Question

Great answers so far! And let's not forget that the balance sheet shows our most important basic accounting equation. Assets=Liabilities + Owners Equity. This equation and keeping it in balance seems to be the main focus of the staff accountant. I want to also discussion the relationship of the balance sheet to the other financials statements. What order must we prepare the financial statements in and why? How are the other statements (Income Statement, Cashflows, Statement of RE) shown on the balance sheet?

Answer 1

Assets=liabilities +owners equity

Above equation is most important basic equation of accounting, its represents the relationship between assets, liabilities and owners equity. The main focus of staff accountant to keeping it in balance because it is the foundation of double entry system, the equation shows that all assets of a business are either financed or company's stockholders. According to double entry system, every transaction has equal effects on both sides like debits and credits if there are any difference which means any transaction is missing or any mistake is occur thats why it is important to maintain this equation in balance.

First of all we adjusting entries of all monetary transactions have been made by business its called journal entries and then these entries transfer into ledger to the related accounts, trial balance has been prepared from ledger accounts .At the end following is the order of preparation of financial statements ----

*Income statement

*Statement of retained earnings

*Balance sheet

*Cash flow statements

Financial statements must prepare in above order because all above statements are inter-related. Data from previous statement is used to making next statement. Example -- Net income from income statement helps to make Statement of retained earnings...

Balance sheet presents financial position of business at the end of a specific date. It is most important statement used by the accountants. It is also called Statements of financial position. The other statements shown on the balance Sheet. Example --- All revenue and expenses like outstanding and prepaid and net income shown from income statement,how much earnings retained in business and how much distributed as dividend from statement of RE and cash and cash equivalents from statement of cash flow