What is the first step in the accounting cycle?

What is the first step in the accounting cycle?

• A. Reviewing source documents and analyzing transactions
• B. Preparing financial statements
• C. Making adjustments
• D. Posting transactions to the general ledger

Answer: (A)

Starting with reviewing source documents and analyzing transactions is essential because it captures what actually happened and determines how it should be recorded. Source documents like invoices, receipts, and bills provide evidence of events, and analyzing them tells you which accounts are affected and whether to debit or credit each account. This analysis yields the journal entries that will be posted to the general ledger, and only after this recording can you move on to adjustments and financial statements. The other steps come after this initial recording: posting to the general ledger follows the journal entries, making adjustments occurs to reflect accruals and deferrals, and preparing financial statements happens after the accounts are adjusted and balanced.

Starting with reviewing source documents and analyzing transactions is essential because it captures what actually happened and determines how it should be recorded. Source documents like invoices, receipts, and bills provide evidence of events, and analyzing them tells you which accounts are affected and whether to debit or credit each account. This analysis yields the journal entries that will be posted to the general ledger, and only after this recording can you move on to adjustments and financial statements. The other steps come after this initial recording: posting to the general ledger follows the journal entries, making adjustments occurs to reflect accruals and deferrals, and preparing financial statements happens after the accounts are adjusted and balanced.