Chapter 4

Chapter 4 - The classes of liabilities are current...

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Chapter 4: What are the two purposes of closing entries? What accounts are not affected? The two purposes of closing entries are: 1. Revenue, expense, and withdrawals accounts must begin each period with zero balances. 2. Owner’s capital must reflect prior periods’ revenues, expenses, and withdrawals. The accounts that are not affected are all balance sheet accounts that are real. What is the purpose of the Income Summary account? An income summary account is a temporary account used only in the closing process to which the balances of revenue and expense accounts (including any gains or losses) are transferred; its balance is transferred to the capital account (or retained earnings for a corporation). Basically it is used to double check the debit and credit for the correct balances. What classes of assets and liabilities are shown on a typical classified balance sheet? The classes of assets are current assets, Noncurrent assets, long-term investments, plant assets and intangible assets.
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Unformatted text preview: The classes of liabilities are current liabilities and noncurrent liabilities. Chapter 5: Explain how a business can earn a positive gross profit on its sales and still have a net loss? A business can earn a positive gross profit on its sales and still have a net loss if the company expenses are more than the gross profit than the company will have net loss. Why do companies offer a cash discount? Companies offer a cash discount to encourage the buyers to pay earlier. What is the difference between the single-step and the multiple-step income statement formats? The difference between single-step and multiple-step is that: Single-step is not as detailed and offers only one subtotal for total expenses and Multiple-step shows detailed computations of net sales and other costs and expenses, and reports subtotals for various classes of items....
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This note was uploaded on 11/15/2010 for the course AC 201 taught by Professor Leland during the Fall '10 term at Park.

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