Understanding Closing Entries and Balances

Which of the following accounts is closed at the end of the accounting period for a sole proprietorship?

• Owner’s Capital

• Service Revenue

• Equipment

• Accounts Payable

What is the main purpose of preparing closing journal entries?

• To record daily transactions

• To transfer balances of temporary accounts to a permanent account

• To correct errors in the balance sheet

• To prepare the cash flow statement

Which of the following is a temporary account?

• Owner’s Drawings

• Accounts Receivable

• Notes Payable

• Land

After closing entries are posted, which type of account will have a zero balance?

• Permanent accounts

• Temporary accounts

• Asset accounts

• Liability accounts

Which of the following is NOT included in a post-closing trial balance?

• Owner’s Capital

• Equipment

• Service Revenue

• Accounts Payable

What is the main difference between temporary and permanent accounts?

• Temporary accounts are reported on the balance sheet, permanent accounts are not

• Temporary accounts are closed at period end, permanent accounts are not

• Permanent accounts are closed at period end, temporary accounts are not

• Both are closed at period end

Which of the following errors will NOT affect the balance sheet totals?

• Omitting an asset and a liability of equal amounts

• Recording an asset as an expense

• Overstating an asset

• Understating a liability

Which account will appear on the post-closing trial balance?

• Rent Expense

• Owner’s Capital

• Service Revenue

• Salaries Expense

Which of the following is a permanent account?

• Utilities Expense

• Owner’s Capital

• Service Revenue

• Owner’s Drawings

What is the effect of failing to close the revenue account at the end of the period?

• Assets will be understated

• Owner’s equity will be overstated

• Liabilities will be overstated

• Revenue will be carried forward to the next period