Unlock the essentials of business management with our comprehensive guide! Dive into key accounting concepts and master the fundamentals of financial statements with clear, concise explanations and multiple-choice questions. Our resource covers crucial topics like Income Summary, Permanent Accounts...
Circle the letter of the Answer that corresponds to the displayed Question.
1
Question: Income Summary
a) A balance sheet in which the liabilities and the owner's equity sections are shown below the assets.
b) A temporary account used in the closing process to summarize the effect of all revenue and expense
accounts.
c) A balance sheet in which the assets are on the left and the liabilities and the owner's equity sections
are on the right.
d) The steps involved in accounting for all of the business activities during an accounting period.
Correct Answer: A temporary account used in the closing process to summarize the effect of all
revenue and expense accounts.
Explanation: The Income Summary is a temporary account used during the closing process to
summarize the total revenues and expenses before closing them to the owner's equity account.
2
Question: Permanent Accounts
a) Accounts that do not accumulate information across accounting periods but are closed, such as the
drawing account and all income statement accounts.
b) Accounts that accumulate information across accounting periods; all accounts reported on the
balance sheet.
c) Prepared after posting the closing entries to prove the equality of the debit and credit balances in the
general ledger accounts.
d) A balance sheet in which the liabilities and the owner's equity sections are shown below the assets.
Correct Answer: Accounts that accumulate information across accounting periods; all accounts
reported on the balance sheet.
Explanation: Permanent accounts, also known as real accounts, accumulate information across
accounting periods and appear on the balance sheet.
3
Question: Accounting Cycle
a) Liabilities that are due within either one year or the normal operating cycle of the business,
whichever is longer, and that are to be paid out of current assets.
b) The period of time required to purchase supplies and services and convert them back into cash.
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