The Accounting Cycle
Easy Practice Test
Financial Accounting
The Accounting Cycle
Easy Practice Test
Click the “Check Your Answer” box below each problem to reveal the correct answer and explanation.
1. Which of the following is correct relating to an unadjusted trial balance?
a. it provides a listing of only balance sheet accounts
b. it provides a listing of accounts for the income statement only
c. it provides a check to determine if total debits equal total credits
d. it provides a check to determine that assets equal liabilities
Check Your Answer
C. An unadjusted trial balance provides a listing of all accounts and account balances prior to adjusting entries. There is a column for debit amounts and a column for credit amounts and debits must equal credits. If each journal entry was made with debits equal to credits the trial balance will be in balance (total debits = total credits)
2. The accounting cycle is performed in which order?
a. record and summarize transactions, prepare the balance sheet
b. record transactions, record adjusting entries, record closing entries
c. record transactions, record closing entries, record adjusting entries
d. record closing entries, record adjusting entries, prepare the income statement
Check Your Answer
B. The accounting cycle is performed in the following order: record transactions, prepare unadjusted trial balance, record adjusting entries, prepare adjusted trial balance, prepare income statement, prepare closing entries, prepare balance sheet. Prepare the post closing trial balance.
3. Temporary accounts are
a. closed at the end of the period
b. never closed
c. transferred to cash
d. balance sheet accounts
Check Your Answer
A. Temporary accounts are all accounts reported on the income statement. This includes revenues, expenses, gains, losses. Dividends paid is also a temporal account. Temporal accounts must start over at 0 at the beginning of the period. Temporal accounts are transferred to retained earnings to get the balance to 0 for next period.
4. Permanent accounts are
a. closed at the end of the period
b. closed after each transaction is recorded
c. transferred to cash
d. balance sheet accounts
Check Your Answer
D. Permanent accounts are all accounts reported on the balance sheet. These accounts are cumulative and do not start over at 0 at the beginning of the period. Assets and liabilities do not go away because a new accounting period begins. Permanent accounts are not closed to retained earnings.
5. Which of the following accounts will be closed at the end of the period?
a. cash
b. unearned revenue
c. loss on sale of an asset
d. accrued expenses
Check Your Answer
C. All accounts reported on the income statement are closed at the end of the period and transferred to retained earnings. Losses are reported on the income statement. All other choices are reported on the balance sheet. Dividends paid is not reported on the income statement, however, it is closed and transferred to retained earnings.
6. Which of the following accounts will not be closed at the end of the year?
a. sales
b. rent expense
c. loss on sale of an asset
d. accrued expenses
Check Your Answer
D. All accounts reported on the income statement are closed at the end of the period and transferred to retained earnings. Accrued expenses is a liability account and is not closed to 0 at the end of the period.
7. The main purpose of closing entries is to
a. transfer the income statement account balances to retained earnings and prepare income statement accounts to start over for the next period
b. adjust balance sheet account balances to what is owed and owned at the end of the period
c. prepare the income statement
d. report revenues when earned and expenses when incurred
Check Your Answer
A. Closing entries are done for the purpose of making revenues and expenses go to 0 so they start over for the next period. The balances of these accounts is transferred to retained earnings. Income statement accounts sum to net income which is part of retained earnings. (b. and d.) is accomplished with adjusting entries. You must prepare the income statement before you do closing entries (c.)
8. Which account would not be reported on a post closing trial balance?
a. cash
b. unearned revenue
c. dividends paid
d. accrued expenses
Check Your Answer
C. A post closing trial balance is done after closing entries. All income statement accounts and dividends paid are closed and have a 0 balance and are not reported on the post closing trial balance. The post closing trial balance reports balance sheet accounts only.
9. After the accountant prepares the adjusted trial balance, the next step is to
a. prepare the balance sheet
b. prepare closing entries
c. prepare the income statement
d. prepare adjusting journal entries
Check Your Answer
C. The income statement is prepared with the final numbers reported on the adjusted trial balance. The income statement is prepared before closing entries that adjust ending retained earnings, which is used reported on the balance sheet. Adjusting entries are done prior to preparing the adjusted trial balance.
10. A trial balance that does not balance will detect an error caused by recording
a debit
a. to an owner’s equity account
b. to a contra account
c. to a liability account
d. as a credit
Check Your Answer
D. Recording an account as a credit that should have been a debit will make the trial balance out of balance. Out of balance means that debits do not equal credits. Using the wrong account can not be detected on a trial balance. The trial balance will still balance when wrong accounts are used.
11. Prepare an unadjusted trial balance from the following list of accounts.
| Accounts |
|
| Cash | 15,000 |
| Accounts Receivable | 35,000 |
| Supplies | 12,000 |
| Prepaid Insurance | 10,000 |
| Equipment | 80,000 |
| Accumulated Depreciation | 30,000 |
| Note Payable | 1,000 |
| Unearned Revenues | 6,000 |
| Capital Stock | 24,000 |
| Retained Earnings (1/1/2002) | 70,000 |
| Sales | 42,000 |
| Salary Expense | 3,000 |
| Supplies Expense | 13,000 |
| Loss on Sale of Equipment | 10,000 |
| Gain on Sale of Investments | 5,000 |
Check Your Answer
| Accounts | Debit | Credit |
| Cash | 15,000 | |
| Accounts Receivable | 35,000 | |
| Supplies | 12,000 | |
| Prepaid Insurance | 10,000 | |
| Equipment | 80,000 | |
| Accumulated Deprec. | 30,000 | |
| Note Payable | 1,000 | |
| Unearned Revenues | 6,000 | |
| Capital Stock | 24,000 | |
| Retained Earnings 1/1 | 70,000 | |
| Sales | 42,000 | |
| Salary Expense | 3,000 | |
| Supplies Expense | 13,000 | |
| Loss on Sale of Equipment | 10,000 | |
| Gain on Sale of Investments | 5,000 | |
| Total | 178,000 | 178,000 |
12. Following is an unadjusted trial balance and adjusting entries made by the company. Prepare an adjusted trial balance.
Unadjusted Trial Balance
| Accounts |
Debit | Credit |
| Cash | 25,000 | |
| Accounts Receivable | 62,000 | |
| Supplies | 6,000 | |
| Prepaid Insurance | 10,000 | |
| Equipment | 70,000 | |
| Accumulated Deprec. | 10,000 | |
| Note Payable | 20,000 | |
| Unearned Revenues | 4,000 | |
| Capital Stock | 1,000 | |
| Retained Earnings 1/1 | 88,000 | |
| Sales | 92,000 | |
| Salary Expense | 18,000 | |
| Rent Expense | 9,000 | |
| Supplies Expense | 13,000 | |
| Loss on Sale of Equipment | 2,000 | |
| Total | 215,000 | 215,000 |
Adjusting entries made:
Supplies Expense 4,000
Supplies 4,000
Depreciation Expense 2,500
Accumulated Depreciation 2,500
Salaries Expense 800
Salaries Payable 800
Prepaid Rent 1,000
Rent Expense 1,000
Bad Debt Expense 2,000
Allowance for U. A. 2,000
Check Your Answer
Adjusted Trial Balance
| Accounts |
Debit | Credit |
| Cash | 25,000 | |
| Accounts Receivable | 62,000 | |
| Allowance for U. A. | 2,000 | |
| Supplies | 2,000 | |
| Prepaid Insurance | 10,000 | |
| Prepaid Rent | 1,000 | |
| Equipment | 70,000 | |
| Accumulated Deprec. | 12,500 | |
| Note Payable | 20,000 | |
| Unearned Revenues | 4,000 | |
| Salaries Payable | 800 | |
| Capital Stock | 1,000 | |
| Retained Earning 1/1 | 88,000 | |
| Sales | 92,000 | |
| Salary Expense | 18,800 | |
| Rent Expense | 8,000 | |
| Supplies Expense | 17,000 | |
| Loss on Sale of Equipment | 2,000 | |
| Bad Debt Expense | 2,000 | |
| Depreciation Expense | 2,500 | |
| Total | 220,300 | 220,300 |
The balances for all accounts used in the adjusting entries are changed by the debit or credit in the entry.
All accounts that are used in an adjusting entry and were not listed on the unadjusted
trial balance are added to the adjusted trial balance.
Allowance for U. A and Accumulated depreciation are contra asset accounts.
The amount for contra asset accounts are reported on the credit side.
All amounts on a trial balance are positive numbers.
13. Prepare closing entries from the following adjusted trial balance.
Adjusted Trial Balance
| Accounts | Debit | Credit |
| Cash | 25,000 | |
| Accounts Receivable | 62,000 | |
| Supplies | 2,000 | |
| Prepaid Rent Expense | 1,000 | |
| Building | 70,000 | |
| Accumulated Deprec. | 12,500 | |
| Notes Payable | 20,000 | |
| Unearned Revenues | 4,000 | |
| Salaries Payable | 1,500 | |
| Accrued Expenses | 12,000 | |
| Capital Stock | 1,000 | |
| Retained Earnings 1/1 | 78,500 | |
| Dividends Paid | 5,000 | |
| Sales | 82,000 | |
| Dividend Revenue | 1,000 | |
| Salary Expense | 18,000 | |
| Rent Expense | 8,000 | |
| Supplies Expense | 17,000 | |
| Gain on Sale of Equipment | 2,000 | |
| Advertising Expense | 4,000 | |
| Depreciation Expense | 2,500 | |
| Total | 214,500 | 214,500 |
Check Your Answer
Only income statement accounts and dividends paid are closed. You must use every income statement account in closing entries.
First: Make all revenue and gain accounts = 0. They are credit balances, so debit them for their balance to make them go to 0. Record the total as a credit to retained
earnings.
Sales 82,000
Dividend Revenue 1,000
Gain on sale of equipment 2,000
Retained Earnings 85,000
Second: Make all expense and loss accounts = 0. They have debit balances, so credit them for their balance to make them go to 0. Record the total as a debit to retained earnings.
Retained Earnings 49,500
Salary Expense 18,000
Rent Expense 8,000
Supplies Expense 17,000
Advertising Expense 4,000
Depreciation Expense 2,500
Third: Make the dividends paid account = 0. It has a debit balance, so credit dividends paid for the balance to make it go to 0. Debit retained earnings for the same amount.
Retained Earnings 5,000
Dividends Paid 5,000
14. Use the adjusted trial balance and the closing entries made in problem 13. to
determine the ending balance of retained earnings.
Check Your Answer
The closing entries transfer net income/loss and dividends to retained earnings and change the balance.
Important:
Remember to review the sections: Journal Entries & Adjusting Journal Entries These sections are also part of the accounting cycle.