The accounting cycle is a six-step process that results in which of the following?

• A. The preparation of financial statements
• B. The calculation of tax liabilities
• C. The approval of audit reports
• D. The creation of a company budget

Answer: (A)

Verified step by step guidance

1. Step 1: Understand the accounting cycle. The accounting cycle is a systematic process used by businesses to record and manage financial transactions. It typically includes steps such as identifying transactions, recording them in journals, posting to ledgers, preparing trial balances, adjusting entries, and creating financial statements.
2. Step 2: Recognize the primary goal of the accounting cycle. The ultimate purpose of the accounting cycle is to prepare accurate financial statements that reflect the company's financial position and performance over a specific period.
3. Step 3: Analyze the options provided in the question. The preparation of financial statements aligns directly with the goal of the accounting cycle, while the other options (calculation of tax liabilities, approval of audit reports, and creation of a company budget) are not part of the accounting cycle's primary purpose.
4. Step 4: Eliminate incorrect options. Tax liabilities are calculated separately, often as part of tax accounting. Audit reports are prepared by external auditors, not as part of the accounting cycle. Budgets are created during financial planning, which is distinct from the accounting cycle.
5. Step 5: Conclude that the correct answer is 'The preparation of financial statements,' as this is the final output of the accounting cycle and its primary objective.