Four financial statements are usually prepared for a business. The statement of cash flows is usually prepared last. The retained earnings statement (RES), 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, RES, B

b) B, I, RES

c) RES, I, B

d) B, RES, I

a) I, RES, B

Explanation:

Mainly there are four types of financial statements i. e Income statement, statement of retained earning, balance sheet and the cash flow statement

In the income statement, the total revenues and the total expenses are recorded.

If the total revenues are more than the total expenditure then the company earns net income. And, If the total revenues are less than the total expenditure then the company have a net loss

This net income or net loss would reflect in the statement of the retained earning account.

The statement of retained earning represent the beginning balance, net income or net loss and dividend amount. These items are used to calculate the ending balance of the retained earning account.

In the balance sheet, the assets, liabilities, and stockholder equity is recorded. In this the accounting equation is used which is shown below:

Total assets = Total liabilities + stockholder equity

The debit and credit side of the balance sheet should always be equal and balanced.

Moreover, it always is prepared on the specified date.

The cash flow statement involves three activities i. e operating, investing and the financing activities

1. Operating activities: It includes those transactions which affect the working capital, and it records transactions of cash receipts and cash payments.

2. Investing activities: It records those activities which include purchase and sale of the fixed assets

3. Financing activities: It records those activities which affect the long term liability and shareholder equity balance.

Hence, option a is correct