What do closing entries accomplish?
Answer a. Bring the capital account to its correct ending balance
b. Zero out the revenue, expense, and withdrawals
c. Transfer revenues, expenses, and withdrawals to capital
d. All of the above
Which of the following accounts is not closed?
Answer a. Withdrawals
b. Accumulated depreciation
c. Service revenue
d. Depreciation expense
Assets and liabilities are listed on the balance sheet in order of their:
Answer a. Liquidity
b. Purchase date
What is the last major step in the accounting cycle?
Answer a. Adjusting entries
b. Closing entries
c. Revenue entries
d. Balance sheet entries
Why close out the revenues, expenses, and withdrawal accounts?
Answer a. Because these temporary accounts have balances that relate only to one accounting period and do not carry over to the next period
b. Because these permanent accounts have balances that relate to one accounting period and do not carry over to the next period
c. They should not be closed
d. None of the above
How do businesses classify their assets and liabilities for reporting on the balance sheet?
Answer a. Current (within one year) versus Long-term (not current)
b. They are not classified
c. Good versus bad
d. Old versus new
The current ratio can be used to evaluate a company’s financial. What does the current ratio measure?
Answer a. The overall ability to pay liabilities
b. The ability to pay current liabilites with current assets
c. The company’s profits
d. The ability to pay current assets with current liabilities
What does the debt ratio measure?
Answer a. The ability to pay current liabilities with current assets
b. The overall ability to pay liabilites
c. The ability to pay current assets with current liabilities
d. The company’s profits
Match the accounting terms on the left with the corresponding definitions on the right (This exercise links back to Chapters 2 & 3).
Answer – a. b. c. d. e. f. g. Accounts receivable
– a. b. c. d. e. f. g. Prepaid Expenses
– a. b. c. d. e. f. g. Accumulated depreciation
– a. b. c. d. e. f. g. Accounts payable
– a. b. c. d. e. f. g. Unearned service revenue
– a. b. c. d. e. f. g. Accrued liabilities
– a. b. c. d. e. f. g. Depreciation
Answer a. A liability for which the business knows the amount owed, but has not paid the bill
b. An asset for which the advance payment provides a future benefit
c. A contra asset that holds the sum of all the depreciation recorded for an asset
d. The allocation of a plant’s cost to expense
e. The promise to pay a debt arising from a credit purchase
f. A promise of future cash receipts
g. Receipt of cash before earning it