Closing Entries: A Comprehensive Guide for Accounting Students

Question 1

What is the purpose of preparing a trial balance after making adjusting entries?

Accepted Answer

To verify the equality of debits and credits

Answer

To detect errors in the accounting process

Answer

To close temporary accounts

Answer

To create the financial statements

Question 2

What is the objective of transferring net income to retained earnings?

Accepted Answer

To accumulate previous earnings

Answer

To reset temporary account balances

Answer

To compute dividends

Answer

To create the balance sheet

Question 3

What is the main reason for preparing a trial balance after posting closing entries?

Accepted Answer

To check the accuracy of the closing process

Answer

To transfer balances to permanent accounts

Answer

To create financial statements

Answer

To record transactions for the new accounting period

Question 4

As the initial step in the closing process, which of the following actions is taken?

Accepted Answer

Creating a trial balance

Answer

Making adjusting entries

Answer

Closing income statement accounts

Answer

Closing balance sheet accounts

Question 5

A trial balance plays what role in the closing process?

Accepted Answer

Verifying that debits and credits are equal

Answer

Identifying accounting record errors

Answer

Determining net income

Answer

Closing temporary accounts

Question 6

What is the purpose of closing the income summary account?

Accepted Answer

Transferring net income to retained earnings

Answer

Resetting income statement accounts to zero

Answer

Calculating cost of goods sold

Answer

Preparing financial statements

Question 7

What is the primary purpose of making adjusting entries?

Accepted Answer

Updating account balances for unrecorded transactions

Answer

Correcting accounting record errors

Answer

Closing temporary accounts

Answer

Preparing financial statements

Question 8

Which of the below qualifies as an example of an adjusting entry?

Accepted Answer

Recording depreciation expense

Answer

Issuing a cheque for a supplier payment

Answer

Receiving cash from a customer

Answer

Paying salaries to employees

Question 9

Construct the journal entry used to close revenue accounts.

Accepted Answer

Debit revenue accounts, credit income summary account

Answer

Credit revenue accounts, debit income summary account

Answer

Debit income summary account, credit revenue accounts

Answer

Credit income summary account, debit revenue accounts

Question 10

What is the purpose of creating a post-closing trial balance?

Accepted Answer

Verifying that debits and credits are still equal after closing

Answer

Identifying errors in the closing process

Answer

Calculating net income

Answer

Preparing financial statements

Question 11

Which type of account remains unaffected by the closing process?

Accepted Answer

Permanent capital accounts

Answer

Revenue accounts

Answer

Expense accounts

Answer

Asset accounts

Question 12

In the closing process, which step should be performed first?

Accepted Answer

Preparing a trial balance

Answer

Making adjusting entries

Answer

Closing temporary accounts

Answer

Transferring net income to retained earnings

Question 13

Temporary accounts are closed to achieve a balance of:

Accepted Answer

Zero

Answer

Permanent accounts

Answer

The income statement

Answer

The balance sheet

Question 14

The primary reason for transferring net income to retained earnings is to:

Accepted Answer

Maintain a record of profits over time

Answer

Close the income statement

Answer

Reduce the amount of retained earnings

Answer

Prepare for the next accounting period

Question 15

Which of the following is NOT a method used to close temporary accounts?

Accepted Answer

Debit to Balance Sheet

Answer

Credit to Income Summary

Answer

Debit to Income Summary

Answer

Credit to Retained Earnings

Question 16

The purpose of adjusting entries is to:

Accepted Answer

Update accounts for transactions that have occurred but are yet to be recorded

Answer

Rectify errors in accounting records

Answer

Close temporary accounts

Answer

Transfer net income to retained earnings

Question 17

Which of these is an example of an accrued expense?

Accepted Answer

Wages payable

Answer

Rent expense

Answer

Prepaid insurance

Answer

Supplies on hand

Question 18

What is the main purpose of a trial balance?

Accepted Answer

Ensure total debits are equal to total credits

Answer

Close temporary accounts

Answer

Transfer net income to retained earnings

Answer

Prepare financial statements

Question 19

Closing a revenue account results in:

Accepted Answer

Increased retained earnings

Answer

Decreased retained earnings

Answer

Increased expenses

Answer

Decreased assets

Question 20

What is the primary objective of recording adjusting entries?

Accepted Answer

To allocate revenues and expenses to the proper periods

Answer

To correct errors in the accounting records

Answer

To prepare the financial statements

Answer

To close the temporary accounts

Question 21

What is the purpose of the Retained Earnings account?

Accepted Answer

To show the net income of the business since its inception

Answer

To show the net losses of the business since its inception

Answer

To show the total assets owned by the business

Answer

To record transactions involving the payment of dividends

Question 22

How do closing entries affect the balance sheet?

Accepted Answer

They have no impact on the balance sheet

Answer

They increase assets and liabilities

Answer

They decrease assets and liabilities

Answer

They decrease assets and increase liabilities

Question 23

Which of the following is a characteristic of a revenue account?

Accepted Answer

It increases the owner's equity

Answer

It decreases the owner's equity

Answer

It is closed at the end of the period

Answer

It is not closed at the end of the period

Question 24

Which formula calculates net income?

Accepted Answer

Revenue - Expenses

Answer

Revenue + Expenses

Answer

Expenses - Revenue

Answer

Income - Expenses

Question 25

Which party is responsible for reviewing closing entries?

Accepted Answer

Both the auditor and management

Answer

The accountant

Answer

The auditor

Answer

The management

Question 26

Why are closing entries reversed at the beginning of a new accounting period?

Accepted Answer

To prepare the accounts for recording transactions in the new period.

Answer

To remove closed balances from the accounting records.

Answer

To correct errors made during the closing process.

Answer

To reduce the number of accounts in the ledger.

Question 27

What is the primary purpose of making closing entries?

Accepted Answer

To transfer balances from temporary accounts to permanent accounts

Answer

To calculate depreciation expense

Answer

To prepare a trial balance

Answer

To correct accounting errors

Question 28

Which of the following is NOT a step in the closing process?

Accepted Answer

Reopening temporary accounts in the new accounting period

Answer

Preparing a trial balance

Answer

Making adjusting entries

Answer

Closing revenue and expense accounts

Question 29

What is the purpose of the Retained Earnings account?

Accepted Answer

To accumulate net income and losses over time

Answer

To track current profits

Answer

To record dividends paid to shareholders

Answer

To adjust for depreciation expense

Question 30

What is the primary purpose of a trial balance?

Accepted Answer

To check for errors in the accounting records

Answer

To calculate net income

Answer

To close the books

Answer

To prepare financial statements

Question 31

Which of the following is a characteristic of a permanent account?

Accepted Answer

Balance is carried forward from period to period

Answer

Closed at the end of each accounting period

Answer

Only used to track expenses and revenues

Answer

Used to record transactions between assets and liabilities

Question 32

What is the accounting formula used to calculate net income?

Accepted Answer

Revenue - Expenses

Answer

Expenses - Revenue

Answer

Assets - Liabilities

Answer

Equity + Liabilities

Question 33

Which of the following is NOT a benefit of closing the accounting books?

Accepted Answer

Prevents fraud

Answer

Provides a clear financial snapshot of the business

Answer

Helps prevent errors

Answer

Facilitates preparation of tax returns

Question 34

What is the main purpose of the Income Summary account?

Accepted Answer

To summarize all revenues and expenses for the period

Answer

To calculate net income

Answer

To transfer net income to retained earnings

Answer

To adjust for depreciation expense

Question 35

Which of the following is NOT considered an adjusting entry?

Accepted Answer

Closing the books

Answer

Recording accrued expenses

Answer

Recording prepaid expenses

Answer

Recording deferred revenue

Question 36

What is the primary purpose of the Retained Earnings account?

Accepted Answer

To accumulate the earnings of the business over time

Answer

To record the net income of the business

Answer

To record the dividends paid to shareholders

Answer

To record the losses incurred by the business

Question 37

Which of the following is considered a temporary account?

Accepted Answer

Sales Revenue

Answer

Cash

Answer

Inventory

Answer

Buildings

Question 38

Which step should be performed first in the closing process?

Accepted Answer

Preparing a trial balance

Answer

Making adjusting entries

Answer

Closing the temporary accounts

Answer

Transferring net income to Retained Earnings

Question 39

What type of account is used to record expenses that have been incurred but not yet paid?

Accepted Answer

Accrued expense

Answer

Prepaid expense

Answer

Deferred revenue

Answer

Unearned revenue

Question 40

What is the primary purpose of a post-closing trial balance?

Accepted Answer

To ensure that total debits equal total credits after closing

Answer

To prepare the financial statements

Answer

To identify any errors in the closing process

Answer

To record the closing entries permanently

Question 41

Which account is used to close revenue accounts and transfer their net balance to?

Accepted Answer

Income Summary

Answer

Expense Summary

Answer

Retained Earnings

Answer

Cost of Goods Sold

Question 42

Which of the following is NOT a necessary step in the closing process?

Accepted Answer

Prepare a statement of cash flows

Answer

Make adjusting entries

Answer

Close the temporary accounts

Answer

Prepare a trial balance

Question 43

What is the primary purpose of the Retained Earnings account?

Accepted Answer

To accumulate net income over multiple periods

Answer

To track changes in equity

Answer

To calculate income tax liability

Answer

To record dividends paid to shareholders

Question 44

Which account is debited in the closing entry to transfer the balance of the Income Summary account?

Accepted Answer

Retained Earnings

Answer

Sales Revenue

Answer

Expense Summary

Answer

Cash

Question 45

What is the main purpose of preparing a post-closing trial balance?

Accepted Answer

To verify the equality of debits and credits after closing entries

Answer

To generate financial statements

Answer

To calculate net income

Question 46

Which type of account typically has a zero balance after the closing process?

Accepted Answer

Temporary account

Answer

Contra account

Answer

Control account

Answer

Permanent account

Question 47

What is the purpose of making adjusting entries before closing the books?

Accepted Answer

To update account balances and ensure financial statements are accurate

Answer

To close the temporary accounts

Answer

To calculate depreciation expense

Question 48

Which of the following is an example of a closing entry?

Accepted Answer

Income Summary to Retained Earnings

Answer

Cash to Accounts Receivable

Answer

Supplies Expense to Supplies

Answer

Prepaid Rent to Rent Expense

Question 49

What is the primary purpose of the trial balance prepared after posting closing entries?

Accepted Answer

To prove the equality of debits and credits

Answer

To close the books

Answer

To record adjusting entries

Answer

To calculate net income

Question 50

The primary purpose of closing entries is to:

Accepted Answer

Transfer balances from temporary accounts to permanent accounts.

Answer

Calculate the net income for the period.

Answer

Adjust the accounts for unrecorded transactions.

Question 51

Which of the following accounts remains open (with a balance) at the end of the accounting period?

Accepted Answer

Retained Earnings

Answer

Cost of Goods Sold

Answer

Sales Revenue

Answer

Supplies Expense

Question 52

After closing entries have been posted, the balances in temporary accounts should be:

Accepted Answer

Zero

Answer

Equal to the closing balance in the permanent accounts.

Answer

Negative.

Answer

Unchanged.

Question 53

What is the trial balance after closing entries known as?

Accepted Answer

Post-closing trial balance

Answer

Unadjusted trial balance

Answer

Adjusted trial balance

Answer

Closing trial balance

Question 54

What is the process of reversing closing entries at the beginning of the next accounting period called?

Accepted Answer

Reversing entries

Answer

Adjusting entries

Answer

Reclassifying entries

Answer

Correcting entries