Question

Which of the following is the correct order of preparation of financial statements?

• Balance sheet→ statement of owner's equity → income statement → statement of cash flows 

• Statement of owner's equity → balance sheet →ncome statement → statement of cash flows 

• Income statement → statement of owner's equity→ balance sheet →statement of cash flows 

• Balance sheet →income statement →statement of owner's equity → statement of cash flows 

Answer 1

Answer:

Income statement - Statement of owner's equity - Balance sheet - Statement of cash flows

Explanation:

Correct order of preparation of financial statement is:

(1) Income statement : Income statement reflects profitability of company

(2) Owner's equity : Owner's equity shows the change in owner's equity between the beginning and end of the accounting period.

(3) Balance sheet: Balance sheet reflects solvency and financial position of company

(4) Statement of cash flow: Statement of cash flow shows cash inflows and outflows of company over the accounting period.

With the help of income statement, owner's equity is prepared and with the help of owner's equity, balance sheet is completed and after that statement of cash flow is prepared.

This is the correct order of preparation of financial statement.

Thank you :)