Which of the statements below are correct regarding the accounting cycle?

Question

BlackTom AI · Accepted Answer

When evaluating statements about the accounting cycle, it helps to map each option to what the cycle actually encompasses and its purpose.
Option 1: 'The cycle contains steps for adjusting and closing accounts.' This is true in many descriptions of the cycle, since adjusting entries and the closing process are integral steps that finalize the period’s numbers. However, note that this statement alone doesn’t capture the full scope of the cycle.
Option 2: 'The accounting cycle refers to steps followed by a company to prepare its financial statements.' This is correct in essence, as the cycle includes many activities leading up to and including the preparation of financial statements, but does not necessarily emphasize the periodic repetition aspect.
Option 3: 'The accounting cycle is a series of steps repeated each reporting period.' This statement is accurate and captures the defining feature: the cycle is performed repeatedly for each reporting period (e.g., monthly, quarterly, or annually), ensuring consistency and comparability across periods.
Option 4: 'The accounting cycle takes place anytime the general ledger accounts need adjusting.' While adjusting entries are part of the cycle, it is not solely tied to any single need for adjustment; the cycle is a structured, periodic process that occurs at regular intervals, not just when adjustments arise.
Option 5: 'The accounting cycle contains 10 steps (including an optional step).' Different textbooks enumerate varying numbers of steps, and there is no universal fixed count that applies in all contexts; the exact number can vary depending on the framework used.
Option 6: 'The accounting cycle refers to the steps that occur within a company to approve expenses for payment.' This statement mischaracterizes the cycle: it is about recording and reporting financial information, not specifically about the approval workflow for expenses, which is a separate process.
In summary, the most complete and broadly accepted characterization among these options is that the accounting cycle is a series of steps repeated each reporting period, which aligns with the cyclical nature of preparing and reporting financial information on a regular basis.

Which of the statements below are correct regarding the accounting cycle?

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