Chapter 6

Question 1

7th step in AC

Answer 1

Journalize and post closing entries
- transfer the results of operations (net income or net loss) to owners equity
- reduce revenue, expense, and drawing account balances to zero

Question 2

closing entries

Answer 2

journal entries that transfer the results of operations (net income or net loss) to owner’s equity and reduce the revenue, expense, and drawing account balances to zero

Question 3

Income Summary

Answer 3

a special owner’s equity account that is used only in the closing process to summarize the results of operations
- zero balance after the closing process and it remains with a zero balance until after the closing for the next period
- temporary owners equity account
AKA Revenue and Expense Summary or Income and Expense Summary
- does not have increase/decrease side and no normal balance side

Question 4

Closing Process

Answer 4

1. Transfer the balance of the revenue account to the income summary account
2. transfer the expense account balances to the income summary account
3. transfer the balance of the income summary account to the owners capital account
4. transfer the balance of the drawing account to the owner’s capital account

Question 5

Step 1: Transfer Revenue Account Balances

Answer 5

• Debit Fees Income and Credit Income Summary

Question 6

Step 2: Transfer Expense Account Balances

Answer 6

Debit income summary and Credit expense accounts

Question 7

Step 3: Transfer Net Income or Net Loss to Equity

Answer 7

Debit (Net Income/Loss amount) to Income Summary and Credit Capital

Question 8

Step 4: Transfer the drawing account balance to capital

Answer 8

Debit (withdrawals amount) to capital and credit to drawing

Question 9

Balance of Income Summary for Step 3

Answer 9

If IS has credit balance:
- debit IS/credit capital
if IS has debit balance:
-debit capital/credit IS

Question 10

Accounting cycle

Answer 10

1. analyze transactions
2. journalize transactions
3. post transactions
4. prepare a worksheet
5. prepare financial statements
6. record adjusting entries
7. record closing entries
8. prepare postclosing trial balance
9. interpret the financial information

Question 11

post closing trial balance

Answer 11

a statement that is prepared to prove the equality of total debits and credits after the closing process is completed
AKA after-closing trial balance
- the 8th step in AC
-verifies total debits = credits
-revenue, expense, and drawing have zero balances (temporary)
- only accounts with balances: assets, liabilities, equity (permanent)

Question 12

9th step: interpreting financial statements

Answer 12

• what is cash balance?
• how much do customers owe?
  -how much does business owe to suppliers?
  -what is the profit or loss?

Question 13

Flow of Data

Answer 13

Source documents
General journal
General Ledger
Worksheet
Financial Statements

Question 14

Accounts in Post Closing Balance

Answer 14

cash
AR
supplies
equipment
accumulated depreciation
AP
Capital