Order of Financial Statements

Why Are Financial Statements Prepared In A Specific Order?

The Order of Financial Statements is very important as one information gathered from one Financial Statement is forward to the next Statements, so there is a systematic way or logical sequence to arrange the order of Financial Statements Step by Step.

After preparing the Main books of Accounts, the next step is to prepare Trial Balance. Then Adjusted Trial Balance is prepared in order to make Adjustments for Accrual and Deferrals. After that, four main Financial Statements are prepared.

Order or Sequence Of Financial Statements

First Financial Statement that is prepared after adjusted trial balance is Income Statement or Statement of Comprehensive Income. It is also called Trading & Profit And Loss Account under British Accounting System. The purpose of this statement is to show Financial Performance (Net Income) of the business for the accounting period.

The Second  Statement is Statement of Retained Earnings that shows retained earnings retained in the business after giving dividends to the shareholders. It is also called Statement of Shareholder's Equity or Statement of Owner’s Equity that show changes in Equity or Owner’s Equity due to the profitable activities of the owners of the business.

The third Financial Statement is Balance Sheet or Statement of Financial Position. It is prepared to show Financial Position of Permanent Accounts On The Specified Time of a Accounting Day.

The forth Financial Statement is Statement of Cash Flows To show Flows of Cash over the period of time that are known as Cash Inflows And Cash Outflows.