Every part of the accounting cycle is important to running an effective business. Preparing closing entries, reversing entries, and the post-closing trial balance ensure clear and accurate financial reporting. Closing entries essentially reset the balance to zero on all temporary accounts to begin the new reporting period. Reversing entries are made at the beginning of every new reporting period to adjust entries made in the previous accounting period. These types of adjustments are necessary because not all transactions within an account occur within the same reporting period. In addition to the closing and reversing entries, the post-closing trial balance also has an important role in every business. This final trial balance makes sure that accounts are all closed properly. It is a way for accountants to double check their work because it proves that everything is balanced before the next accounting period. All three of the steps summarize the reporting period to avoid confusion and makes the data easier to reference at a later date. The purpose of closing entries, reversing entries, and preparing a post-closing trial balance is to ensure that all income is accounted for and all expenses are paid every reporting period.
Financial statements or report is a formal record of a business or individuals financial health. The statements help business owners and individuals know where they stand with assets, liabilities, income and cash flow. The statements are used for a specific period of time, usually for a fiscal year and are important for future financial planning. Balance sheets, income statements and cash flow statement are commonly used to help companies with their finances. The balance sheet is used to show the assets, liabilities and owners’ equity or retained earnings. The income statement shows the sales and expenses over a period of time and the cash flow statement keeps track of the ins and the outs of the money or revenue