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COMPLETING THE ACCOUNTING CYCLE

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COMPLETING THE ACCOUNTING CYCLE Powered By Docstoc
					                                     CHAPTER 10


MULTIPLE CHOICE

For each question select the one best response.


1.     Before calculating the net profit for the period, the totals of the Income statement
       debit and credit columns on the worksheet are $60 000 and $80 000 respectively.
       What is the amount of net profit or net loss?

       A.      $20 000 profit
       B.      $20 000 loss
       C.      $40 000 profit
       D.      $40 000 loss
       E.      None of the above

ANSWER A

2.     Closing the accounts refers to:

       A.      Establishing zero balances in the balance sheet accounts
       B.      Establishing a zero balance in the cash at bank account
       C.      Establishing zero balances in all ledger accounts
       D.      Transferring income and expense account balances to the profit and loss
               summary account, which is then closed to the equity account
       E.      None of the above

ANSWER D


3.     Income and expense accounts can be referred to as:

       A.      Permanent accounts
       B.      Real accounts
       C.      Temporary accounts
       D.      Deferred accounts
       E.      Contra accounts

ANSWER C


4.     Kululu has the following accounts on the year-end trial balance:
                                              $
              Cash                           50
              Sales Revenue          80
              Accounts Payable               30
              Equity                 70




                                          10.1
               Interest Expense                60
               Interest Receivable     50
               Interest Revenue                40

        How many of the above are temporary accounts?

        A.     One
        B.     Two
        C.     Three
        D.     Four
        E.     Five

ANSWER C (Sales Revenue, Interest Expense and Interest Revenue)


5.      Closing entries are made:

        A.     In the ledger only
        B.     In the journal and the ledger
        C.     In the journal only
        D.     On the worksheet
        E.     None of the above

ANSWER B

6.      Closing which of the following accounts results in a credit to the Profit and Loss
        Summary account?

        A.    Sales
        B.    Depreciation
        C.    Rent Expense
        D.    Bad debts
     E. Opening inventory

ANSWER A


7. Which of the following statements relating to closing entries is incorrect?

        A.     The closing process is simple with a computerised accounting system
        B.     Closing entries are only made once a year
        C.     Closing entries are made each time a trial balance is prepared
        D.     The need for closing entries arises from the accounting period
               assumption
        E.     None of the above is incorrect

ANSWER C




                                          10.2
8. The balance of the Salaries Expense account is $1200. Which of the following is the
   correct closing general journal entry?
                                                          Debit Credit
                                                           $               $
       A. Cash                                            1 200
                     Salaries Expense                                        1 200

       B.    Salaries Expense                                 1 200
                     Profit and Loss Summary                                  1 200

       C.    Salaries Expense                                 1 200
                     Cash                                                     1 200

       D.    Profit and Loss Summary                          1 200
                     Salaries Expense                                         1 200

       E.    Capital 1 200
                     Salaries Expense                                         1 200

ANSWER D

9.     The balance in the Profit and Loss Summary account before it is closed
       represents:

       A.     Total income
       B.     Total expense
       C.     Net profit (or net loss)
       D.     Net profit (or net loss) less cash drawings
       E.     None of the above

ANSWER C

10. Medium Company had a net profit of $110,000 for the year. The closing general
    journal entry for the profit is:
                                                       Debit Credit
                                                         $       $
        A. Cash                                      110 000
                      Capital                                          110 000

       B.    Profit and Loss Summary                        110 000
                     Capital                                               110 000

       C.    Capital 110 000
                     Cash                                                  110 000

       D.    Capital 110 000
                     Profit and Loss Summary                               110 000

    E. None of the above
ANSWER B




                                        10.3
QUESTION:


   Use the following information from the records of Bathurst Retail to prepare an
   Income Statement under the periodic system for the year ended 30th June 2006
   and the closing entries.
                                          $          $
   Purchases                           117,120
   Inventory, 1 July 2005               9,780
   Inventory, 30 June 2006             13,130
   Selling expenses                    32,452
   Sales Revenue                                     171,840
   Purchases Returns and Allowances                      3,156
   Sales Returns and Allowances         4,440
   Administrative expenses             11,760
   Freight Inwards                      2,270
   Finance expenses                     1,440


Solution:
                                 Bathurst Retail
                                 Income Statement
                        for the year ended 30th June 2006
                                               $    $     $
Sales                                                            171,840
Sales Returns and Allowances                                       4,440
Net Sales                                                                  167,400
Cost of Sales
Inventory, 1 July,2005                                             9,780
Purchases                                          117,120
Less: Purchase Returns and Allowances                3,156
Net Purchase Cost                                  113,964
Freight Inwards                                      2,270
Cost of Goods Purchased                                          116,234
Goods Available for Sale                                         126,014
Inventory, 30 June,2006                                           13,130
Cost of Sales                                                              112,884
Gross Profit                                                                54,516
Less:
Selling Expenses                                                  32,452




                                       10.4
Administration Expenses                                      11,760
Finance Expenses                                              1,440    45,652
Net Income for the period                                               8,864

Closing entry:
 Dr: Sales                                    171,840
  Cr: Income Summary                                     171, 840

Dr: Income Summary                            4,440
 Cr: Sales Returns and Allowances                          4,440



Dr: Purchase Ret. and Allow.
                                      3,156
 Inventory, 30 June,2006
                                     13,130
  Income Summary
                                    112,884
 Cr: Inventory, 1 July,2005                                 9,780
     Purchases                                            117,120
     Freight Inwards                                        2,270


Dr: Income Summary                               45,65
  Cr: Selling Expenses                                        32,452
      Administration Expenses                                 11,760
      Finance Expenses                                         1,440




                                     10.5

				
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