AACSB: Reflective Thinking AICPA: BB Critical Thinking AICPA: FN Measurement Blooms: Understand Level of Difficulty: 2 Medium Feedback: Closing entries are made after the income statement is prepared. Note that retained earnings is only affected by revenues, expenses, and dividends as the result of the closing process. 15. Describe the difference between temporary and permanent accounts, and state which ones are closed. Answer: Temporary accounts (revenues, expenses and dividends) collect information about a single period only; they are closed at the end of that period. Permanent accounts include the balance sheet accounts (assets, liabilities, common stock and retained earnings), and their balances roll forward each year rather than being closed out. Learning Objective 02-04 Topic Area: The Closing Process Reflective Thinking AICPA: BB Critical Thinking AICPA: FN Measurement Blooms: Understand Level of Difficulty: 2 Medium Feedback: Revenue and expense accounts appear on the income statement. Dividends is also a temporary account, but is not reported on the income statement. It is reported only on the statement of changes in equity. All permanent accounts appear on the balance sheet. 16. Define the accounting cycle and list the stages of the cycle. Answer: The accounting cycle is a series of steps or procedures that occur repeatedly throughout the life of a business. The stages described to this point in the course include (1) recording transactions, (2) adjusting the accounts, (3) preparing financial statements, and (4) closing the temporary accounts. Learning Objective 02-04 Topic Area: The accounting cycle AACSB: Reflective Thinking AICPA: BB Critical Thinking AICPA: FN Measurement Blooms: Understand Level of Difficulty: 2 Medium Feedback: The accounting cycle repeats every accounting period. This is usually annually.
AACSB: Reflective Thinking AICPA: BB Critical Thinking AICPA: FN Measurement Blooms: Understand Level of Difficulty: 2 Medium Feedback: Closing entries are made after the income statement is prepared. Note that retained earnings is only affected by revenues, expenses, and dividends as the result of the closing process. 15. Describe the difference between temporary and permanent accounts, and state which ones are closed. Answer: Temporary accounts (revenues, expenses and dividends) collect information about a single period only; they are closed at the end of that period. Permanent accounts include the balance sheet accounts (assets, liabilities, common stock and retained earnings), and their balances roll forward each year rather than being closed out. Learning Objective 02-04 Topic Area: The Closing Process Reflective Thinking AICPA: BB Critical Thinking AICPA: FN Measurement Blooms: Understand Level of Difficulty: 2 Medium Feedback: Revenue and expense accounts appear on the income statement. Dividends is also a temporary account, but is not reported on the income statement. It is reported only on the statement of changes in equity. All permanent accounts appear on the balance sheet. 16. Define the accounting cycle and list the stages of the cycle. Answer: The accounting cycle is a series of steps or procedures that occur repeatedly throughout the life of a business. The stages described to this point in the course include (1) recording transactions, (2) adjusting the accounts, (3) preparing financial statements, and (4) closing the temporary accounts. Learning Objective 02-04 Topic Area: The accounting cycle AACSB: Reflective Thinking AICPA: BB Critical Thinking AICPA: FN Measurement Blooms: Understand Level of Difficulty: 2 Medium Feedback: The accounting cycle repeats every accounting period. This is usually annually.
Test-Bank-for-Fundamental-Financial-Accounting-Concepts-9th-Edition-by-Edmonds.docx