Final answer:
The income statement is prepared first due to its net income or net loss figures being essential for completing the statement of retained earnings and the balance sheet, rather than its level of importance to stakeholders or its ease of preparation.
Step-by-step explanation:
When preparing financial statements, the income statement is prepared first for several reasons, but primarily because it provides the net income or net loss figure that is essential for completing other financial statements. Specifically, the net income derived from the income statement is a critical component needed for the preparation of the statement of retained earnings and the balance sheet. The statement of retained earnings cannot be completed without the net income figure, as it shows how much of the earnings were retained in the business after dividends. Following this, the balance sheet calls for the updated retained earnings figure in the equity section of the balance sheet.
This step is crucial in establishing the financial position of a company at a specific point in time.While it is true that the income statement holds significant importance to investors and creditors because it reflects a company's profitability over a period of time, this is not the primary reason it is prepared first. As for the belief that the income statement is the easiest to prepare, although it may be simpler relative to other financial statements, this is also not the basis for its precedence in the preparation sequence.