when preparing the financial statements, why is the income statement prepared first?\na. the income…
when preparing the financial statements, why is the income statement prepared first?\na. the income statement is the easiest statement to prepare.\nb. net income or net loss from the income statement is used for the statement of retained earnings.\nc. the income statement is used to prepare the balance sheet.\nd. the income statement is the most important statement to investors and creditors.
Answer
Brief Explanations:
The income statement shows net income or net loss. This figure is a key input for the statement of retained earnings (as retained earnings is affected by net income/loss). While the income statement may be important (but not necessarily the "most" important as in option D which is subjective), and it's not about ease (option A is incorrect). Also, the balance sheet is not directly prepared from the income statement in the sense of option C. The main reason for preparing the income statement first is that its net income/net loss is used in the statement of retained earnings.
Answer:
B. Net income or net loss from the income statement is used for the statement of retained earnings.