Questions on Accounting

4. – Why are revenue and expense accounts called temporary or nominal accounts? Revenue and expense accounts are referred to as temporary or nominal accounts because each period they are closed out to Income Summary in the closing process. Their balances are reduced to zero at the end of the accounting period; therefore, the term temporary or nominal is sometimes given to these accounts.
7. Indicate whether each of the following items is a real or nominal account and whether it appears in the balance sheet or the income statement
a) prepaid rent real, balance sheet
b) salaries and wages payable real, balance sheet
c) merchandise inventory real, balance sheet
d) accumulated depreciation real, balance sheet
e) office equipment real, balance sheet
f) service revenue nominal, income statement
g) office salaries expense nominal, income statement
h) supplies on hand real, balance sheet
10. What differences are there between the trial balance before closing and the trial balance after closing with respect to the following accounts?
a) accounts payable no change
b) expense accounts before closing, balances exist in these accounts, after closing, no balances exist
c) revenue accounts before closing, balances exist in these accounts, after closing, no balances exist
d) retained earnings account before closing, a balance exists in this account exclusive of any dividends or the net income or net loss for the period, after closing, the balance increased/decreased by the amount of net income or net loss, and decreased by dividends declared
e) cash no change
11. – What are adjusting entries and why are they necessary? Adjusting entries are prepared prior to the preparation of financial statements in order to bring the accounts up to date and are necessary
1. to achieve a proper matching of revenues and expenses in measuring income and
2. to achieve an accurate presentation of assets,