Final answer:
The statement is false; the last step in the accounting cycle is not preparing the financial statements but closing the books, including making closing entries to reset temporary account balances.
Step-by-step explanation:
The statement that the last step in the accounting cycle is preparing the financial statements is false. The last step of the accounting cycle is actually closing the books, which includes journalizing and posting closing entries to reset balances of temporary accounts to zero for the next accounting period. The step of preparing the financial statements comes before the closing process.
In detail, the accounting cycle includes these steps:
- Identify transactions.
- Record transactions in the journal.
- Post transactions to the ledger.
- Prepare an unadjusted trial balance.
- Make adjusting entries.
- Prepare an adjusted trial balance.
- Prepare financial statements.
- Make closing entries.
- Prepare a post-closing trial balance.
After preparing the financial statements, which include the income statement, balance sheet, statement of retained earnings, and cash flow statement, the accountant then performs the closing entries. This involves transferring the balances of all temporary accounts (like revenue, expenses, and dividends) to permanent accounts, such as retained earnings. This reset is crucial for starting the new accounting period with a clean slate.