Which of the following best describes the accounting cycle?

• A. It is a process that occurs only once when a business is started.
• B. It refers only to the preparation of the balance sheet at year-end.
• C. It involves only the recording of cash transactions.
• D. It is a series of steps performed during each accounting period to analyze, record, summarize, and report financial information.

Answer: (D)

Verified step by step guidance

1. Step 1: Understand the concept of the accounting cycle. The accounting cycle is a systematic process used by businesses to record and manage financial transactions during an accounting period. It ensures that all financial information is accurately captured and reported.
2. Step 2: Break down the accounting cycle into its key steps. These typically include: analyzing transactions, recording them in the journal, posting to the ledger, preparing a trial balance, making adjusting entries, preparing financial statements, and closing the books.
3. Step 3: Clarify that the accounting cycle is not a one-time process. It is repeated for every accounting period, whether monthly, quarterly, or annually, to ensure the financial information is up-to-date and accurate.
4. Step 4: Highlight that the accounting cycle involves more than just cash transactions or balance sheet preparation. It encompasses all types of transactions and results in the preparation of comprehensive financial statements, including the income statement, balance sheet, and cash flow statement.
5. Step 5: Conclude by emphasizing that the accounting cycle is a foundational concept in financial accounting, as it provides a structured approach to managing and reporting financial data for decision-making purposes.