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How accounting practices are used in businesses?

How do the following relate to the practice of accounting and its use in businesses?

1. Preparation of closing entries, reversing entries and the post-closing trial balance
2. Preparation of a classified income statement, retained earnings statement and balance sheet.

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1. Preparation of closing entries, reversing entries and the post-closing trial balance

Closing entries and the post closing trial balance are needed to ensure that that period's activity is kept separate from this month. These are typically done monthly or at least when financial statements are desired (quarterly or annually). Reversing entries are typically used for accruals for which the actual bill is expected in the next month. For example, if the power bill comes on the 10th of the month, the accrual will be an estimate at month end. So, an accrual of $800 is made. When the actual bill comes in, only the increment above $800 should be expensed since $800 is already booked. If you reverse the accrual and expense the bill as paid, the net will automatically wash in this period's account:

Ga Power Bill $812.
Reverse ...

Solution Summary

Your discussion is 543 words and explains how these procedures are completed in the field.

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