Questions

LO 5.1Explain what is meant by the term real accounts (also known as permanent accounts).

LO 5.1Explain what is meant by the term nominal accounts (also known as temporary accounts).

LO 5.1What is the purpose of the closing entries?

LO 5.1What would happen if the company failed to make closing entries at the end of the year?

LO 5.1Which of these account types (Assets, Liabilities, Equity, Revenue, Expense, Dividend) are credited in the closing entries? Why?

LO 5.1Which of these account types (Assets, Liabilities, Equity, Revenue, Expense, Dividend) are debited in the closing entries? Why?

LO 5.1The account called Income Summary is often used in the closing entries. Explain this account’s purpose and how it is used.

LO 5.1What are the four entries required for closing, assuming that the Income Summary account is used?

LO 5.1After the first two closing entries are made, Income Summary has a credit balance of $125,500. What does this indicate about the company’s net income or loss?

10.

LO 5.1After the first two closing entries are made, Income Summary has a debit balance of $22,750. What does this indicate about the company’s net income or loss?

11.

LO 5.2What account types are included in a post-closing trial balance?

12.

LO 5.2Which of the basic financial statements can be directly tied to the post-closing trial balance? Why is this so?

13.

LO 5.3Describe the calculation required to compute working capital. Explain the significance.

14.

LO 5.3Describe the calculation required to compute the current ratio. Explain the significance.

15.

LO 5.4Describe the progression of the three trial balances that a company would have during the period, and explain the difference between the three.