Page 181 - Accounting Principles (A Business Perspective)

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a. The Dividends account is closed to Income Summary.
b. The closing of expense accounts results in a debit to Income Summary.
c. The closing of revenues results in a credit to Income Summary.

d. The Income Summary account is closed to the Retained Earnings account.
Which of the following statements is true regarding the classified balance sheet?
a. Current assets include cash, accounts receivable, and equipment.
b. Plant, property, and equipment is one category of long-term assets.
c. Current liabilities include accounts payable, salaries payable, and notes receivable.
d. Stockholders' equity is subdivided into current and long-term categories.
Now turn to “Answers to self-test” at the end of the chapter to check your answers.

Questions
➢ At which stage of the accounting cycle is a work sheet usually prepared?

➢ Why are the financial statements prepared before the adjusting and closing entries are journalized
and posted?
➢ Describe the purposes for which the work sheet is prepared.
➢ You have taken over a set of accounting books for a small business as a part-time job. At the end of
the first accounting period, you have partially completed the work sheet by entering the proper
ledger accounts and balances in the Trial Balance columns. You turn to the manager and ask, "Where
is the list of additional information I can use in entering the adjusting entries?" The manager
indicates there is no such list. (In all the text problems you have done, you have always been given

this information.) How would you obtain the information for this real-life situation? What are the
consequences of not making all of the required adjustments at the end of the accounting period?
➢ How are the amounts in the Adjusted Trial Balance columns of a work sheet determined?
➢ The work sheet for Bridges Company shows net income of USD 40,000. The following four
adjustments were ignored:
➢ Subscriptions Fees earned, USD 1,200.
➢ Depreciation of equipment, USD 4,000.

➢ Depreciation of building, USD 10,000.
➢ Salaries accrued, USD 3,000. What is the correct net income?
➢ After the Adjusted Trial Balance columns of a work sheet have been totaled, which account balances
are extended to the Income Statement columns, which account balances are extended to the
Statement of Retained Earnings columns, and which account balances are extended to the Balance
Sheet columns?

➢ How is the statement of retained earnings prepared?
➢ What is the purpose of closing entries? What accounts are not affected by closing entries?
➢ A company has net income of USD 50,000 for the year. In which columns of the work sheet would
net income appear?
➢ Is it possible to prepare monthly financial statements without journalizing and posting adjusting and
closing entries? How?

Accounting Principles: A Business Perspective 182 A Global Text