Which of the following lists the correct order of steps in processing transactions, including adjusting journal entries for prepaid expenses?

• A. Prepare trial balance, analyze transactions, journalize, post to ledger, adjust entries, prepare financial statements
• B. Adjust entries, analyze transactions, journalize, post to ledger, prepare trial balance, prepare financial statements
• C. Journalize, analyze transactions, post to ledger, adjust entries, prepare trial balance, prepare financial statements
• D. Analyze transactions, journalize, post to ledger, prepare trial balance, adjust entries, prepare financial statements

Answer: (D)

Verified step by step guidance

1. Step 1: Understand the accounting cycle, which is the process of recording and processing all financial transactions of a company. This cycle includes analyzing transactions, journalizing, posting to the ledger, preparing a trial balance, adjusting entries, and preparing financial statements.
2. Step 2: Begin with analyzing transactions. This involves reviewing source documents (e.g., invoices, receipts) to determine the nature of the transaction and its impact on the accounting equation (Assets = Liabilities + Equity).
3. Step 3: Journalize the transactions. Record each transaction in the journal as a debit and a credit, ensuring that the accounting equation remains balanced. Use the double-entry accounting system.
4. Step 4: Post the journal entries to the ledger. Transfer the information from the journal to the general ledger, where each account's activity is summarized.
5. Step 5: Prepare a trial balance to ensure that the total debits equal the total credits. After this, adjust entries for items like prepaid expenses, accrued revenues, and depreciation. Finally, prepare the financial statements (income statement, balance sheet, and cash flow statement) based on the adjusted trial balance.