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Language of business, purpose of GAAP, adjusting entries, closing entries

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1. Why is accounting often referred to as the "language of business"?

2. What are generally accepted accounting principles (GAAP)? Who currently develops and issues GAAP? What is the purpose of GAAP?

3. Why are adjusting entries necessary?

4. The analysis process for preparing adjusting entries involves two basic steps. Identify the two steps and explain why both are necessary.

5. What is the purpose of closing entries?

6. What is the purpose of the post-closing trial balance? Explain where the information for the post-closing trial balance comes from.

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Solution Summary

The language of business, purpose of GAAP and adjusting entries for accounting are examined.

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Solutions Guide: The answers given below are from the solutions manual; please do not submit as is. Those are provided as a guideline so that you better understand the material

1. Why is accounting often referred to as the "language of business"?

Accounting is considered the "language of business" because it provides the means of accumulating, measuring, and recording the successes and failures of business operations. Accounting also provides a mechanism for communicating the financial results of businesses to the decision makers (e.g., investors, creditors, managers, government, labor unions, etc.).

2. What are generally accepted accounting principles (GAAP)? Who currently develops and issues GAAP? What is the purpose of GAAP?

Generally accepted accounting principles (GAAP) are ...

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