Question

In: Finance

4) List the order in which the balance sheet, statement of retained earnings, and income statement...

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.

Solutions

Expert Solution

Please find the below explanation and “ Don’t forget to give a like! Thank you”

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.


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