CB Adjusting and Closing Entries

Question 1

What is the purpose of adjusting entries?

Accepted Answer

To allocate revenues and expenses to the proper period

Answer

Adjusting entries ensure that revenues and expenses are recorded in the appropriate accounting period according to the accrual basis of accounting.

Question 2

Which of the following accounts typically requires an adjusting entry?

Accepted Answer

Prepaid expenses

Answer

Prepaid expenses, such as insurance or rent, require adjusting entries to allocate costs over time properly.

Question 3

What is the purpose of closing entries?

Accepted Answer

To reset revenue and expense accounts for the next period

Answer

Closing entries transfer balances from temporary accounts (revenues, expenses, and dividends) to permanent equity accounts.

Question 4

Which accounts are NOT closed during the closing process?

Accepted Answer

Asset and liability accounts

Answer

Permanent accounts such as assets, liabilities, and equity are not closed at the end of the period, unlike temporary accounts.

Question 5

Which financial statement is directly affected by closing entries?

Accepted Answer

Income statement

Answer

Closing entries impact the income statement by resetting temporary accounts and transferring net income to retained earnings.

(CB) Certified Bookkeeper Practice Test