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General Accounting Discussions: Types of Financial Statements

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    • CommentAuthorLiz
    • CommentTimeMay 16th 2008 edited
     
    I have learned that there are 4 types of financial statements, which are: Income statement, retained earnings statement, balance sheet & cash flows statement. Further, they are prepared in that specific order but WHY?
    It must have something to do with how the figures balance out at the end. Can anyone provide me with a detailed explanation of why these statements are prepared in this order please? Thanks in advance.
  2.  
    I sure would like to know the same thing Liz has asked. Anyone? Anyone? Please.
    • CommentAuthorCounter
    • CommentTimeMay 22nd 2008
     
    Perhaps the reason is that the net income from the income statement is needed so that it can be added to the retained earnings balance. The ending retained earnings balance can then be included in the balance sheet. (The balance sheet will only balance if the current period's net income is included in the retained earning balance.) The completed income statement and balance sheet can then be used to prepare the statement of cash flows.
  4.  
    Actually if you are using accounting software, the procedural order is unimportant. Your simply enter business transactions: purchases, receipts etc, and run reports in any order that give the appropriate figures for the period or date that you want. The only procedural events are 'End of Period' closeout, typically at year-end only, when income and expense ledgers are cleared and their sums transferred to equity, in preparation for beginning to enter the following year's transactions.

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