Oregon Construction Contractors (CCB) Practice Test

How many basic steps are included in the Accounting Cycle?

1. 4

2. 5

3. 6

4. 7

The correct answer is: 5

The accounting cycle consists of a systematic process that includes five basic steps. These steps are designed to ensure that all financial transactions of a business are accurately recorded, summarized, and reported. The key steps generally include: 1. **Identifying Transactions**: Recognizing and documenting any financial events that affect the business. 2. **Recording Transactions**: Entering these financial events into the appropriate accounting records, typically in chronological order. 3. **Posting to the Ledger**: Transferring the information from the journals into the general ledger, where each account is updated to reflect its current balance. 4. **Preparing Financial Statements**: Compiling the financial information from the ledger to create key reports such as the income statement, balance sheet, and cash flow statement. 5. **Closing the Books**: Ensuring that all temporary accounts are closed and prepared for the next accounting period, which includes making any necessary adjusting entries. This cycle is crucial for accurate financial reporting and maintaining the integrity of financial records. The five steps provide a structured approach to ensure that all aspects of account management are handled systematically and transparently.