List the accounting cycle steps in proper order. Answer is complete but not entirely correct Record and post adjusting entries. Post the transaction to the T-account in the general ledger. Record the transaction. Prepare financial statements (income statement, statement of stockholders’ equity. balance sheet, and statement of cash flows). Record and post closing entries. Prepare a trial balance. Analyze the impact of the transaction on the accounting equation. Assess whether the transaction results in a debit or a credit to the account balance. Use source documents to identify accounts affected by external transactions. Q 5 6 1 8 9 7 2 3 4 X X X X X
The Correct Answer and Explanation is :
The correct order of the accounting cycle steps is as follows:
- Analyze the impact of the transaction on the accounting equation
- Every business transaction affects the accounting equation (Assets = Liabilities + Equity). The first step is to assess how the transaction impacts the financial position of the company.
- Use source documents to identify accounts affected by external transactions
- Source documents (e.g., invoices, receipts, purchase orders) provide evidence of the transactions that affect the company’s financial accounts. These documents help identify which accounts will be debited or credited.
- Record the transaction
- Once the affected accounts are identified, record the transaction in the journal, which is the first place where financial data is recorded.
- Post the transaction to the T-account in the general ledger
- After journalizing, the information is posted to the general ledger. Each account has its own T-account, and the debit and credit amounts from the journal are transferred to these individual accounts.
- Prepare a trial balance
- After all transactions have been posted, a trial balance is prepared to ensure that debits equal credits. The trial balance checks for errors in the recording and posting steps.
- Record and post adjusting entries
- At the end of the accounting period, adjusting entries are made to account for revenues and expenses that have been earned or incurred but not yet recorded.
- Prepare financial statements (income statement, statement of stockholders’ equity, balance sheet, and statement of cash flows)
- After adjusting entries are recorded, the financial statements are prepared. These statements provide a summary of the company’s financial performance and position.
- Record and post closing entries
- Closing entries are made to transfer the balances in temporary accounts (e.g., revenue, expenses) to permanent accounts (e.g., retained earnings). This step ensures that the revenue and expense accounts are reset for the next accounting period.
- Prepare the post-closing trial balance
- After closing entries are made, the final trial balance is prepared to ensure that debits still equal credits, and only permanent accounts remain open for the new period.
Explanation:
The accounting cycle is a series of steps used by businesses to track their financial transactions and prepare accurate financial statements. It starts with analyzing the transaction, using source documents to record it, and posting it to the ledger. Adjustments are made to account for any unrecorded changes, after which financial statements are prepared. Finally, the books are closed, and a post-closing trial balance ensures the process is complete. Each step builds upon the previous one, ensuring accurate financial reporting.