A balance sheet that contains standard classifications or sections.
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Closing entries
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Entries made at the end of an accounting period to transfer the balances of temporary accounts to a permanent stockholders' equity account, Retained Earnings
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Correcting entries
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Entries to correct errors made in recording transactions.
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Current assets
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Assets that a company expects to convert to cash or use up within one year.
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Current liabilities
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Obligations that a company expects to pay within the coming year.
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Income Summary
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A temporary account used in closing revenue and expense accounts.
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Intangible assets
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Noncurrent assets that do not have physical substance.
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Liquidity
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The ability of a company to pay obligations expected to be due within the next year.
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Long-term investments
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Generally, (1) investments in stocks and bonds of other companies that companies normally hold for many years, and (2) long-term assets, such as land and buildings, not currently being used in operations.
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Long-term liabilities
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Obligations that a company expects to pay after one year.
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Operating cycle
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The average time that it takes to purchase inventory, sell it on account, and then collect cash from customers.
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Permanent (real) accounts
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Accounts that relate to one or more accounting periods. Consist of all balance sheet accounts. Balances are carried forward to next accounting period.
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Post-closing trial balance
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A list of permanent accounts and their balances after a company has journalized and posted closing entries.
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Property, plant, and equipment
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Assets with relatively long useful lives and currently being used in operations.
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Reversing entry
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An entry, made at the beginning of the next accounting period, that is the exact opposite of the adjusting entry made in the previous period.
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Stockholders' equity
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The combination of common stock and retained earnings accounts. Often referred to as the ownership claim of shareholders on total assets. It is to a corporation what owner's equity is to a proprietorship.
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Temporary (nominal) accounts
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Accounts that relate only to a given accounting period. Consist of all income statement accounts and the dividends account. All temporary accounts are closed at end of the accounting period.
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Worksheet
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A multiple-column form that may be used in making adjusting entries and in preparing financial statements.
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Which of the following statements is incorrect concerning the worksheet?
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The worksheet is distributed to management and other interested parties.
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In a worksheet, net income is entered in the following columns:
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income statement (Dr) and balance sheet (Cr).
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In the unadjusted trial balance of its worksheet for the year ended December 31, 2014, Taitum Company reported Equipment of $120,000. The year-end adjusting entries require an adjustment of $15,000 for depreciation expense for the equipment. After adjustment, the following adjusted amount should be reported:
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A debit of $120,000 for Equipment in the balance sheet column.
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An account that will have a zero balance after closing entries have been journalized and posted is:
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Service Revenue.
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When a net loss has occurred, Income Summary is:
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credited and Retained Earnings is debited.
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The closing process involves separate entries to close (1) expenses, (2) dividends, (3) revenues, and (4) income summary. The correct sequencing of the entries is:
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(3), (1), (4), (2)
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Which types of accounts will appear in the post-closing trial balance?
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Permanent (real) accounts
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All of the following are required steps in the accounting cycle except:
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preparing a worksheet.
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The proper order of the following steps in the accounting cycle is:
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journalize transactions, post to ledger accounts, prepare unadjusted trial balance, journalize and post adjusting entries.
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When Alexander Company purchased supplies worth $500, it incorrectly recorded a credit to Supplies for $5,000 and a debit to Cash for $5,000. Before correcting this error:
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Cash is overstated and Supplies is understated.
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Cash of $100 received at the time the service was provided was journalized and posted as a debit to Cash $100 and a credit to Accounts Receivable $100. Assuming the incorrect entry is not reversed, the correcting entry is:
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debit Accounts Receivable $100 and credit Service Revenue $100.
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The correct order of presentation in a classified balance sheet for the following current assets is:
A company has purchased a tract of land. It expects to build a production plant on the land in approximately 5 years. During the 5 years before construction, the land will be idle. The land should be reported as:
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a long-term investment
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In a classified balance sheet, assets are usually classified using the following categories:
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current assets; long-term investments; property, plant, and equipment; and intangible assets.
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Current assets are listed:
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by expected conversion to cash
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On December 31, Frank Voris Company correctly made an adjusting entry to recognize $2,000 of accrued salaries payable. On January 8 of the next year, total salaries of $3,400 were paid. Assuming the correct reversing entry was made on January 1, the entry on January 8 will result in a credit to Cash $3,400 and the following debit(s):
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Salaries and Wages Expense $3,400.
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Companies journalize the adjustments after they complete the worksheet but before preparing the financial statements.
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False
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The Dividends account is closed through the Income Summary account.
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False
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A post-closing trial balance will show
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only permanent account balances.
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Which of the following steps in the accounting cycle may be performed more frequently than annually?
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prepare a trial balance
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Correcting entries are only made at the end of an accounting period.
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False
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Correcting entries
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may involve any combination of accounts in need of correction
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On the balance sheet, companies usually list current assets in the order of largest to smallest.
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False
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Current liabilities are obligations that are reasonably expected to be paid from existing current assets or through the creation of other current liabilities.
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True
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Use of reversing entries is not a required step in the accounting cycle.
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True
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A reversing entry
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is the exact opposite of an adjusting entry made in a previous period.
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