Chapter 8 Review

What is the primary purpose of closing entries in accounting?

• To record daily transactions

• To update the balance sheet

• To transfer balances from temporary accounts to permanent accounts

• To prepare financial statements

Which of the following accounts is considered a temporary account?

• Cash

• Accounts Receivable

• Sales

• Owner's Capital

What is the first step in the closing entries process?

• Close the revenue accounts

• Close the expense accounts

• Close the income summary account

• Close the owner's drawing account

Which account is used to summarize the revenues and expenses during the closing process?

• Income Summary

• Owner's Capital

• Retained Earnings

• Cash

How does the post-closing trial balance differ from the adjusted trial balance?

• It includes only temporary accounts

• It includes only permanent accounts

• It includes both temporary and permanent accounts

• It is prepared before closing entries

What is the effect of closing entries on the owner's equity when there is net income?

• It decreases owner's equity

• It increases owner's equity

• It has no effect on owner's equity

• It resets owner's equity to zero

Which of the following is a permanent account?

• Rent Expense

• Sales

• Owner's Capital

• Supplies Expense

What is the purpose of a post-closing trial balance?

• To ensure that all transactions have been recorded

• To verify that debits equal credits after closing entries

• To prepare financial statements

• To adjust accounts for the next period

Which entry is made to close the income summary account if it has a credit balance?

• Debit Income Summary; Credit Owner's Capital

• Debit Owner's Capital; Credit Income Summary

• Debit Income Summary; Credit Expenses

• Debit Revenues; Credit Income Summary

How are owner's drawings closed at the end of the accounting period?

• Debit Owner's Capital; Credit Owner's Drawings

• Debit Owner's Drawings; Credit Owner's Capital

• Debit Income Summary; Credit Owner's Drawings

• Debit Owner's Drawings; Credit Income Summary