Accounting 11 Chapter 8 Review
If nominal accounts are not closed out at the end of a fiscal period, how does this affect account data for the following fiscal period? Provide an example.
Answer It would cause the account balances to be inaccurate. For example the income statement would be overstated if there was a net income Revenue and Expense accounts were not closed out.
What are adjusting and closing entires dated as on the journal?
Answer They are dated at the end of the fiscal period. NOTE: this is not necessarily December 31.
What type of accounts are current assets?
Answer Any short term assets that are used up or turned into cash within one year.
The revenue account needs to be ____________ at the end of the fiscal year in order to be closed out.
Answer DEBITED
Which accounting standard states that accounting should be done in equal periods of time?
Answer Time Period Concept
What is the temporary equity account used only during the closing process?
Answer Income Summary Account
Which method of depreciation is preferred by the Canada Revenue Agency?
Answer Declining balance method
What is the equation for calculating straight-line depreciation?
Answer Purchase price - salvage value —————————————— # of periods used
Depreciation is recorded in which account on the income statement?
Answer Depreciation expense
What are the nominal accounts?
Answer Revenue Expenses Drawings
Last minute changes that need to be made at the end of the fiscal period are known as…
Answer Adjusting entries
What is the 50% Rule?
Answer This allows half of a businsses’ asset cost to be eligible for depreciation in the first year of use, regardless of which month it was purchased.
What is accrual accounting?
Answer Accrual accounting attempts to record revenues and expenses when they happen, regardless of whether cash is received of paid.
Define prepaid expense.
Answer An expense, other than for inventory, with benefits that extend into the future, paid for in advance.
Name the order in which accounts are closed in the closing process.
Answer Revenue Expenses Income Drawings