7. Terminology and Concepts - Closing Entries. a. What would be the problem if t
ID: 2555431 • Letter: 7
Question
7. Terminology and Concepts - Closing Entries. a. What would be the problem if the closing entries were not made? b. After the losing process is completed, what is the nature of the accounts that remain with balances? What is the nature of accounts that are "closed"? Would the Salary Expense account show a balance on the first day of the period after closing? Why? c. d. Would the Cash account show a balance on the first day of the period after closing? Why? e. What does it mean when an account has been "closed? f. Temporary accounts are reset and transferred to the appropriate owner's equity account as a normal part of the process. Describe what would be the appropriate owner's equity account to receive the transfer for a sole proprietorship, partnership and corporation. g. A Post-Closing Trial Balance is prepared from the General Ledger accounts after closing. The closed accounts will not appear on this document. Given the nature of accounts that do appear on the Post Closing Trial Balance, which financial statement could be completely prepared using just the Post Closing Trial Balance?Explanation / Answer
7 A) If closing entries are not made a companys invome statement will not be ready to record revenues and expenses of the next accounting period.The amount of retained earning will also be not correctly recorded which may cause balance sheet differences.
B) After closing entries, the accounts with balances shows that it is permanent account like assets or liabilities.And after closing entries the accounts without balances shows it is temporary accounts and hence it is closed.
C) If salary outstanding is there it will still show as a liability even after closing entries are made.
D) Yes.The cash account will show opening balance in the next accounting period as the cash balances of the previous period are carried forward to the next year.
E) Closed Account means that an account that is made ready for the new year by closing out the previous year's amount.
F) For a sole proprietorship and partnership appropriate account to transfer owners equity is called “Partners Capital Account” while in corporations it is transferred to “Retained Earnings Account”
G) Post closing trial balance is prepared after closing entries are made.It test the total debits and credits.The post-closing trial balance contains real accounts only since all nominal accounts have already been closed at this stage.
Hence only accounts with real account nature will be present in the post closing trial balance.
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