The natural progression in items from one statement to another and preparation of financial statements is best represented by the following order:
A)Balance sheet and statement of cash flows statement of retained earnings income statement
B)Balance sheet and statement of cash flows income statement statement of retained earnings.
C)Statement of retained earnings income statement balance sheet and statement of cash flows
D)Income statement statement of retained earnings balance sheet and statement of cash flows

Question

The natural progression in items from one statement to another and preparation of financial statements is best represented by the following order:
A)Balance sheet and statement of cash flows > statement of retained earnings > income statement
B)Balance sheet and statement of cash flows > income statement > statement of retained earnings.
C)Statement of retained earnings > income statement > balance sheet and statement of cash flows
D)Income statement > statement of retained earnings > balance sheet and statement of cash flows

Quizplus · Accepted Answer

The correct order starts with the income statement, which determines the net income or loss. This figure is then used in the statement of retained earnings to adjust the beginning retained earnings balance. Finally, the updated retained earnings figure is used in the balance sheet, and the statement of cash flows is prepared, which uses information from all the other financial statements.

The Natural Progression in Items from One Statement to Another