ACC 100 Lecture Notes - Capital Account, Retained Earnings, Income Statement

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blacksardine128

4 Nov 2012

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To update the balance in the owner"s capital account, accountants close revenue, expense, and drawing accounts at the end of each fiscal year or, occasionally, at the end of each accounting period. For this reason, these types of accounts are calledtemporary or nominal accounts. Assets, liabilities, and the owner"s capital account, in contrast, are called permanent or real accounts because their ending balance in one accounting period is always the starting balance in the subsequent accounting period. When an accountant closes an account, the account balance returns to zero. Starting with zero balances in the temporary accounts each year makes it easier to track revenues, expenses, and withdrawals and to compare them from one year to the next. The purpose of the income summary account is simply to keep the permanent owner"s capital or retained earnings account uncluttered: close the owner"s drawing account to the owner"s capital account.

Related Questions

Adjusting entries are journal entries made at the end of theaccounting period to (select all that apply):

Question 1 options:

	Assign revenues to the periods in which they are earned.
	Update the Owner's, Capital account to its proper balance.
	Update asset accounts to their proper balances.
	Assign expenses to the periods in which they are incurred.
	Update liability accounts to their proper balances.

orangebee233

Sharp and Townson had capital balances of $60,000 and $120,000respectively on January 1 of the current year. On May 8, Sharpinvested an additional $10,000 in the partnership. During the year,Sharp and Townson withdrew $25,000 and $45,000 respectively. Afterclosing all expense and revenue accounts at the end of the year,Income Summary has a credit balance of $90,000, that Sharp andTownson have agreed to split on a 2:1 basis, respectively.
(a) Journalize the entries to close the income summary account andthe drawing accounts.
(b) Prepare the statement of owner's equity for the currentyear.

marooncrocodile808

1. The type of account and normal balance of AccumulatedDepreciation are
a) contra asset, debit
b) asset, credit
c) asset, debit
d) liability, credit
e) contra asset, credit

2. Net income for Susan's Treasures is $25, 000 for the currentyear. The owner withdrew $2,000 per month for personal livingexpenses. The owner's Capital account will show a net
a) decrease of $1,000
b) increase of $49,000
c) decrease of $24,000
d) increase of $1,000
e) increase of $25,000

3. Which of the following are all temporary accounts?
a) liabilities, revenue, and expenses
b) revenue, liabilities, and the owner's drawing
c) assets, liabilities, and owner's drawings
d) revenue, expenses, and the owner's drawing
e) liabilities and assets

4. The last step in the closing procedure closes
a) the income summary account
b) the capital account
c) the drawing account
d) the expense accounts
e) all liability accounts

5. The Cash account is
a) closed to the owner's Capital account
b) closed to the owner's drawing account
c) shown on the balance sheet as a liability
d) show on the income statement
e) not closed
6. Assume a company has a net income that exceeds the owner'sdrawing for the current year. The owner's Capital account
a) will have a zero balance after the closing entries arecomplete
b) will increase
c)will decrease
d) will reamain the same as the beginnning balance
e) it is impossible to tell with the information provided
7. An accountant wanting to know the balance of a particularaccount would refer to the
a) ledger
b) cart of accounts
c) book of original entry
d) source document
e) journal
8. The owner's Capital account is found on the
a) trial blance credit column and income statement debit column ofa work sheet
b) trial balance credit column, adjusted trial balance creditcolumn, and blance sheet credit column of a worksheet
c) trial balance credit column, adjusted credit column, adjustedtrial balance dredit column, and the balance sheet credit column ofa work sheet
d) trial balance debit column, adjustements debit column, adjustedtrial balance credit column, and the income statement credit columnof a work sheet.
e) blance sheet debit column and nowhere else

blackmule728

ACC 100 Lecture Notes - Capital Account, Retained Earnings, Income Statement

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