Accounting Chapter 10 Closing Entries

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About This Quiz

This quiz, titled 'Accounting Chapter 10 Closing Entries', tests understanding of key accounting concepts related to closing entries. It covers the nature of permanent accounts, the balance of Income Summary, the process of closing accounts, and the specifics of required journal transactions.

Accounting Chapter 10 Closing Entries - Quiz

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  • 2. 

    Closing  accounts refers to forcing temporary accounts to have zero balances.

    • True

    • False

    Correct Answer
    A. True
    Explanation
    Closing accounts refers to the process of finalizing and settling the balances of temporary accounts, such as revenue and expense accounts, at the end of an accounting period. This is done to prepare these accounts for the next accounting period and to ensure that they start with zero balances. By closing the accounts, the company can accurately calculate its net income or loss for the period and transfer these amounts to the appropriate permanent accounts. Therefore, the statement that closing accounts refers to forcing temporary accounts to have zero balances is true.

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  • 3. 

    When your total Revenue is less than your total Expenses you have a:

    • Net Income

    • Net Loss

    • Net Worth

    • Fishing Net

    Correct Answer
    A. Net Loss
    Explanation
    When your total revenue is less than your total expenses, it means that you have incurred more expenses than the income generated. This results in a negative financial outcome, indicating a net loss. A net loss signifies that the company's expenses outweigh its revenue, leading to a decrease in overall profitability.

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  • 4. 

    After the closing entries have been posted to the general ledger, the balance of the capital account now reflects the net income (or loss) and the deduction of any withdrawals from the business.

    • True

    • False

    Correct Answer
    A. True
    Explanation
    After the closing entries have been posted to the general ledger, the balance of the capital account reflects the net income (or loss) and the deduction of any withdrawals from the business. This is because closing entries are made at the end of an accounting period to transfer the balances of temporary accounts (such as revenue, expenses, and withdrawals) to the permanent capital account. This process ensures that the capital account accurately reflects the net income or loss for the period and any withdrawals made by the owner. Therefore, the statement is true.

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  • 5. 

    Permanent accounts are found on the Balance Sheet section of the work sheet.

    • True

    • False

    Correct Answer
    A. True
    Explanation
    Permanent accounts are accounts that are not closed at the end of an accounting period, and their balances are carried forward to the next period. These accounts include assets, liabilities, and equity accounts. The Balance Sheet section of the work sheet represents the financial position of a company at a specific point in time, showing the balances of permanent accounts. Therefore, the statement that permanent accounts are found on the Balance Sheet section of the work sheet is true.

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  • 6. 

    Net income increases which account?

    • Accounts Receivable

    • Capital

    • Withdrawals

    • Rent Expense

    Correct Answer
    A. Capital
    Explanation
    When net income increases, it means that the company has earned more revenue than its expenses. This excess profit is added to the owner's equity, specifically the capital account. The capital account represents the owner's investment in the business and any additional profits or contributions made. Therefore, when net income increases, it directly affects the capital account by increasing its balance.

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  • 7. 

    A compound entry is a journal entry with 2 or more debits or 2 or more credits.

    • True

    • False

    Correct Answer
    A. True
    Explanation
    A compound entry is a type of journal entry that involves multiple debits or multiple credits. This means that in a compound entry, there will be at least two debits or two credits recorded. This is different from a simple entry, which only involves one debit and one credit. Compound entries are often used when there are multiple accounts affected by a single transaction. By including multiple debits or credits, compound entries provide a more detailed and accurate representation of the transaction's impact on the various accounts involved.

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  • 8. 

    Income Summary is a general ledger account used to accumulate and summarize the revenue and expenses for a period.

    • True

    • False

    Correct Answer
    A. True
    Explanation
    Income Summary is a general ledger account that is used to accumulate and summarize the revenue and expenses for a specific period. It serves as a temporary account that is used during the closing process to transfer the net income or net loss to the retained earnings account. This allows for the proper allocation of revenue and expenses and helps in determining the financial performance of the business for a specific period. Therefore, the statement that Income Summary is a general ledger account used to accumulate and summarize the revenue and expenses for a period is true.

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  • 9. 

    Transferring the balances of the expense accounts is the 2nd closing entry.

    • True

    • False

    Correct Answer
    A. True
    Explanation
    The statement is true because transferring the balances of the expense accounts is part of the closing process in accounting. Closing entries are made at the end of an accounting period to reset the temporary accounts, such as revenue and expense accounts, back to zero in preparation for the next period. The second closing entry specifically involves transferring the balances of the expense accounts to the income summary account, which is then closed out to the retained earnings account. This process ensures that all expenses are properly accounted for and allows for accurate financial reporting.

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  • 10. 

    Accounts that start each new accounting period with zero balances are known as:

    • Liability accounts

    • Capital accounts

    • Permanent accounts

    • Temporary accounts

    Correct Answer
    A. Temporary accounts
    Explanation
    Temporary accounts are accounts that are used to record revenues, expenses, and withdrawals for a specific accounting period. These accounts are closed at the end of each period and their balances are transferred to the owner's capital account or retained earnings. By starting each new accounting period with zero balances, temporary accounts allow for a clean slate and accurate tracking of the financial performance for that period. This ensures that only the relevant transactions for that period are considered, while the balances of permanent accounts are carried forward from one period to the next.

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  • 11. 

    Closing entries consists of 4 journal transactions.

    • True

    • False

    Correct Answer
    A. True
    Explanation
    Closing entries are the journal transactions made at the end of an accounting period to transfer the balances of temporary accounts (such as revenue and expense accounts) to the retained earnings account. These entries help reset the temporary accounts to zero for the next accounting period. Since closing entries involve transferring balances from temporary accounts to the retained earnings account, it is correct to say that closing entries consist of 4 journal transactions.

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  • 12. 

    Which of the following accounts is NOT closed at the end of the accounting period:

    • Fees (Revenue)

    • Rent Expense

    • Withdrawals

    • Capital

    Correct Answer
    A. Capital
    Explanation
    Capital is not closed at the end of the accounting period because it represents the owner's investment in the business and is a permanent account. It is not affected by the revenue, expenses, or withdrawals during the accounting period. The balance in the capital account carries forward to the next accounting period and is used to calculate the owner's equity in the business.

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  • 13. 

    Which of the following is prepared after the closing entries have been made to prove that debits are still=to credits.

    • Posting Closing

    • Income Statement

    • Post-Closing Trial Balance

    • Balance Sheet

    Correct Answer
    A. Post-Closing Trial Balance
    Explanation
    The post-closing trial balance is prepared after the closing entries have been made to ensure that the debits still equal the credits. It is used to verify the accuracy of the closing process and to ensure that all temporary accounts have been properly closed. This trial balance includes only permanent accounts, such as assets, liabilities, and equity accounts. If the debits and credits are equal in the post-closing trial balance, it indicates that the closing process has been completed accurately.

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  • 14. 

    Only Assets, Liabilities, and Revenues are listed on the Post-Closing Trial Balance.

    • True

    • False

    Correct Answer
    A. False
    Explanation
    The statement is false. The Post-Closing Trial Balance includes only Assets, Liabilities, and Equity accounts. Revenues and Expenses are not listed on the Post-Closing Trial Balance because they are temporary accounts that are closed at the end of the accounting period. The purpose of the Post-Closing Trial Balance is to ensure that all permanent accounts have been properly closed and that the ending balances of the permanent accounts are accurate.

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  • 15. 

    Closing entries reduce the Capital balance to zero.

    • True

    • False

    Correct Answer
    A. False
    Explanation
    Closing entries do not reduce the Capital balance to zero. Instead, closing entries are made at the end of an accounting period to transfer the balances of temporary accounts (such as revenues and expenses) to the retained earnings account. This process helps to reset the temporary accounts to zero and prepare them for the next accounting period, but it does not affect the Capital balance. The Capital balance represents the owner's equity in the business and is not affected by closing entries. Therefore, the statement is false.

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  • 16. 

    Only temporary accounts are listed in the post-closing trial balance.

    • True

    • False

    Correct Answer
    A. False
    Explanation
    The given statement is false. The post-closing trial balance includes permanent accounts, not just temporary accounts. Permanent accounts are those that are not closed at the end of the accounting period and carry over to the next period, such as assets, liabilities, and equity accounts. Temporary accounts, on the other hand, are closed at the end of the period and include revenue, expense, and dividend accounts. Therefore, both temporary and permanent accounts are listed in the post-closing trial balance.

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  • 17. 

    Income Summary has a normal debit balance.

    • True

    • False

    Correct Answer
    A. False
    Explanation
    There is no NORMAL balance for Income Summary.

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  • 18. 

    The 4 temporary accounts are:

    • Assets, Liabilities, Owner's Equity (Capital)

    • Revenue, Expenses, Income Summary, Withdrawals

    • Revenue, Expenses, Net Income, Withdrawals

    • Revenue, Expenses, Assets, Capital

    Correct Answer
    A. Revenue, Expenses, Income Summary, Withdrawals
    Explanation
    The correct answer is Revenue, Expenses, Income Summary, Withdrawals. These four accounts are temporary accounts in accounting. Revenue represents the income earned by a company, expenses represent the costs incurred in generating revenue, income summary is used to close revenue and expense accounts at the end of an accounting period, and withdrawals represent the owner's withdrawals from the business. Temporary accounts are closed at the end of each accounting period to transfer their balances to the permanent accounts.

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  • 19. 

    Closing entries transfer the net income or net loss to the withdrawals account.

    • True

    • False

    Correct Answer
    A. False
    Explanation
    Closing entries transfer the net income or net loss to the owner's equity account, specifically to the retained earnings or capital account. Withdrawals, or dividends, are closed directly to the owner's capital or retained earnings account separately. This process ensures that the income summary account, which temporarily holds the net income or net loss, is cleared out, and the financial results are accurately reflected in the equity section of the balance sheet.

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  • 20. 

    Temporary accounts must be closed because their balances apply to only two accounting periods.

    • True

    • False

    Correct Answer
    A. False
    Explanation
    Temporary accounts, such as revenue, expense, and dividend accounts, are not closed because their balances apply to only two accounting periods. Instead, these accounts are closed at the end of each accounting period to transfer their balances to the retained earnings account. This process helps reset the temporary accounts to zero for the next accounting period and allows for accurate financial reporting. Therefore, the given statement is false.

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  • 21. 

    Income Summary is the same thing as Net Income or Net Loss.

    • True

    • False

    Correct Answer
    A. True
    Explanation
    Income Summary is a temporary account used in the closing process of an accounting period. It is used to summarize the revenues and expenses for that period before transferring the net income or net loss to the owner's equity or retained earnings account. Therefore, Income Summary is indeed the same as Net Income or Net Loss, as it represents the final result of the company's revenues and expenses for that specific period.

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  • 22. 

    Which of the following accounts is NOT closed at the end of an accounting period?

    • Dividends 

    • Accumulated Depreciation

    Correct Answer
    A. Accumulated Depreciation
    Explanation
    Closing entries are made at the end of an accounting period to zero out temporary accounts (revenue, expense, and dividend accounts) so they are ready to start fresh in the next period. Accumulated Depreciation is a contra asset account, meaning it's linked to an asset (in this case, property, plant, and equipment) and reduces its value over time to reflect wear and tear. Contra asset accounts are permanent accounts that are not closed at the end of the period.

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  • 23. 

    The Income Summary account is an income statement in the ledger.

    • True

    • False

    Correct Answer
    A. True
    Explanation
    The Income Summary account is an income statement in the ledger because it is used to summarize the revenues and expenses for a specific period. At the end of the accounting period, the balances of the revenue and expense accounts are transferred to the Income Summary account. This account is then closed out to the retained earnings account, which is a part of the income statement. Therefore, the Income Summary account serves as a temporary holding account to calculate the net income or loss for the period before it is ultimately closed out.

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  • 24. 

    If you have a $5000 NET LOSS, what would the entry be to CLOSE Income Summary?

    • Debit Revenue, Credit Capital

    • Debit Capital; Credit Income Summary

    • Debit Income Summary, Credit Capital

    • Debit High, Credit Low

    Correct Answer
    A. Debit Capital; Credit Income Summary
    Explanation
    The entry to close Income Summary would be to debit Capital and credit Income Summary. This is because Income Summary is a temporary account used to summarize revenues and expenses for the period, and it needs to be closed out at the end of the accounting period. A net loss indicates that expenses exceed revenues, so the balance in Income Summary would be a debit. To close it, the balance is transferred to the owner's Capital account, which is why Capital is debited and Income Summary is credited.

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  • 25. 

    When expense accounts are closed, the Income Summary account is credited.

    • True

    • False

    Correct Answer
    A. False
    Explanation
    When expense accounts are closed, the Income Summary account is not credited. Instead, the expense accounts are debited and the Income Summary account is credited with the total amount of the expenses. This is because the Income Summary account is used to transfer the net income or loss to the retained earnings or capital account at the end of the accounting period.

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  • 26. 

    The entry to close the Income Summary account is always the same:  Debit Income Summary and Credit Owner's Capital.

    • True

    • False

    Correct Answer
    A. False
    Explanation
    The entry to close the Income Summary account is not always the same. The closing entry for the Income Summary account depends on whether there is a net income or net loss. If there is a net income, the entry would be a debit to Income Summary and a credit to Owner's Capital. However, if there is a net loss, the entry would be a debit to Owner's Capital and a credit to Income Summary. Therefore, the statement that the entry is always the same is false.

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  • 27. 

    The names of the 3 financial statements we have produced thus far are:

    • Asset Sheet, Liability Sheet, and OE Sheet

    • Post-Closing Trial Balance, Closing Entries, and the Worksheet

    • Revenue, Expenses, and Withdrawals

    • Income Statement, Statement of Changes in OE, and Balance Sheet

    Correct Answer
    A. Income Statement, Statement of Changes in OE, and Balance Sheet
    Explanation
    The correct answer is "Income Statement, Statement of Changes in OE, and Balance Sheet." These three financial statements are commonly used in accounting to provide a comprehensive overview of a company's financial performance and position. The income statement shows the company's revenues, expenses, and net income or loss over a specific period. The statement of changes in OE tracks the changes in the company's owner's equity, including investments, net income, and withdrawals. The balance sheet provides a snapshot of the company's assets, liabilities, and owner's equity at a specific point in time. Together, these three statements help stakeholders understand the financial health and operations of the company.

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  • 28. 

    Which of the following statements is true?

    • The income summary has a normal debit balance.

    • The income summary has a normal credit balance.

    • The income summary has no normal balance side.

    • The income summary account does not exist.

    Correct Answer
    A. The income summary has no normal balance side.
    Explanation
    The income summary is a temporary account used to close revenue and expense accounts at the end of an accounting period. It does not have a normal balance side because its balance depends on the net income or net loss of the period. If there is a net income, the income summary will have a credit balance, and if there is a net loss, it will have a debit balance. Therefore, the statement "The income summary has no normal balance side" is true.

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  • 29. 

    If there is $5000 Net Income, what would be the entry to close Income Summary?

    • Debit Income Summary Credit Revenue

    • Debit Capital Credit Income Summary

    • Debit Income Summary Credit Capital

    • Debit Capital Credit Revenue

    Correct Answer
    A. Debit Income Summary Credit Capital
    Explanation
    The correct answer is to debit Income Summary and credit Capital. This entry is made to close the Income Summary account at the end of the accounting period. Since there is a net income of $5000, the Income Summary account needs to be debited to transfer the net income to the Capital account. This increases the owner's equity and reflects the profit earned by the business. The Capital account is credited to show the increase in owner's equity.

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  • 30. 

    No calculations are needed in the closing entry process as all numbers come from the worksheet.

    • True

    • False

    Correct Answer
    A. True
    Explanation
    In the closing entry process, all numbers come from the worksheet, which means that there is no need for any calculations. The closing entries are made to transfer the balances of temporary accounts to the retained earnings account, and these balances are already calculated and recorded in the worksheet. Therefore, the statement that no calculations are needed in the closing entry process is true.

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  • 31. 

    Opening entries are made to close the balance of temporary accounts.

    • True

    • False

    Correct Answer
    A. False
    Explanation
    Opening entries are made to open the books of accounts at the beginning of a new accounting period. These entries include the transfer of balances from various temporary accounts (such as revenue and expense accounts) to the retained earnings or income summary account. The purpose of opening entries is to ensure that the books start with correct balances and to separate the previous period's transactions from the current period's transactions. Therefore, opening entries do not close the balance of temporary accounts; instead, they help in preparing the books for a new accounting period.

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  • 32. 

    If total Revenue is greater than total Expenses (Net Income), than the closing entry would be:

    • Debit Capital Credit Income Summary

    • Debit Income Summary Credit Net Income

    • Debit Revenue Credit Expenses

    • Debit Income Summary Credit Capital

    Correct Answer
    A. Debit Income Summary Credit Capital
    Explanation
    The closing entry is used to transfer the balances of temporary accounts (such as revenue and expenses) to the retained earnings or capital account. In this case, since the total revenue is greater than the total expenses (net income), it means that there is a profit. Therefore, the closing entry would be to debit the Income Summary account (which represents the net income) and credit the Capital account, to transfer the profit to the owner's equity.

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  • 33. 

    Which is the final step of the 4 closing entries?

    • Debit Income Summary Credit Capital

    • Debit Capital Credit Withdrawals

    • Debit Capital Credit Cash

    • Debit Cash Credit Accounts Payable

    Correct Answer
    A. Debit Capital Credit Withdrawals
    Explanation
    The final step of the 4 closing entries is to debit the Capital account and credit the Withdrawals account. This step is necessary to transfer the balance of the Withdrawals account to the Capital account, effectively closing out any remaining withdrawals and updating the owner's equity in the business.

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  • 34. 

    How do you close a revenue account?

    • Debit it for the amount of its credit balance.

    • Credit it for the amount of its debit balance.

    • Debit Income Summary.

    • Credit Accounts Receivable.

    Correct Answer
    A. Debit it for the amount of its credit balance.
    Explanation
    To close a revenue account, you need to debit it for the amount of its credit balance. This is because revenue accounts have a credit balance, representing the income earned. By debiting the account, you are reducing the credit balance to zero and effectively closing the account for the current period. This is done as part of the closing process in accounting to transfer the revenue to the appropriate equity account and prepare the books for the next accounting period.

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  • 35. 

    The balance of a revenue account is transferred to the:

    • Debit side of withdrawals

    • Debit side of cash

    • Credit side of Income Summary

    • Credit side of Capital

    Correct Answer
    A. Credit side of Capital
    Explanation
    When the balance of a revenue account is transferred, it means that the revenue has been earned and needs to be allocated appropriately. Since revenue increases the owner's equity, it is transferred to the credit side of the Capital account. This shows that the owner's equity has increased due to the revenue generated.

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  • Oct 18, 2024
    Quiz Edited by
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  • Mar 07, 2014
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    Missybiz
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