Which step must be performed before adjusting entries are journalized and posted?

• A. Adjustment data are assembled and analyzed.
• B. A post-closing trial balance is prepared.
• C. An unadjusted trial balance is prepared.
• D. Financial statements are prepared.

Answer: (A)

Before journalizing and posting adjusting entries, you must gather and evaluate the data that show what needs to be adjusted. This adjustment data comes from sources like current contracts, invoices, time records, and other information that reveals accruals, deferrals, depreciation, and other estimates. Analyzing this information ensures you know exactly which accounts to adjust and by how much, so the adjusting entries accurately reflect the period’s revenues and expenses and the asset and liability balances at year end. After this preparation, you can journalize and post the adjusting entries, then move on to the adjusted trial balance and financial statements.