Chapter Five Questions

Chapter Five Questions - Chapter Five Questions 1. What...

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Chapter Five Questions 1. What does it mean to close an account? An account is closed when its balance is brought to zero at the end of an accounting period . Revenues, expenses, dividends, and the income summary account are closed each period. 2. What are the two purposes of the closing process? The closing process (1) keeps the results of different time periods separate from one another and (2) puts into stockholders’ equity owners’ rights to management-generated resources retained in the company. 3. What is the name of the account to which revenues are closed? Income summary. 4. Why are revenue accounts closed by debits? Revenue accounts normally have credit balances . Therefore, they are closed with debits. 5. What is the name of the account to which expenses are closed? Income summary. 6. Why are expense accounts closed by credits? Expense accounts normally have debit balances . Therefore, they are closed with credits. 7. Why does the name income summary seem appropriate for that account? Net income is the difference between revenues and expenses . Before it is closed to retained earnings, the income summary account balance is equal to net income because revenues and expenses are closed into income summary. 8. What does a credit balance in the income summary account before it is closed represent? A credit balance in income summary means revenues exceeded expenses or, in other words, the company had net income. 9. What is the name of the account to which income summary is closed?
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Retained earnings. 10. What is the name of the account to which dividends are closed? Retained earnings . 11. What effect do closing entries have on total resources? Closing entries do not affect total resources because only some stockholders’ equity accounts are involved in the closing process. 12. After the closing entries, what are the balances in revenues, expenses, and dividends accounts? After closing is complete, all revenues, expenses, and dividends accounts have $0 balances. 13. After the closing process, the balance in the retained earnings account agrees with retained earnings reported on which two financial statements? Statement of retained earnings and the balance sheet. Chapter Five Exercises Exercise 5.1: Income Statement Without Closing Entries The DiNatale Corporation's March 31 general ledger included the three accounts shown below . Fees Revenue Supplies Expense Salary Expense 3,000 (2/4) (2/15) 450 (2/28) 2,500 5,000 (2/12) (2/28) 300 (3/28) 2,500 2,000 (2/21) (3/13) 500 (3/31) 125 7,000 (2/27) (3/25) 200 5,125 4,000 (3/4) (3/31) 250 6,000 (3/9) 1,700 5,000 (3/16) 3,000 (3/24) 7,000 (3/31) 42,000
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1. Determine the company's fees revenue for March. $25,000: $4,000 (3/4) + $6,000 (3/9) + $5,000 (3/16) + $3,000 (3/24) + $7,000 (3/31) . 2. Determine the company's supplies expense for March.
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This note was uploaded on 10/09/2011 for the course ACCT 60.201 taught by Professor Monty during the Spring '11 term at UMass Lowell.

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Chapter Five Questions - Chapter Five Questions 1. What...

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