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CGCPA
CGCPA, CPA
Category: Finance
Satisfied Customers: 3820
Experience:  40+ years experience in taxes and financial planning
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What is the usual order in which financial statements are prepared

Customer Question

What is the usual order in which financial statements are prepared fom the adjusted trial balance? Whay are they prepared in that order?
Submitted: 4 years ago.
Category: Finance
Expert:  CGCPA replied 4 years ago.

Welcome to Just Answer. I am here to help you resolve your tax and finance concerns. Please feel free to ask anytime you need extra help.

The most common way to do this is to follow the working trial balance in sequence from top to bottom. The customary ordering of the working trial balance follows the old formula (assets = liabilities + capital). Following this comes the income and then expenses sections of the working trial balance. If you look at the working trial balance it follows essentially the same sequence as the standard financial statements. There is no requirement to follow this sequence but it has become a common practice since before computers. Today even computer software follows the ordering. After working with this for a time it becomes second nature to continue doing this and to avoid missing anything. Is it a requirement? No. Is it a standard practice developed from routine behavior? Yes. It is even how my college professors, now mostly deceased taught me over 40 years ago.

So, the standard sequence is to prepare the balance sheet first, then the income statement. From those and our worksheets we finally prepare the statement of cash flows.