Post-Closing Trial Balance quiz #1 Flashcards
Post-Closing Trial Balance quiz #1
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What is a post-closing trial balance?
A post-closing trial balance is a list of all permanent accounts and their balances after closing entries have been made, showing only asset, liability, and equity accounts. Which accounts are included in the post-closing trial balance?
Only permanent accounts—assets, liabilities, and equity—are included in the post-closing trial balance. Which accounts are excluded from the post-closing trial balance?
Temporary accounts such as revenues, expenses, and dividends are excluded because their balances have been closed to retained earnings. What is the main purpose of preparing a post-closing trial balance?
The main purpose is to verify that debits equal credits after closing entries and to ensure only permanent accounts have balances. How does the post-closing trial balance relate to the balance sheet?
The post-closing trial balance essentially forms the basis for the balance sheet, as it contains only permanent accounts. What is the starting point for the new fiscal year in accounting?
The post-closing trial balance serves as the starting point for the new fiscal year. What happens to revenue, expense, and dividend accounts after closing entries?
Their balances are reduced to zero, and they do not appear in the post-closing trial balance. What is the formula for calculating the ending balance in retained earnings?
Ending Retained Earnings = Beginning Retained Earnings + Net Income - Dividends. Why are closing entries necessary before preparing a post-closing trial balance?
Closing entries are necessary to transfer balances from temporary accounts to retained earnings and reset their balances to zero. What does the post-closing trial balance verify?
It verifies that total debits equal total credits after closing entries. How is the adjusted trial balance used in relation to the post-closing trial balance?
The adjusted trial balance is the basis for making closing entries, which then lead to the post-closing trial balance. What are permanent accounts in accounting?
Permanent accounts are accounts that carry their balances into the next accounting period, such as assets, liabilities, and equity. What are temporary accounts in accounting?
Temporary accounts are accounts that are closed at the end of the period, including revenues, expenses, and dividends. How does net income affect retained earnings in the post-closing trial balance?
Net income increases retained earnings through closing entries. How do dividends affect retained earnings in the post-closing trial balance?
Dividends decrease retained earnings through closing entries. What is the role of the income summary account in closing entries?
The income summary account is used to temporarily hold the net income or loss before transferring it to retained earnings. What is the effect of closing entries on the income statement accounts?
Closing entries reduce all income statement account balances to zero. Why is it important that only permanent accounts have balances after closing entries?
It ensures that the new accounting period starts with zero balances in temporary accounts, allowing accurate measurement of future performance. What does the post-closing trial balance help prevent?
It helps prevent errors by ensuring that only permanent accounts have balances and that debits equal credits. What is the relationship between the post-closing trial balance and the accounting cycle?
The post-closing trial balance is the final step in the accounting cycle before starting a new period. What happens if the post-closing trial balance does not balance?
If it does not balance, it indicates errors in the closing entries or the ledger accounts. How often is a post-closing trial balance prepared?
It is prepared at the end of each accounting period after closing entries are made. What is the impact of closing entries on the balance sheet accounts?
Closing entries do not affect balance sheet accounts except for retained earnings. Why is retained earnings affected by two types of closing entries?
Retained earnings is affected by closing entries for both net income (revenues and expenses) and dividends. What is the significance of the post-closing trial balance for the next accounting period?
It provides the opening balances for permanent accounts in the new period. What cycle repeats after the post-closing trial balance is prepared?
The accounting cycle repeats, starting with the accumulation of new revenues, expenses, and dividends.
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