question 11

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 where the adjusted balances of revenues and expenses are sorted.

Question 12

The withdrawals account is normally closed by debiting it.

Accepted Answer

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

Question 13

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 14

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 15

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 ending owner's capital is calculated after considering net income or loss and withdrawals, which are not directly found in the balance sheet columns of the worksheet.

Question 16

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 17

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

Question 18

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 19

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

Accepted Answer

Net income is entered in the Income Statement Credit column to show the earnings after expenses, and it is also entered in the Balance Sheet or Statement of Changes in Equity Credit column, not the Debit column, to reflect the increase in equity.

Question 20

A company's post-closing trial balance has total debits of $40,350 and total credits of $40,650. Accordingly, the company should review for errors in the closing process.

Accepted Answer

The total debit and credit balances should be equal after the closing process, and they are not in this case. Therefore, there may be errors in the closing process that need to be reviewed.

Quiz 4: Completing the Accounting Cycle