Question

Which of the following steps is involved in the preparation of financial statements?

1) Prepare the financial statements
2) Prepare an adjusted trial balance
3) Prepare an unadjusted trial balance
4) Record and post adjusting entries

Answer 1

The correct steps involved in preparing financial statements are preparing an unadjusted trial balance, recording and posting adjusting entries, preparing an adjusted trial balance, and then preparing the financial statements.

Step-by-step explanation:

The preparation of financial statements involves several key steps. These steps include (but are not necessarily limited to):

1. Prepare an unadjusted trial balance to verify that debits equal credits after posting all transactions to the ledger.
2. Record and post adjusting entries, which are necessary to bring the account balances up-to-date and to adhere to the accrual basis of accounting.
3. Prepare an adjusted trial balance after the adjusting entries to verify that debits still equal credits after adjustments.
4. Prepare the financial statements, which typically include the income statement, statement of retained earnings, balance sheet, and statement of cash flows.

The correct sequence to follow in the preparation of financial statements ensures the financial information is accurate and reliable. Understanding this process is fundamental in the field of accounting.