What is the first step in the process of preparing adjusting entries?

The first step in preparing adjusting entries involves reviewing accounts. This step is critical because it allows accountants to closely examine the various accounts in the general ledger to identify any discrepancies or areas that require adjustment. By analyzing the accounts, accountants can spot items that might have been misclassified, entries that might be missing, or accruals and deferrals that need to be recognized to ensure that the financial statements reflect an accurate view of the company's financial position at the end of the reporting period.

Reviewing accounts helps inform the subsequent steps in the process of making adjustments, such as determining what specific adjustments are needed and then creating the appropriate journal entries to enact those adjustments. Thus, having a thorough understanding of account balances and transactions is essential before fulfilling any further steps in the adjustment process.