Question

Four financial statements for a business. The Statement of cash flows is usually prepared last. The statement of owner's equity (OE), the balance sheet (B), and the income statement (I) are prepared in a certain order to obtain information needed for the next statement. In what order are these three statements prepared?

a. I,OE, B
b. B, I, OE
c. OE, I, B
d. B,OE, I

Answer 1

The three financial statements - the income statement, statement of owner's equity, and balance sheet - are prepared in the order of I, OE, B. This sequence reflects the flow of information from profit or loss to changes in equity, and then to the overall financial position. The correct option is A.

Step-by-step explanation:

The financial statements for a business are generally prepared in the following order: First, the Income Statement (I) is prepared, which provides information about the company's revenue and expenses during a specific period.

Next, the Statement of Owner's Equity (OE) is created to reflect changes in the equity part of the balance sheet, which is influenced by the net income or loss from the income statement and any owners' investments or withdrawals.

Finally, the Balance Sheet (B) is compiled, summarizing the company's financial position at a specific point in time by reporting its assets, liabilities, and equity - the latter of which comes from the statement of owner's equity. Hence, the correct sequence would be I, OE, B, which corresponds to option a.