Analyzing a business problem typically involves which of the following steps?

• A. Identifying relevant accounts, determining necessary adjustments, and recording adjusting journal entries
• B. Only preparing financial statements without reviewing account balances
• C. Ignoring prepaid expenses until the end of the fiscal year
• D. Recording all transactions as cash receipts and disbursements only

Answer: (A)

Verified step by step guidance

1. Step 1: Understand the purpose of analyzing a business problem, which is to ensure accurate financial reporting and compliance with accounting principles.
2. Step 2: Identify relevant accounts that are impacted by the business problem. For example, accounts such as prepaid expenses, accrued liabilities, or revenue accounts may need attention.
3. Step 3: Determine necessary adjustments by reviewing account balances and identifying discrepancies or unrecorded transactions. This may involve calculating adjustments for prepaid expenses, accrued revenues, or depreciation.
4. Step 4: Record adjusting journal entries to reflect the necessary changes in the accounts. Use the double-entry accounting system to ensure debits and credits are balanced.
5. Step 5: Prepare financial statements after adjustments are made, ensuring that the statements accurately reflect the financial position and performance of the business.