Multiple Choice
Which financial statement is typically prepared last in the accounting cycle, after the post-closing trial balance?
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3. Accrual Accounting Concepts
Post-Closing Trial Balance
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Which of the following is typically prepared last in the accounting cycle?
A
Post-Closing Trial Balance
B
Adjusted Trial Balance
C
Balance Sheet
D
Income Statement
Verified step by step guidance1
Understand the accounting cycle: The accounting cycle is a series of steps that companies follow to record, summarize, and report financial transactions. It typically includes steps like journalizing transactions, posting to the ledger, preparing trial balances, and creating financial statements.
Identify the purpose of each document: The Adjusted Trial Balance is prepared after adjustments are made to ensure debits equal credits. The Income Statement summarizes revenues and expenses to calculate net income or loss. The Balance Sheet reports the financial position of the company at a specific point in time. The Post-Closing Trial Balance is prepared after closing entries to ensure the ledger is ready for the next accounting period.
Recognize the sequence of preparation: The Adjusted Trial Balance is prepared first to ensure accuracy before creating financial statements. The Income Statement is then prepared to calculate net income or loss, which is needed for the Balance Sheet. The Balance Sheet is prepared next to report the company's financial position. Finally, the Post-Closing Trial Balance is prepared to confirm that all temporary accounts have been closed and the ledger is balanced.
Focus on the Post-Closing Trial Balance: This document is prepared last in the accounting cycle because it ensures that all temporary accounts (e.g., revenues, expenses, and dividends) have been closed and only permanent accounts (e.g., assets, liabilities, and equity) remain in the ledger.
Conclude that the Post-Closing Trial Balance is the correct answer: Based on the sequence of the accounting cycle, the Post-Closing Trial Balance is typically prepared last to verify the ledger's readiness for the next accounting period.
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