Question 1

Which of the following best describes the purpose of closing entries in the accounting cycle?

Accepted Answer

To set the balances of revenue, expense, and withdrawal accounts to zero for the next period

Question 2

A company has the following balances at year-end: Cash $$10,000, Accounts Receivable 5$$,000, Inventory $$7,000, Prepaid Insurance 2$$,000, Accounts Payable $$6,000, and Salaries Payable 2$$,000. What is the company's current ratio? Use the formula $$	ext{Current Ratio} = \frac{	ext{Total Current Assets}}{	ext{Total Current Liabilities}}.$$

Accepted Answer

$$\frac{24,000}{8,000} = 3.0$$

Question 3

Which of the following accounts would NOT appear on a post-closing trial balance?

Accepted Answer

Service Revenue

Question 4

A business incorrectly recorded a $10,000 purchase of furniture as Office Supplies. Which correcting entry would properly fix this error using the 'reverse and rewrite' method?

Accepted Answer

Debit Furniture $$10,000; Credit Office Supplies 10$$,000; then Debit Office Supplies $$10,000; Credit Cash 10$$,000

Question 5

Which of the following is a characteristic of a classified balance sheet?

Accepted Answer

It groups assets and liabilities by their relative liquidity

Question 6

If a company has total assets of $$200,000 and total liabilities of 120$$,000, what is its debt ratio? Use the formula $$	ext{Debt Ratio} = \frac{	ext{Total Liabilities}}{	ext{Total Assets}}.$$

Accepted Answer

$$\frac{120,000}{200,000} = 0.60$$

Question 7

Which of the following is NOT a temporary (nominal) account?

Accepted Answer

Owner's Capital

Question 8

A company accrues $3,000 in salaries on July 31. If a reversing entry is made on August 1, what is the journal entry?

Accepted Answer

Debit Salaries Payable $$3,000; Credit Salaries Expense 3$$,000

Question 9

Which of the following best explains why reversing entries are used?

Accepted Answer

To simplify the recording of transactions in the new period after accrual-type adjustments

Question 10

Which of the following is an example of a current liability?

Accepted Answer

Accounts Payable

Question 11

A company has the following: Current Assets $$50,000, Current Liabilities 25$$,000, Total Assets $$150,000, Total Liabilities 90$$,000. What are the current ratio and debt ratio, respectively?

Accepted Answer

Current ratio: $$2.0$$, Debt ratio: $$0.60$$

Question 12

Which of the following statements about the worksheet in the accounting cycle is TRUE?

Accepted Answer

It helps organize accounting data and identify accounts that need adjustments

Question 13

Which of the following is a correct statement about the classified balance sheet?

Accepted Answer

It separates assets and liabilities into current and long-term categories

Question 14

Which of the following is NOT a step in the closing process?

Accepted Answer

Close asset accounts to Owner's Capital

Question 15

If a company has a current ratio of 0.8, what does this indicate about its liquidity?

Accepted Answer

The company may have difficulty paying its short-term obligations

Question 16

Which of the following is TRUE regarding the interpretation of financial ratios?

Accepted Answer

Ratios should be compared to industry benchmarks and trends over several years

Question 17

Under International Financial Reporting Standards (IFRS), which of the following is TRUE about the accounting cycle?

Accepted Answer

The accounting cycle and financial reporting process are similar to those under Canadian GAAP

Question 18

Which of the following is an example of a long-term asset?

Accepted Answer

Land

Question 19

A company discovers an error after posting: it debited Office Supplies instead of Furniture for a $5,000 purchase. Which one-step correcting entry would fix this?

Accepted Answer

Debit Furniture $$5,000; Credit Office Supplies 5$$,000

Completing the Accounting Cycle: Study Notes for Financial Accounting

Study Guide - Practice Questions

Study Guide - Flashcards