FUNDAMENTALS or ACCOUNTING ____+-_c_~ 29. After closing the expense accounts, the total of the expense accounts win appear on the debit side of the income 31.1 mmary account. 30. The debit .to Income Summary in the second closing entry represents the total expenses. . - . 31. The Income Summary account balance should always increase after the closing entries are posted at the end of the accounting period. _ 32. Drawing is recorded in the Balance Sheet Debit column of a worksheet. 33. The work sheet is used to pull together Up-to-date account balances needed to prepare the financial statements. 34. Financial statements are prepared by taking the figures directly from the work sheet. ' _ 35. The adjusting entry for supplies on hand is always reversed. QUESTION 1. What are the parts of a 10-column worksheet? 2. Explain the relevance of adjusting entries in preparing the worksheet. 3. Enumerate the components of a complete set of financial statements and briefly describe each. 4. How does an account form and a report form of balance sheet differ? 5. What are closing entries and why are they made? 6. Explain the difference between net income and net loss. 7. How would the company's books be affected if the company's accountant failed to make any closing entries? 8. Compare and contrast a post-closing trial balance with a trial balance before closing. 9. What are reversing entries and how are they made? 10. Are all adjustments reversed? Explain. TRUE OR FALSE 1. The statement of owner's equity shows the state of the business on a specific date. 2. The balance sheet reports assets, liabilities, and owner's equity on a specific date. 3. The income statement and statement of owner's equity provide information covering a period of time. 4. The trial balance is used in preparing financial statements. 5. A trial balance is a formal business report. 6. A trial balance is taken periodically to check the equality of the debits and credits. 7. All transactions must be posted before preparing a trial balance. 8. A manual worksheet is usually prepared in pencil. 9. When an account balance is not affected by an adjusting entry, the amount shown in the Trial Balance columns is extended directly to the Adjusted Trial Balance columns. 10. A contra-asset appears on the Statement of Profit or Loss. 11. If the debits in the income statement columns of the worksheet total P50,000 and the credits total P60,000 before net income or net loss has been determined, the business has a net income of P10,000. 308| CHAPTER 7 | WORKSHEET AND FINANCIAL STATEMENTS 12. Recording adjustments on the work sheet has no effect on the ledger accounts. 13. The income summary account is an account used only during the closing process. 14. The income summary account appears on the income statement at the end of the accounting period. 15. The Account Title and Balance Sheet columns of the work sheet provide all of the information necessary to prepare the statement of owner's equity. 16. A Statement of Profit or Loss is an itemized statement that provides information regarding the status of the assets, liabilities, and owner's equity of a business enterprise as of a specified date. 17. The purpose and use of the income summary account is to summarize the difference between revenues and expenses. 18. A post-closing trial balance is used to prove the equality of debit and credit balances in the general ledger accounts after the closing entries have been posted. 19. Assets, liabilities, and the owner's capital account are closed at the end of the accounting period. 20. To close the income summary account with a credit balance, debit the account for its balance and credit the drawing account. 21. To close an expense account with a debit balance, debit the account for its balance and credit the income summary account. 22. The first step in the closing entries is to close the revenue account(s) into the Income Summary account. 23. The balance in the owner's Capital account is closed to the owner's Drawing account. 24. The fourth step in the closing procedure is to close the Income Summary account into the Capital account. 25. Entries required to clear or zero the balances of the temporary accounts at the end of the year are called adjusting entries. 26. If a business has a net loss for a fiscal period, the journal entry to close the Income Summary account is a debit to Income Summary and a credit to Capital. 27. If Income Summary has a credit balance after closing revenue and expense accounts, this indicates a net loss. 28. The balance of the Drawing account is closed to the Capital account. 309