In the process of preparing financial statements and closing entries, which financial statement is typically prepared last?

• A. Trial Balance
• B. Income Statement
• C. Balance Sheet
• D. Statement of Retained Earnings

Answer: (C)

Verified step by step guidance

1. Understand the sequence of preparing financial statements: Financial statements are typically prepared in a specific order to ensure accuracy and logical flow. The order is: Income Statement, Statement of Retained Earnings, Balance Sheet, and then the Cash Flow Statement.
2. Recognize the purpose of each statement: The Income Statement summarizes revenues and expenses to calculate net income. The Statement of Retained Earnings uses net income to determine changes in retained earnings. The Balance Sheet provides a snapshot of the company's financial position at a specific point in time.
3. Identify dependencies between statements: The Balance Sheet relies on information from the Statement of Retained Earnings, which in turn depends on the net income calculated in the Income Statement. This dependency determines the preparation order.
4. Understand why the Balance Sheet is prepared last: Since the Balance Sheet includes retained earnings (a component derived from the Statement of Retained Earnings), it must be prepared after the Statement of Retained Earnings is finalized.
5. Conclude the sequence: The Balance Sheet is typically prepared last in the process of preparing financial statements because it consolidates information from prior statements to present the company's financial position comprehensively.