Question

Introduction to Accounting and BusinessThe financial statements are all interrelated. What operating or financial data appears on more then one statement? Is there a specific preparation order for the financial statements? Why is that important?

Answer 1

Operating Data such net income and depreciation appears on the income statement and cash flow statement. Financial data such as dividends paid appears on both the statement of retained earnings and cash flow statement.

The order in which financial statements are prepared is as follows:

1) Income Statement

2) Statement of retained earnings

3) Balance Sheet

4) Cash Flow Statement

The above sequence is followed because data from the previous statements are used in later statements. Such as Net income Data from Income statement is used in the statement of retained earnings and the cash flow statement. Retained earnings Balance from the statement of retained earnings is used in the Balance sheet. Change in current assets and current liabilities in the Balance sheet is used in preparing the cash flow statement using the indirect method.