BUS 120 EXAM 2 QUESTIONS AND ANSWERS
Post-closing trial balance - Answers - -(closing the books) = distinguishes between
temporary and permanent account
Temporary accounts (closed & will not forward to the next account) - Answers - -all
revenue account
-all expense account
-dividends
Permanent accounts (not closed & forward to the next account) - Answers - -all assets
account
-all liability account
-stockholder's equity
Closing entries - Answers - -transfer net income & dividend to Retained Earnings
-produce zero balance to temporary account
-journalizing & closing entries are required and at the end of the accounting period
-required in general ledger
-dividend closed directly to Retained Earnings, not an expense; factor to net income
Post-closing trial balance - Answers - -A list of permanent accounts and their balances
after a company has journalized and posted closing entries.
-prove equality of permanent account
-contain only permanent balance sheet account
Receiving Entries (optional step) - Answers - -Reverse two types of adjusting entries;
accrued revenues and accrued expense
-Beginning of accounting period
Correcting Entries (avoidable step) - Answers - -affect at least one balance sheet
account and one income statement account
-may involve any combination of accounts
-must be posted before closing entries
Current assets - Answers - -expects to convert cash or use up within one year or its
operating cycle (which one is longer)
1. Cash
2. Investments
3. Receivables
4. Inventories
5. Prepaid expenses (supplies & insurance)
, Long-term investments - Answers - -Investments in stocks & bonds (held for many
years)
-land or building (not currently using)
-long-term notes receivable
Property, plant & equipment - Answers - -sometimes called fixed assets or plant assets
-currently using land, building, machinery & equipment & furniture
Intangible assets - Answers - -no physical substances but has value
-patents, copyrights, trade marks & trade names
Stockholder's equity - Answers - -common stock & retained earnings
-Debit on asset account
-credit on common stock account
Current liabilities - Answers - -obligations company have to pay in the upcoming year
-all payable & current maturities of long term obligation
Long-term liabilities - Answers - -expects to pay after one year
-Bonds payable, mortgage payable, long-term notes payable, lease liabilities, and
pension liabilities
Cost of good sold - Answers - -Total cost of merchandise sold during the period.
-Expense; related to the revenue recognized from the sale of good
Operating cycle - Answers - - the operating cycle of a merchandising company is longer
than that of a service company
-purchase of merchandise inventory and sale lengths the cycle
Perpetual system - Answers - -companies keep detailed records of the cost of each
inventory purchase and sale
-determine the cost of goods sold each time a sale occurs
Periodic system - Answers - -don't keep detailed inventory records
-calculate costs of goods sold by subtracting ending inventory from the cost of good
available for sales.
-purchases & Freight cost are debit
-purchase returns and allowances is credit
-Costs of Good Sold: Beginning Inventory + costs of good purchased -ending inventory
1) determine the cost of goods on hand at the beginning of the accounting period
2) add it to the cost of goods purchased
3) Subtract the cost of goods on land as determined by the physical inventory count at
the end of the accounting period.
Advantages of the Perpetual System - Answers - -Provide better control over
inventories than a periodic system
Post-closing trial balance - Answers - -(closing the books) = distinguishes between
temporary and permanent account
Temporary accounts (closed & will not forward to the next account) - Answers - -all
revenue account
-all expense account
-dividends
Permanent accounts (not closed & forward to the next account) - Answers - -all assets
account
-all liability account
-stockholder's equity
Closing entries - Answers - -transfer net income & dividend to Retained Earnings
-produce zero balance to temporary account
-journalizing & closing entries are required and at the end of the accounting period
-required in general ledger
-dividend closed directly to Retained Earnings, not an expense; factor to net income
Post-closing trial balance - Answers - -A list of permanent accounts and their balances
after a company has journalized and posted closing entries.
-prove equality of permanent account
-contain only permanent balance sheet account
Receiving Entries (optional step) - Answers - -Reverse two types of adjusting entries;
accrued revenues and accrued expense
-Beginning of accounting period
Correcting Entries (avoidable step) - Answers - -affect at least one balance sheet
account and one income statement account
-may involve any combination of accounts
-must be posted before closing entries
Current assets - Answers - -expects to convert cash or use up within one year or its
operating cycle (which one is longer)
1. Cash
2. Investments
3. Receivables
4. Inventories
5. Prepaid expenses (supplies & insurance)
, Long-term investments - Answers - -Investments in stocks & bonds (held for many
years)
-land or building (not currently using)
-long-term notes receivable
Property, plant & equipment - Answers - -sometimes called fixed assets or plant assets
-currently using land, building, machinery & equipment & furniture
Intangible assets - Answers - -no physical substances but has value
-patents, copyrights, trade marks & trade names
Stockholder's equity - Answers - -common stock & retained earnings
-Debit on asset account
-credit on common stock account
Current liabilities - Answers - -obligations company have to pay in the upcoming year
-all payable & current maturities of long term obligation
Long-term liabilities - Answers - -expects to pay after one year
-Bonds payable, mortgage payable, long-term notes payable, lease liabilities, and
pension liabilities
Cost of good sold - Answers - -Total cost of merchandise sold during the period.
-Expense; related to the revenue recognized from the sale of good
Operating cycle - Answers - - the operating cycle of a merchandising company is longer
than that of a service company
-purchase of merchandise inventory and sale lengths the cycle
Perpetual system - Answers - -companies keep detailed records of the cost of each
inventory purchase and sale
-determine the cost of goods sold each time a sale occurs
Periodic system - Answers - -don't keep detailed inventory records
-calculate costs of goods sold by subtracting ending inventory from the cost of good
available for sales.
-purchases & Freight cost are debit
-purchase returns and allowances is credit
-Costs of Good Sold: Beginning Inventory + costs of good purchased -ending inventory
1) determine the cost of goods on hand at the beginning of the accounting period
2) add it to the cost of goods purchased
3) Subtract the cost of goods on land as determined by the physical inventory count at
the end of the accounting period.
Advantages of the Perpetual System - Answers - -Provide better control over
inventories than a periodic system
