CPB / BookKeeping Bookkeeping Cycle 2 — Questions and Answers
Question 1: Which step in the bookkeeping cycle immediately follows posting journal entries to the ledger?
- Preparing the trial balance (Correct answer)
- Adjusting entries
- Closing entries
- Preparing financial statements
Correct answer: Preparing the trial balance
After posting to the ledger, the next step is preparing an unadjusted trial balance to verify debits equal credits.
Question 2: A company pays $12,000 for a one-year insurance policy on July 1. What is the adjusting entry on December 31?
- Debit Insurance Expense $6,000; Credit Prepaid Insurance $6,000 (Correct answer)
- Debit Prepaid Insurance $6,000; Credit Insurance Expense $6,000
- Debit Insurance Expense $12,000; Credit Cash $12,000
- Debit Prepaid Insurance $12,000; Credit Cash $12,000
Correct answer: Debit Insurance Expense $6,000; Credit Prepaid Insurance $6,000
Six months of coverage has expired ($12,000 × 6/12 = $6,000), so Insurance Expense is debited and Prepaid Insurance is credited.
Question 3: Which accounts are closed at the end of the accounting period?
- Revenue, expenses, and dividends (Correct answer)
- Assets, liabilities, and equity
- Cash, accounts receivable, and inventory
- Prepaid expenses and accrued liabilities
Correct answer: Revenue, expenses, and dividends
Temporary accounts — revenues, expenses, and dividends — are closed to Retained Earnings at period end.
Question 4: What does a post-closing trial balance verify?
- Only permanent accounts remain open with equal debits and credits (Correct answer)
- All revenue and expense accounts have zero balances before closing
- The adjusted trial balance was prepared correctly
- All transactions were journalized in the current period
Correct answer: Only permanent accounts remain open with equal debits and credits
The post-closing trial balance confirms that only balance sheet (permanent) accounts remain and total debits equal total credits.
Question 5: Accrued salaries of $3,000 are unpaid at period end. Which adjusting entry is correct?
- Debit Salaries Expense $3,000; Credit Salaries Payable $3,000 (Correct answer)
- Debit Salaries Payable $3,000; Credit Salaries Expense $3,000
- Debit Cash $3,000; Credit Salaries Expense $3,000
- Debit Salaries Expense $3,000; Credit Prepaid Salaries $3,000
Correct answer: Debit Salaries Expense $3,000; Credit Salaries Payable $3,000
Accrued salaries are recorded by debiting the expense and crediting the liability (Salaries Payable) to match the period incurred.
Question 6: In which order are financial statements typically prepared?
- Income statement, statement of retained earnings, balance sheet (Correct answer)
- Balance sheet, income statement, statement of cash flows
- Statement of retained earnings, balance sheet, income statement
- Balance sheet, statement of retained earnings, income statement
Correct answer: Income statement, statement of retained earnings, balance sheet
Net income from the income statement flows into the statement of retained earnings, which then feeds the balance sheet equity section.
Question 7: What is the purpose of reversing entries in the bookkeeping cycle?
- To simplify recording of cash transactions in the next period related to prior-period accruals (Correct answer)
- To correct errors made in the previous accounting period
- To close revenue and expense accounts to retained earnings
- To transfer balances from temporary to permanent accounts
Correct answer: To simplify recording of cash transactions in the next period related to prior-period accruals
Reversing entries, made on the first day of the new period, simplify recording routine cash payments or receipts tied to prior-period accruals.
CPB / BookKeeping Bookkeeping Cycle 2
Which step in the bookkeeping cycle immediately follows posting journal entries to the ledger?