Question

Why are financial statements prepared in a specific order? What is the usual order in which financial statements are prepared from the adjusted trial balance?

Answer 1

Usual order of preparing financial statements are:

1. Income statement

2. Retained earnings statement

3. Balance sheet and

4. Cash flow statement

In the above order financial statements are prepared from the adjusted trial balance, because of following reasons:

Preparation of income statement results in net income. Then, the determined net income will be reported in retained earnings to determine the ending retained earnings. Then, the determined ending retained earnings will be reported in the stockholders' equity section of balance sheet of the company. Finally, cash flow statement is prepared using the present year and previous year balance sheet and current year income statement.