Which of the statements below explains the accounting cycle?

• a. The accounting cycle is another name for the adjustment process at the end of the period.
• b. The accounting cycle is another name for the closing process at the end of the year.
• c. The accounting cycle is repeated each reporting period and refers to the steps taken to prepare financial statements.
• d. The accounting cycle refers to the worksheet used during the period to record adjustments and the post-closing trial balance.

Correct Answer:

c. The accounting cycle is repeated each reporting period and refers to the steps taken to prepare financial statements.

Explanation:

The accounting cycle is a series of steps that a business follows to record and process its financial transactions within a specific period, ultimately leading to the preparation of financial statements. The cycle begins with the identification of transactions and ends with the preparation of the financial statements (such as the balance sheet, income statement, and cash flow statement). Here are the key steps:

1. Recording Transactions: The first step involves recording all business transactions, typically through journals.
2. Posting to the Ledger: After journalizing, the information is posted to the general ledger.
3. Trial Balance: A trial balance is prepared to ensure that the debits and credits are equal.
4. Adjustments: Adjusting entries are made to account for accrued or deferred items like wages, taxes, etc.
5. Adjusted Trial Balance: This balance reflects the adjustments made during the previous step.
6. Financial Statements: After adjustments, financial statements (income statement, balance sheet, cash flow statement) are prepared.
7. Closing Entries: Temporary accounts (like revenue and expenses) are closed to retain earnings.
8. Post-Closing Trial Balance: The final step is to prepare a post-closing trial balance, ensuring that all accounts are in order for the next period.

Why Other Answers are Incorrect:

• a. The accounting cycle is another name for the adjustment process at the end of the period.
  This is incorrect because the adjustment process is just one part of the accounting cycle, not the entire cycle.
• b. The accounting cycle is another name for the closing process at the end of the year.
  This is incorrect because the closing process is only the final step in the cycle, not the entire process.
• d. The accounting cycle refers to the worksheet used during the period to record adjustments and the post-closing trial balance.
  This is not accurate as the cycle refers to the broader set of steps involved in preparing the financial statements, not just the adjustments or trial balances.