What step immediately precedes closing entries in the accounting cycle?

• A. Closing entries are journalized and posted to the ledger.
• B. Financial statements are prepared.
• C. An unadjusted trial balance is prepared.
• D. A post-closing trial balance is prepared.

Answer: (A)

In the accounting cycle, the step immediately before closing entries is preparing the financial statements. After adjusting entries are recorded, you use the adjusted trial balance to create the financial statements (income statement, balance sheet, and statement of retained earnings). These statements summarize the period’s results, showing net income or loss that will be reflected in retained earnings. Once the financial statements are complete, you close the temporary accounts to zero them out for the next period, transferring their balances to permanent accounts through closing entries. The unadjusted trial balance comes earlier, and the post-closing trial balance comes after closing entries.