Final answer:
The four stages of the accounting cycle include Transaction Identification, Recording Transactions, Posting to the Ledger, and Preparing Financial Statements. These stages ensure accurate financial record-keeping and facilitate decision-making and compliance.
Step-by-step explanation:
The accounting cycle refers to the process of managing financial transactions from their occurrence to their representation in financial statements. The four stages of the accounting cycle discussed in Chapter 2 include:
Transaction Identification: This stage involves recognizing all the financial transactions that affect the business's financial position. Examples include sales, purchases, and expenses.
Recording Transactions: After identification, each transaction is recorded in a journal as a journal entry. This ensures that all financial transactions are recorded in the business's books.
Posting to the Ledger: The journal entries are then posted to the general ledger, where all transactions are categorized and summarized.
Preparing Financial Statements: Finally, financial information from the ledger is used to prepare the financial statements, which include the balance sheet, income statement, and cash flow statement, providing an overall picture of the business's financial health.