Completing the Accounting Cycle 4 - 85
SHORT-ANSWER ESSAY QUESTIONS
S-A E 226
A worksheet is an optional working tool used by accountants to facilitate the preparation of
financial statements. Consider the steps followed in preparing a worksheet. How does the use of
a worksheet assist the accountant? Could financial statements be prepared without a worksheet?
Evaluate how the process would differ. Consider factors such as timeliness, accuracy, and
efficiency in your evaluation.
Solution 226
The worksheet organizes the accountant’s work in preparing the income statement and the
balance sheet. The worksheet contains the general ledger trial balance, the adjusting entries, and
an adjusted trial balance (if 10-column). The columns for these trial balances and entries allow
the accountant to prove the equality of the debits and credits at each step of the process. From
the adjusted trial balance the balance sheet and income statement amounts are obtained and
entered in the appropriate columns.
Preparing financial statements without the use of a worksheet would be less organized and
probably more prone to errors. And, if errors are made, they will probably be less easy to detect
and locate. . Therefore, the process would be less efficient and more time consuming.
Ans: N/A, LO: 1, Bloom: K, Difficulty: Easy, Min: 5, AACSB: Communication, AICPA FC: Measurement Analysis and Interpretation, AICPA PC:
Communication, IMA: Reporting
S-A E 227
Journalizing and posting closing entries is a required step in the accounting cycle. Discuss why it
is necessary to close the books at the end of an accounting period.
Solution 227
Closing entries are prepared to close the income statement accounts (the temporary accounts) of
the current year in order to start the next year. Income statement (temporary) accounts are
cumulative in nature but only for a year. The closing entries are what separate the accounting
periods. The next year’s accumulation of income statement data can begin once the accounts are
cleared and the balances transferred through the closing entries to owner’s equity.
Ans: N/A, LO: 2, Bloom: K, Difficulty: Easy, Min: 5, AACSB: Communication, BB: None, AICPA FC: Measurement Analysis and Interpretation, AICPA PC:
Communication, IMA: Reporting
S-A E 228
Give the definition of current assets and current liabilities and provide two examples of each.
Solution 228
Current assets are assets that a company expects to convert to cash or use up within one year or
its operating cycle, whichever is longer. Examples of current assets include short-term
investments, accounts receivable, and inventory. Current liabilities are obligations that the
company is to pay within the current year. Examples of current liabilities are accounts payable,
wages payable, and taxes payable.
Ans: N/A, LO: 4, Bloom: K, Difficulty: Easy, Min: 5, AACSB: Communication, BB: None, AICPA FC: Measurement Analysis and Interpretation, AICPA PC:
Communication, IMA: Reporting
