Adjusting and Closing Entries Flashcards
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Read the first 6 Adjusting and Closing Entries flashcards as text
What is the purpose of adjusting entries?
Answer: To allocate revenues and expenses to the proper period
Adjusting entries ensure that revenues and expenses are recorded in the appropriate accounting period according to the accrual basis of accounting.
Which of the following accounts typically requires an adjusting entry?
Answer: Prepaid expenses
Prepaid expenses, such as insurance or rent, require adjusting entries to allocate costs over time properly.
What is the purpose of closing entries?
Answer: To reset revenue and expense accounts for the next period
Closing entries transfer balances from temporary accounts (revenues, expenses, and dividends) to permanent equity accounts.
Which accounts are NOT closed during the closing process?
Answer: Asset and liability accounts
Permanent accounts such as assets, liabilities, and equity are not closed at the end of the period, unlike temporary accounts.
Which financial statement is directly affected by closing entries?
Answer: Income statement
Closing entries impact the income statement by resetting temporary accounts and transferring net income to retained earnings.
Which type of adjusting entry records unpaid salaries?
Answer: Accrued expense
An accrued expense adjusting entry records salaries or other expenses that have been incurred but not yet paid.