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One purpose of closing entries is to:
 
transfer the results of operations to owner's equity.
reduce the owner's capital account balance to zero so that the account is ready for the next period.
adjust the ledger account balances to provide complete and accurate figures for use on financial statements.
close all accounts so that the ledger is ready for the next accounting period.
   
If a business has a net loss for a fiscal period, the journal entry to close the Income Summary account is:
 
a debit to Income Summary and a credit to Fees Income.
a debit to Income Summary and a credit to Capital.
a debit to Capital and a credit to Drawing.
a debit to Capital and a credit to Income Summary
   
Which of the following entries records the closing of Penny Pincher, Drawing at the end of the accounting period?
 
Debit Penny Pincher, Drawing; credit Penny Pincher, Capital
Debit Penny Pincher, Capital; credit Income Summary
Debit Income Summary; credit Penny Pincher, Drawing
Debit Penny Pincher, Capital; credit Penny Pincher, Drawing
   
When done properly, how many journal entries are involved in the closing process?
 
2
3
4
5
   
The entry to close the Income Summary account may include:
 
a debit to Income Summary and a credit to the owner's capital account.
a debit to Income Summary and a credit to Cash.
a debit to Cash and a credit to Income Summary.
a debit to Income Summary and a credit to the owner's drawing account
   
Trial balances are prepared in a certain order. Given the choices below, which one depicts the trial balances in the correct order in which they would be prepared?
 
trial balance, adjusted trial balance, post-closing trial balance
adjusted trial balance, trial balance, post-closing trial balance.
post-closing trial balance, adjusted trial balance, trial balance.
trial balance, post-closing trial balance, adjusted trial balance.
   
The entry to transfer a net loss to the owner's capital account would include:
 
a debit to the Capital account and a credit to Cash.
a debit to the Capital account and a credit to the Drawing account.
a debit to the Capital account and a credit to Income Summary
a debit to Income Summary and a credit to Capital.
   
Identify the item below that is NOT one of the steps in an accounting cycle.
 
prepare the financial statements.
prepare the post-closing trial balance.
journalize and post the adjusting entries.
prepare invoices for customers
   
One purpose of closing entries is to zero out the balances in the:
 
asset and liability accounts.
revenue and expense accounts
liability and capital accounts.
expense and capital accounts.
   
Use the following account balances from the adjusted trial balance of ABC Consulting:
 
Account                                                           Debit Balance                          Credit Balance
Cash                                                                 20,500                                                            
Accounts Payable                                                                                                        2,000     
B. Conway, Drawing                                        600                                                       
B. Conway, Capital                                                                                                      13,000
Fees Revenue                                                 18,000                          
Salary Expense                                                                                                            2,600  
Rent Expense                                                 3,000                                                    
Supplies Expense                                            1,900                                                    
Advertising Expense                                        800                                                       
 
Select the correct closing entry that ABC Consulting would make to close their revenue account(s) at the end of the accounting period.
 
debit Fees Revenue and credit Cash for $18,000.
debit Fees Revenue and credit Income Summary for $18,000
debit Fees Revenue and credit B. Conway, Capital for $18,000.
debit Income Summary and credit Fees Revenue for $18,000.
   
Use the following account balances from the adjusted trial balance of Gees Catering:
 
Account                                   Debit Balance              Credit Balance              
Cash                                         10,000                                                              
Accounts Payable                                                        2,000                
R. Gees, Drawing                     1,000                                                    
R. Gees, Capital                                                           18,000                          
Fees Revenue                                                             10,000                          
Salary Expense                        7,000                                                    
Rent Expense                         6,000                                                    
Supplies Expense                    6,000                                                    
 
Select the correct closing entry that Gees Catering would make to close their Income Summary account at the end of the accounting period.
                                                 
Income Summary        $          11,000                          
R. Gees, Capital                                   $          11,000
                                                 
R. Gees, Capital           $          19,000                          
Income Summary                                $          19,000
                                                 
R. Gees, Capital           $          9,000                
Income Summary                                $          9,000
                                                 
Income Summary       $          9,000                
R. Gees, Capital                                  $          9,000
   
The entry to close the Depreciation Expense account would include a debit to:
 
the Income Summary account and a credit to the Depreciation Expense account
the Income Summary and a credit to Cash.
the Cash account and a credit to the Income Summary account.
the Depreciation Expense account and a credit to the Income Summary account.
   
Which of the following accounts will not normally have a zero balance after the closing entries have been posted?
 
Income Summary
Capital
Fees Income
Rent Expense
   
Use the following account balances from the adjusted trial balance of Gees Catering:
 
Account                                   Debit Balance              Credit Balance              
Cash                                         10,000                                                              
Accounts Payable                                                        2,000                
R. Gees, Drawing                     1,000                                                    
R. Gees, Capital                                                           18,000                          
Fees Revenue                                                             10,000                          
Salary Expense                        7,000                                                    
Rent Expense                         6,000                                                    
Supplies Expense                    6,000                                                    
   
 
What is the amount that Gees Consulting would report as the ending balance in the R. Gees, Capital account at the end of the year?
 
$18,000
$ 8,000
$26,000
$28,000
   
After the transactions have been posted, the next step in the accounting cycle is to:
 
prepare the financial statements.
prepare the post-closing trial balance.
prepare the worksheet
journalize and post the adjusting entries.
   
Which of the following accounts is not closed?
 
Cash
Fees Income
Rent Expense
Joan Wilson, Drawing
   
Use the following account balances from the adjusted trial balance of Gees Catering:
 
Account                                   Debit Balance              Credit Balance              
Cash                                         10,000                                                              
Accounts Payable                                                        2,000                
R. Gees, Drawing                     1,000                                                    
R. Gees, Capital                                                           18,000                          
 
Fees Revenue                                                             10,000                          
Salary Expense                        7,000                                                    
 
Rent Expense                         6,000                                                    
Supplies Expense                    6,000                                                    
 
Select the correct closing entry that Gees Catering would make to close the owner's withdrawal account at the end of the accounting period.
                                                 
R. Gees, Drawing         $          1,000                
R. Gees, Capital                                   $          1,000
                                                 
R. Gees, Capital          $          1,000                
R. Gees, Drawing                                $          1,000
                                                 
R. Gees, Drawing         $          1,000                
Income Summary                                $          1,000
                                                 
Income Summary        $          1,000                
R. Gees, Drawing                                 $          1,000
   
Which of the following accounts would not be involved in any of the closing entries?
 
Income from Services
Fred Sanford, Drawing
Accounts Payable
Advertising Expense
   
After the worksheet has been completed, the next step in the accounting cycle is to:
 
journalize the closing entries.
post the closing entries.
prepare the post-closing trial balance.
prepare the financial statements
   
The first two closing entries to the Income Summary account indicate a debit of $47,000 and a credit of $41,000. The third closing entry would be:
 
debit Capital $6,000; credit Income Summary $6,000
debit Income Summary $47,000; credit Capital $47,000
debit Income Summary $41,000; credit Expenses $41,000
debit Income Summary $6,000; credit Drawing $6,000
   
Determining Gross Profit
During the current year, merchandise is sold for $45,870,000. The cost of the merchandise sold is $33,026,400.

a. What is the amount of the gross profit?
b. Compute the gross profit percentage (gross profit divided by sales).
c. When will the income statement necessarily report a net income?
 
a. $12,843,600
b. 28%
c. If operating expenses are less than gross profit. Purchase-Related Transactions


Poff's Co., a women's clothing store, purchased $53,000 of merchandise from a supplier on account, terms FOB destination, 2/10, n/30.
Poff's returned $7,000 of the merchandise, receiving a credit memo, and then paid the amount due within the discount period.

a. Journalize Poff's entry to record the purchase. If an amount box does not require an entry, leave it blank.
b. Journalize Poff's entry to record the merchandise return. If an amount box does not require an entry, leave it blank.
c. Journalize Poff's entry to record the payment. If an amount box does not require an entry, leave it blank.
 
a. Merchandise Inventory            51,940
Accounts Payable                            51,940
 
b. Accounts Payable                       6,860
Merchandise Inventory                 6,860
 
c. Accounts Payable                        45,080
Cash                                                      45,080
   
Sales-Related Transactions, Including the Use of Credit Cards
Journalize the entries for the following transactions: If an amount box does not require an entry, leave it blank.

a. Sold merchandise for cash, $116,300. The cost of the merchandise sold was $72,000. (Record the sale first.)
b. Sold merchandise on account, $755,000. The cost of the merchandise sold was $400,000. (Record the sale first.)
c. Sold merchandise to customers who used MasterCard and VISA, $1,950,000. The cost of the merchandise sold was $1,250,000. (Record the sale first.)
d. Sold merchandise to customers who used American Express, $330,000. The cost of the merchandise sold was $230,000. (Record the sale first.)
e. Paid $81,500 to National Clearing House Credit Co. for service fees for processing MasterCard, VISA, and American Express sales.
 
a. Cash 116,300
Sales 116,300
Cost of Merchandise Sold. 72,000
Merchandise Inventory. 72,000

b. Accounts Receivable. 755,000
Sales 755,000
Cost of Merchandise Sold. 400,000
Merchandise Inventory. 400,000

c. Cash 1,950,000
Sales 1,950,000
Cost of Merchandise Sold. 1,250,000
Merchandise Inventory 1,250,000

d. Cash 330,000
Sales 330,000
Cost of Merchandise Sold. 230,000
Merchandise Inventory 230,000

e. Credit Card Expense 81,500
Cash 81,500
Sales Tax
 

A sale of merchandise on account for $36,000 is subject to an 8% sales tax.

a. Should the sales tax be recorded at the time of sale or when payment is received?
b. What is the amount recorded as sales?
c. What is the amount debited to Accounts Receivable?
d. What is the title of the account to which the $2,880 ($36,000 × 8%) is credited?
 
a. At the time of sale
b. 36,000
c. 38,880
d. Sales Tax Payable
   
Normal Balances of Merchandise Accounts
What is the normal balance of the following accounts:


a. Cost of Merchandise Sold
b. Customer Refunds Payable
c. Delivery Expense
d. Merchandise Inventory
e. Sales
f. Sales Tax Payable
 
a. Debit
b. Credit
c. Debit
d. Debit
e. Credit
f. Credit
   
Just before Henderson Laboratories opened for business, Eugene Henderson, the owner, had the following assets and liabilities:

Cash                                                      $40,600
Laboratory equipment                   75,700
Laboratory supplies                         6,900
Loan payable                                      15,200
Accounts payable                             9,900


Assets                                   $123,200
Liabilities                             $25,100
Owner's equity                  $98,100
   
Examples of business transactions include:
(select all that apply)

a. Liabilities
b. Purchases
c. Net income
d. Payments
b. Purchases &

 
An owner's financial interest in the business is called equity, or __________.
 
Capital
   
Jorge Hernandez opened a consulting business by depositing $15,000 into a business checking account in the name of Hernandez Consulting. This business transaction would increase:
 
Capital and cash accounts
   
Property owned by a company is known as assets.
 
True
   
Amounts earned from the sale of goods or services is called ___________.
 
Revenue
   
The costs that a business incurs in order to operate are called ___________.
 
Expenses
   
Moira's Oil Change Co. provides quick oil changes. During the week, Moira received $3,675 cash for services provided to customers.
Which parts of the accounting equation would be affected by these receipts? Increase or decrease?
 
increase cash
increase revenues
   
Companies sometimes sell services to customers on account. These amounts owed by customers are known as ____________.
 
accounts receivable
   
Dora's Delivery Company has $12,000 of total assets and $4,000 of total owner's equity. Therefore, liabilities must equal $
 
8,000


12,000 – 4000 = 8,000