Acct 106 Exam 2
Terms in this set (9)
Income summary account
Temporary account (only used for the closing process) that contains a credit for the sum of all revenues (and gains) and a debit for the sum of all expenses (and losses) and its balance equals net income or net loss to be transferred to the capital account.
Recording closing entries
Is to transfer the end-of-period balances in revenue, expense, and withdrawals accounts to the permanent capital account.
Closing income summary
Happens once the closing entries are transferred and posted to the capital account and have zero balances, then it is considered closed or cleared.
Temporary and permanent accounts
Temp (or nominal) accts: accumulate data related to one accounting period. They include all income statement accounts, the withdrawals account, and the Income Summary account. They are temp because the accounts are opened at the beginning of a period, used to record transactions and events for that period, and then closed at the end of the period. The closing process only applies to temp accounts.
Permanent (or real) accts: report on activities related to one or more future accounting periods. They carry their ending balances into the next period and generally consist of all balance sheet accounts including assets, liability, and equity accounts which are not closed.
Post-closing trial balance
is a list of permanent accounts and their balances from the ledger after all closing entries have been journalized and posted. It lists the balances for all accounts not closed. These accounts comprise a company's assets, liabilities, and equity, which are identical to those in the balance sheet. The aim of a post-closing trial balance is to verify that (1) total debits equal total credits for permanent accounts and (2) all temporary accounts have zero balances.
Journal entries at the end of an accounting period to bring an asset or liability account to its proper amount and update the related expense or revenue account.
Classified balance sheet
Organizes assets and liabilities into important subgroups that provide more information to decision makers.
Used to refer to the loss of inventory and it is computed by comparing a physical count of inventory with recorded amounts.
Revenues from selling merchandise
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