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1. The balance sheet should be prepared a.after the income statement and the statement of owner’s...

1. The balance sheet should be prepared

a.after the income statement and the statement of owner’s equity

b.before the income statement and after the statement of owner’s equity

c.before the income statement and the statement of owner’s equity

d.after the income statement and before the statement of owner’s equity

2. Which of the following accounts will not be closed to the capital account at the end of the year?

a.Fees Earned

b.Insurance Expense

c.Prepaid Insurance

d.Utilities Expense

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Answer #1

`Answers:

1. a.after the income statement and the statement of owner’s equity

Income statement is prepared first, followed by statement of owner’s equity and then Balance sheet. It is because the calculations from Income statement is required to prepare statement of owner's equity and then it is used in preparing balancesheet. Net Income/(Loss) from Income statement is adjusted in statement of owner's equity and balance of owner's equity is required to prepare Balance sheet.

2. c.Prepaid Insurance

All income statement accounts are closed at the end of the year.

Prepaid Insurance is an asset ie. it is a balancesheet Item. It is not closed to capital account . The balance of prepaid insurance is shown in Balance sheet.

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