MULTIPLE CHOICE FINAL 1. Which of the following sequences of documents or record

Question

MULTIPLE CHOICE FINAL 1. Which of the following sequences of documents or records describes the proper sequence in the accounting cycle? a. Source documents, jounal, ledger, work sheet, financial statements b. Source documents, work sheet, journal, ledger, financial statements c. Source documents, ledger, journal, work sheet, financial statements d. Work sheet, source documents, financial statements, ledger, journal e. Financial statements, journal, ledger, source documents, work sheet 2. Which of the following accounts would not be involved in closing entries? a. Advertising Expense b. J. Ryan, Drawing c. Salaries Payable d. Income from Services c. Rent Expense 3. Which of the following are all temporary accounts? a Liabilities, revenue, and expenses b. Revenue, liabilities, and the owner's Drawing c. Assets, liabilities, and owner's Drawing d. Revenue, expenses, and the Owner's Drawing e. Liabilities and assets 4. In preparing the first two closing entries, to which of the following columns of the work sheet does one refer? a. Balance Sheet columns b. Adjusted Trial Balance columns c. Income Statement columns d. Trial Balance columns e. Adjustments columns 5. The owner's Drawing account for the current period is closed to the a. Cash account b. Income Summary account. c. Income from Services account d. Wages Expense account. e. owner's Capital account If L. Green's total revenue for the year was $38,000 and total expenses were $30,000, the third closing entry would be a. debit Income Summary; credit L. Green, Capital. b. debit L. Green, Capital; credit Income Summary c. debit Income Summary; credit Income from Services. 6. d. debit Income from Services; credit Income Summary e. debit L. Green, Capital; credit L. Green, Drawing

Explanation / Answer

Question 1)

In accounting cycle, the transaction is recorded from source document such as invoice, vouchers, receipts, etc. Using source document, journal entries are passed. After passing journal entries, amounts are posted to relevant ledgers. Once the ledger postings are completed, the balances in ledger are considered in the worksheet. In worksheet all adjusting entries and closing entries are passed and finally the financial statements are prepared.

Correct answer: a. Source documents, journal, ledgers, worksheet, financial statements.

Question 2)

Closing entries are passed to close all the income and expense accounts to income summary. This will give either profit or loss which will be transferred to retained earnings or owner’s capital account. Then the drawings of owner account is closed to the owner’s capital A/c.

In this example, Advertising expenses, income from services and rent expenses accounts are closed to income summary in closing entries. J. Ryan, Drawings account is also closed to J. Ryan capital account in closing entries. Only salaries payable account is liability account of salary due but not paid is not involved in closing entries.

Correct answer: c. Salaries payable

Question 3)

As explained in question 2 above, the accounts involved in the closing entries are closed at the end of the each year. Balances in these accounts are not carried forward to the next year. Such accounts are called as temporary accounts.

In closing entries, all revenues, expenses and owners drawings account are closed. Therefore, these accounts are temporary accounts.

Correct answer: d. Revenue, expenses and the Owner’s drawings

Question 4)

In first two closing entries, all the revenues and expenses balances after passing adjusting journals are closed to the income summary. Since the balances after passing adjusting journal entries are required for first two closing entries. Therefore, adjusted trial balance column of the worksheet is referred to passed the first two closing entries.

Correct answer: b. Adjusted trial balance columns

Question 5)

Owner’s drawings means amount withdrawn from business by the owner. Like the amount invested by the owner in the business increases the capital, the amount withdrawn from the business by the owner reduces the owner’s capital. Therefore, the owner’s drawings account is closed to the owner’s capital account.

Correct answer: e. Owner’s capital account

Question 6)

L. Green’s total revenue is $38,000 and total expenses $30,000 which will be transferred to income summary in the first two closing entries. This will result in profit of $8,000 in the income summary. In the third closing entry, the profit or loss in the income summary is transferre to the owner’s capital or retained earnings account. The profit will increase the balance of owner’s capital. Since the income summary has credit balance of $8,000. To close the income summary, Income summary is debited and Owner’s capital is credited.

Correct answer: a. Debit income summary and credit L. Green, capital

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