Accounting Fundamentals Certification (AFC) Practice Test

The final step in the accounting cycle is the preparation of closing entries. This involves transferring the balances of temporary accounts (like revenues, expenses, and dividends) to permanent accounts. The purpose of closing entries is to reset the temporary accounts to zero for the next accounting period, thus ensuring that revenues and expenses are recorded only in the period in which they occur.

The preparation of a post-trial balance occurs prior to closing entries. This step is intended to ensure that all accounts are in balance before preparing the financial statements. It allows accountants to verify the accuracy of the ledger accounts following adjustments and before the final statements are issued.

While financial statements are indeed a crucial part of the accounting cycle, they are prepared after all adjustments and closing entries. Journalizing adjustments happens earlier in the accounting cycle, as adjustments are made to record accrued and deferred items prior to finalizing the accounts for the period. Understanding this sequence is important to grasp the flow of the accounting cycle effectively.