True / False Questions
1. Accounts that appear in the balance sheet are often called temporary (nominal) accounts. FALSE 2. Income Summary is a temporary account only used for the closing process. TRUE
3. Revenue accounts should begin each accounting period with zero balances. TRUE
4. Closing revenue and expense accounts at the end of the accounting period serves to make the revenue and expense accounts ready for use in the next period. TRUE
5. The closing process takes place after financial statements have been prepared. TRUE
6. Revenue and expense accounts are permanent (real) accounts and should not be closed at the end of the accounting period. FALSE 7. Closing entries result in revenues and expenses being reflected in the owner's capital account. TRUE
8. The closing process is a step in the accounting cycle that prepares accounts for the next accounting period. TRUE
9. The closing process is a two-step process. First revenue, expense, and withdrawals are set to a zero balance. Second, the process summarizes a period's assets and expenses. FALSE
10. Closing entries are required at the end of each accounting period to close all ledger accounts. FALSE
11. Closing entries are designed to transfer the end-of-period balances in the revenue accounts, the expense accounts, and the withdrawals account to owner's capital. TRUE
12. The Income Summary account is a permanent account that will be carried forward period after period. FALSE
13. Closing entries are necessary so that owner's capital will begin each period with a zero balance. FALSE
14. Permanent accounts carry their balances into the next accounting period.
Moreover, asset, liability and revenue accounts are not closed as long as a company continues in business. FALSE
15. The first step in the accounting cycle is to analyze transactions and events to prepare for journalizing. TRUE
16. The accounting cycle refers to the sequence of steps in preparing the work sheet. FALSE
17. The first five steps in the accounting cycle include analyzing transactions,
journalizing, posting, preparing an unadjusted trial balance, and recording adjusting entries. TRUE
18. The last four steps in the accounting cycle include preparing the adjusted trial balance, preparing financial statements and recording closing and adjusting entries. FALSE
19. A classified balance sheet organizes assets and liabilities into important subgroups that provide more information to decision makers. TRUE
20. An unclassified balance sheet provides more information to users than a classified balance sheet. FALSE
21. Current assets and current liabilities are expected to be used up or come due within one year or the company's operating cycle whichever is longer. TRUE 22. Intangible assets are long-term resources that benefit business operations that usually lack physical form and have uncertain benefits. TRUE
23. Assets are often classified into current assets, long-term investments, plant assets, and intangible assets. TRUE 24. Current liabilities are cash and other resources that are expected to be sold, collected or used within one year or the company's operating cycle whichever is longer. FALSE
25. Long-term investments can include land held for future expansion. TRUE
26. Plant assets and intangible assets are usually long-term assets used to produce or sell products and services. TRUE
27. Current liabilities include accounts receivable, unearned revenues, and salaries payable. FALSE
28. Cash and office supplies are both classified as current assets. TRUE
29. Plant assets are also called fixed assets or property, plant, and equipment. TRUE
30. The current ratio is used to help assess a company's ability to pay its debts in the near future. TRUE
Multiple Choice Questions
64. Another name for temporary accounts is: A. Real accounts. B. Contra accounts. C. Accrued accounts.
D. Balance column accounts. E. Nominal accounts. 65. When closing entries are made:
A. All ledger accounts are closed to start the new accounting period. B. All temporary accounts are closed but not the permanent accounts. C. All real accounts are closed but not the nominal accounts.
D. All permanent accounts are closed but not the nominal accounts. E. All balance sheet accounts are closed.
66. Revenues, expenses, and withdrawals accounts, which are closed at the end of each accounting period are: A. Real accounts.
B. Temporary accounts. C. Closing accounts. D. Permanent accounts. E. Balance sheet accounts.
67. Which of the following statements is incorrect?
A. Permanent accounts is another name for nominal accounts.
B. Temporary accounts carry a zero balance at the beginning of each accounting period.
C. The Income Summary account is a temporary account.
D. Real accounts remain open as long as the asset, liability, or equity items recorded in the accounts continue in existence.
E. The closing process applies only to temporary accounts.
68. Assets, liabilities, and equity accounts are not closed; these accounts are called: A. Nominal accounts. B. Temporary accounts. C. Permanent accounts. D. Contra accounts. E. Accrued accounts.
69. Closing the temporary accounts at the end of each accounting period:
A. Serves to transfer the effects of these accounts to the owner's capital account on the balance sheet.
B. Prepares the withdrawals account for use in the next period. C. Gives the revenue and expense accounts zero balances.
D. Causes owner's capital to reflect increases from revenues and decreases from expenses and withdrawals. E. All of these.