Accounting Cycle and Financial Statements

Flashcards based on accounting cycle and financial statements lecture notes.

What is a worksheet in accounting?

A multiple-column form used in the adjustment process and in preparing financial statements, but not a permanent accounting record.

Are adjusting entries journalized before or after completing the worksheet?

Adjusting entries are journalized after completing the worksheet and preparing the financial statements.

What does a credit in the statement of financial position column of a worksheet indicate?

The increase in equity resulting from net income.

Can a completed worksheet be used as a substitute for formal financial statements?

No, a completed worksheet is not a substitute for formal financial statements.

What is the purpose of 'closing the books'?

To make the accounts ready for the next accounting period.

What is the difference between temporary and permanent accounts?

Temporary accounts relate only to a given accounting period, while permanent accounts relate to one or more future accounting periods.

Which accounts are considered temporary accounts?

All income statement accounts and the dividends account.

What do closing entries formally recognize in the ledger?

The transfer of net income (or net loss) and Dividends to Retained Earnings.

When are closing entries generally journalized and posted?

Only at the end of the annual accounting period.

What is the purpose of the post-closing trial balance?

To prove the equality of the permanent account balances carried forward into the next accounting period.

What type of accounts are listed on the post-closing trial balance?

Only permanent statement of financial position accounts.

When do closing entries and the post-closing trial balance usually take place?

At the end of a company’s annual accounting period.

What is a reversing entry?

The exact opposite of the adjusting entry made in the previous period.

Are reversing entries a required step in the accounting cycle?

No, the use of reversing entries is an optional bookkeeping procedure.

When should correcting entries be posted?

Correcting entries must be posted before closing entries.

What is a classified statement of financial position?

A statement that groups together similar assets and similar liabilities, using a number of standard classifications and sections.

Give examples of intangible assets

Goodwill, patents, copyrights, and trademarks or trade names.

What is depreciation?

The practice of allocating the cost of assets to a number of years.

Define current assets.

Assets that a company expects to convert to cash or use up within one year or its operating cycle, whichever is longer.

What are non-current liabilities?

Obligations that a company expects to pay after one year.