Which of the following is the correct order of the steps in the accounting cycle?

• A. 1. Prepare trial balance, 2. Journalize transactions, 3. Post to ledger, 4. Prepare financial statements
• B. 1. Prepare financial statements, 2. Journalize transactions, 3. Post to ledger, 4. Prepare trial balance
• C. 1. Post to ledger, 2. Journalize transactions, 3. Prepare trial balance, 4. Prepare financial statements
• D. 1. Journalize transactions, 2. Post to ledger, 3. Prepare trial balance, 4. Prepare financial statements

Answer: (D)

Verified step by step guidance

1. Step 1: Understand the accounting cycle, which is the sequence of steps followed to record, classify, and summarize financial transactions in a systematic manner.
2. Step 2: Begin with journalizing transactions. This involves recording all financial transactions in the journal using the double-entry system. Each transaction is recorded with a debit and a credit entry.
3. Step 3: Post the journalized transactions to the ledger. The ledger contains individual accounts where transactions are categorized and summarized. This step ensures that all entries are properly classified under their respective accounts.
4. Step 4: Prepare the trial balance. This is a summary of all ledger accounts and their balances at a specific point in time. The trial balance ensures that the total debits equal the total credits, verifying the accuracy of the postings.
5. Step 5: Prepare the financial statements. Using the trial balance, financial statements such as the income statement, balance sheet, and cash flow statement are created to provide a clear picture of the company's financial performance and position.