In: Finance
4) List the order in which the balance sheet, statement of retained earnings, and income statement are prepared. Briefly discuss why this order is necessary.
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The financial statements are prepared in the following order
1) Income statement
2) statement of retained earnings or statement of owners equity
3) Balance sheet
Financial statements are prepared in above order because it carries information from one
Financial statement over to the next financial statement
Income statement is prepared first because net profit or loss is needed to prepare the statement
of changes in equity.
The statement of retained earnings are prepared before the balance sheet because it is used
to calculate amount of retained earnings at the end of the period to be shown in the balance sheet.