Which of the following is the first step in the accounting cycle?

• A. Post entries to the ledger accounts
• B. Prepare financial statements
• C. Analyze business transactions and events
• D. Prepare the trial balance

Answer: (C)

Verified step by step guidance

1. Understand the accounting cycle: The accounting cycle is a series of steps that businesses follow to record and report financial transactions systematically.
2. Identify the first step: The first step in the accounting cycle is to analyze business transactions and events. This involves reviewing source documents such as invoices, receipts, and contracts to determine the nature of the transaction.
3. Explain why analysis is the first step: Analyzing transactions ensures that the financial data is accurate and categorized correctly before recording it in the accounting system. This step lays the foundation for all subsequent steps in the cycle.
4. Clarify the role of other steps: Posting entries to ledger accounts, preparing the trial balance, and preparing financial statements are later steps in the accounting cycle. These steps depend on the accurate analysis and recording of transactions.
5. Highlight the importance of sequence: Following the correct sequence in the accounting cycle ensures that financial information is processed systematically, leading to reliable and accurate financial reporting.