Closing entries are not needed if the business plans to continue operating in the future and issue financial statements each year.
The dividends account is closed to the Income Summary account in order to properly determine net income (or loss) for the period.
After closing entries have been journalized and posted, all temporary accounts in the ledger should have zero balances.
Closing revenue and expense accounts to the Income Summary account is an optional bookkeeping procedure.
Closing the dividends account to Retained Earnings is not necessary if net income is greater than dividends during the period.
The dividends account is a permanent account whose balance is carried forward to the next accounting period.
Closing entries are journalized after adjusting entries have been journalized.
The amounts appearing on an income statement should agree with the amounts appearing on the post-closing trial balance.
A business entity has only one accounting cycle over its economic existence.
The accounting cycle begins at the start of a new accounting period.
Both correcting entries and adjusting entries always affect at least one balance sheet account and one income statement account.
Correcting entries are made any time an error is discovered even though it may not be at the end of an accounting period.
An incorrect debit to Accounts Receivable instead of the correct account Notes Receivable does not require a correcting entry because total assets will not be misstated.
In a corporation, Retained Earnings is a part of owners' equity.
A company's operating cycle and fiscal year are usually the same length of time.
Cash and office supplies are both classified as current assets.
Long-term investments would appear in the property, plant, and equipment section of the balance sheet.
A liability is classified as a current liability if the company is to pay it within the forthcoming year.
A company's liquidity is concerned with the relationship between long-term investments and long-term debt.
Current assets are customarily the first items listed on a classified balance sheet.
The operating cycle of a company is determined by the number of years the company has been operating.
Adjusting entries are an optional bookkeeping procedure.
Additional True-False Questions
To close net income to Retained Earnings, Income Summary is debited and Retained Earnings is credited.
In one closing entry, Dividends is credited and Income Summary is debited.
The post-closing trial balance will contain only stockholders’ equity statement accounts and balance sheet accounts.
The operating cycle of a company is the average time required to collect the receivables resulting from producing revenues.
Current assets are listed in the order of liquidity.
Current liabilities are obligations that the company is to pay within the coming year.
Answers to True-False Statements
Item |Ans. |Item |Ans. |Item |Ans. |Item |Ans. |Item |Ans. |Item |Ans. |Item |Ans. | |1. |F |7. |T |13. |F |19. |F |25. |F |31. |T |37. |T | |2. |T |8. |F |14. |T |20. |T |26. |T |32. |T | | | |3. |T |9. |F |15. |F |21. |F |27. |F |33. |F | | | |4. |F |10. |T |16. |F |22. |T |28. |T |34. |F | | | |5. |F |11. |F |17. |F |23. |F |29. |F |35. |F | | | |6. |F |12. |F |18. |T |24. |T |30. |F |36. |T | | | |
MULTIPLE CHOICE QUESTIONS
After the adjusting entries are journalized and posted to the accounts in the general ledger, the balance of each account should agree with the balance shown on the a.
adjusted trial balance.
post-closing trial balance....
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