CHAPTER 4
COMPLETING THE ACCOUNTING CYCLE
Chapter 4—Completing the Accounting Cycle
Chapter 4—Completing the Accounting Cycle
TRUE/FALSE
1. After analyzing transactions, the next step would be to post the transactions in the ledger.
ANS: F DIF: 1 OBJ: 01
2. The most important output of the accounting cycle is the financial statements.
ANS: T DIF: 2 OBJ: 01
3. The work sheet is not considered a part of the formal accounting records.
ANS: T DIF: 2 OBJ: 02
4. The work sheet is a working paper that accountants can use to summarize adjusting entries
and the account balances for the financial statements.
ANS: T DIF: 1 OBJ: 02
5. In a computerized accounting system, a work sheet may not be necessary because the
software program automatically posts entries to the accounts and prepares financial statements.
ANS: T DIF: 2 OBJ: 02
6. The trial balance may be listed on the work sheet instead of being prepared separately.
ANS: T DIF: 1 OBJ: 02
7. The totals of the Adjusted Trial Balance columns on a work sheet will always be the sum of
the Trial Balance column totals and the Adjustments column totals.
ANS: F DIF: 3 OBJ: 02
8. A work sheet heading is dated for a period of time.
ANS: T DIF: 2 OBJ: 02
9. On the work sheet, the capital and drawing account balances are extended to the Balance
Sheet columns.
ANS: T DIF: 1 OBJ: 02
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Chapter 4—Completing the Accounting Cycle
10.After the account balances have been extended from the Adjusted Trial Balance columns on the
work sheet, the difference between the initial totals of the Balance Sheet debit and credit columns is Net Income or Net Loss.
ANS: T DIF: 3 OBJ: 02
11. After Net Income or Loss is entered on the work sheet, the debit column total must equal the
credit column total for the Balance Sheet pair of columns.
ANS: T DIF: 3 OBJ: 02
12. A net loss is shown on the work sheet in the credit columns of both the Income Statement
columns and the Balance Sheet columns.
ANS: F DIF: 3 OBJ: 02
13. Net income is shown on the work sheet in the Income Statement debit column and the Balance
Sheet credit column.
ANS: T DIF: 2 OBJ: 02
14. If the totals of the Income Statement debit and credit columns of a work sheet are $22,750 and
$25,000, respectively, after all account balances have been extended, the amount of the net loss is $2,250.
ANS: F DIF: 2 OBJ: 02
15. The worksheet and the financial statements both require dollar signs.
ANS: F DIF: 1 OBJ: 02
16. Round tripping is a fraudulent scheme where business A artificially inflates revenue by
lending money to customer B who uses that money to buy products from A.
ANS: T DIF: 2 OBJ: 03
17. There is really no benefit in preparing financial statements in any particular order.
ANS: F DIF: 2 OBJ: 03
18. On the income statement, miscellaneous expenses are usually presented as the last item
without regard to the dollar amount.
ANS: T DIF: 2 OBJ: 03
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Chapter 4—Completing the Accounting Cycle
19. The usual presentation of the statement of owner's equity is (1) Beginning capital, (2) Net
income or loss, (3) Drawing, (4) Owner's contributions, (5) Ending capital.
ANS: F DIF: 2 OBJ: 03
20. The difference between a classified balance sheet and one that is not classified is that the
classified one has subheadings.
ANS: T DIF: 1 OBJ: 03
21. Cash and other assets that may reasonably be expected to be realized in cash, sold, or
consumed through the normal operations of a business, usually longer than one year, are called current assets.
ANS: F DIF: 2 OBJ: 03
22. Prepaid Insurance is an example of a current asset.
ANS: T DIF: 1 OBJ: 03
23. Land is an example of a plant asset.
ANS: T DIF: 1 OBJ: 03
24. Liabilities that will be due within one year or less and that are to be paid out of current assets
are called current liabilities.
ANS: T DIF: 1 OBJ: 03
25. The amount of the net income for a period appears on both the income statement and the
balance sheet for that period.
ANS: F DIF: 3 OBJ: 03
26. Accrued taxes payable are generally reported on the balance sheet as a current liability.
ANS: T DIF: 1 OBJ: 03
27. At the end of the fiscal period, prepaid expenses are reported on the Income Statement as
expenses.
ANS: F DIF: 2 OBJ: 03
28. Office Equipment is an example of a current asset account.
ANS: F DIF: 1 OBJ: 03
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