What is the fifth step in the accounting cycle?

• A. Prepare post-closing trial balance
• B. Close temporary accounts
• C. Prepare a trial balance
• D. Prepare financial statements

Answer: (D)

Understanding the sequence of the accounting cycle shows why the fifth step is adjusting entries. After recording and posting transactions, you update accounts for items not captured daily—like accrued revenues and expenses or prepaid amounts that have expired. This is done with adjusting entries to ensure revenues and expenses are recognized in the correct period and the ledger reflects accurate period-end balances. Once those adjustments are made, you prepare the adjusted trial balance and then the financial statements. Financial statements come after these updates because they summarize period results using the adjusted balances. So the fifth step is making adjusting entries to bring the ledger up to date before reporting the period’s results.