Your business’s jae won statements give you a photo of the financial health and wellness of her company. Without them, friend wouldn’t be able to monitor your revenue, task your future finances, or save your service on track because that success.

You are watching: The order in which financial statements should be prepared is

Now, you can’t go off creating your various financial statements every willy nilly. Like many things in business, you have to follow an order.

Read ~ above to discover the order of gaue won statements and which financial statement is prepared first.

Overview of jae won statements

Before you deserve to dive into the order of financial statements, find out what the main financial statements are. Inspect out a fast overview below of the four species of financial statements in accounting.

Cash flow statement

Your cash flow statement, or explain of cash flows, is every one of your business’s incoming and outgoing cash. Basically, her cash circulation statement reflects you just how much cash flows in and out of your business. Her statement that cash flows just records the actual cash your company has.

There room three components of a cash circulation statement: operations, investments, and also finances.

Your cash flow could be positive, meaning that your business has an ext money coming in than going out. Or, your agency could it is in in an adverse cash circulation territory, which shows that you spending an ext money 보다 what you’re bringing in.

Investors, lenders, and vendors might be interested in checking out your business’s cash flow statement. The way, they can see whether or not your company is a great investment.

You can even use her cash flow statements to create a cash flow forecast or projection. A cash circulation projection allows you estimate the money you mean to circulation in and out that your business in the future. Forecasting her business’s future cash circulation can assist you predict financial problems and give girlfriend a clear snapshot of her company’s gaue won future.

Balance sheet

Your balance sheet tracks her financial progress over time and has three different parts that you may already be familiar with:


Your assets room items of value and things that your company owns. A few examples of assets include company vehicles and also inventory. Your assets deserve to be existing or noncurrent. Present assets room items of worth that can transform into cash within one year (e.g., check account). Noncurrent assets room items of value that take more than one year to convert into cash.

Liabilities are debts you fan to various other individuals, such together businesses, organizations, or agencies. Your liabilities can either be present (short-term) or noncurrent (long-term). Some examples of liabilities incorporate accounts payable, accrued expenses, and also long-term loan debt.

Equity is everything you very own minus your liabilities and also debts. You have the right to easily uncover equity by utilizing the complying with formula:

Equity = legacy – Liabilities

Your full assets need to equal your full liabilities and also equity. If lock don’t, your balance sheet is unbalanced, and also you need to discover what’s bring about the discrepancy in between your assets, liabilities, and equity.

Your balance paper is a big indicator of your company’s current and future gaue won health. Usage your balance paper to uncover out wherein you was standing financially. Girlfriend can likewise use her balance sheet to aid you make guided jae won decisions.

Income statement

Your income statement, likewise called a profit and also loss declare (P&L), reports her business’s profits and also losses over a specific duration of time. You have the right to use an earnings statement come summarize company operations because that a particular time framework (e.g., monthly, quarterly, etc.).

Your earnings statement starts with sales and also ends v net earnings or loss. Some other parts you might see top top your revenue statement include:

RevenueExpensesTaxesGross profitDepreciationOther financial gains and costs

Your income statement offers you understanding into your company’s income and also expenses. Use your revenue statement to view how rewarding your business is. The last heat of your earnings statement, referred to as the bottom line, shows you net revenue or loss.

If you want to assess your business’s profitability over a particular time period, examine out your revenue statement.

Statement of kept earnings

Your statement of kept earnings, or statement of owner’s equity, lists what her business’s retained earnings are at the finish of an bookkeeping period. Retained earnings are earnings you deserve to use come pay off liabilities or do investments.

You deserve to use her statement of retained income independently. Or, friend can add your retained earnings statement to her balance sheet.

If your statement the retained revenue is positive, you have extra money come pay turn off debts or purchase extr assets.

To develop a explain of kept earnings, you need the retained income formula. Take a look in ~ the retained earnings formula below:

Retained revenue = beginning Retained earnings + Net earnings – dividends Paid

Use the formula above to aid calculate her retained income balance at the finish of each period.

Craving even much more information about financial statements? You’re simply in luck. Examine out our FREE guide, Use jae won Statements to evaluate the health and wellness of her Business, come learn an ext about the different species of financial statements for her business.

Which financial statement is prepared first?

Now the you understand all about the four straightforward financial statements, check out on to learn what financial declare is all set first.


1. Revenue statement

The financial statement prepared an initial is your income statement. As you know by now, the revenue statement breaks down all of your this firm revenues and also expenses. You need your revenue statement first because it offers you the important information come generate various other financial statements.

Revenues would be any sales that your organization generates. Expenses could be miscellaneous operating costs, prefer inventory, rent, or utilities.

Generate your revenue statement an initial so you have the right to see your business’s network income and also analyze her sales vs. Debt.

When creating your income statement, list revenues first. Then, list out any type of expenses your firm had throughout the period and subtract the expenses from your revenue. The bottom the your income statement will certainly tell you whether you have a net earnings or loss because that the period.

2. Statement of preserved earnings

Your explain of retained income is the 2nd financial statement girlfriend prepare in your accountancy cycle.

Use her net profit (or network loss) from your earnings statement come prepare your statement of maintained earnings. After ~ you gather information around your network profit or loss, you deserve to see your full retained earnings and how much you’ll pay the end to investor (if applicable).

3. Balance sheet

After you create your revenue statement and statement of kept earnings, it’s time to develop your organization balance sheet. Again, her balance paper lists all of your assets, liabilities, and equity. Your full assets must equal your complete liabilities and equity on her balance sheet.

Use the information from your income statement and retained revenue statement to help create her balance sheet.

Create your balance sheet and include any current and long-term assets, current and noncurrent liabilities, and also the difference between your assets and also liabilities (aka equity).

4. Cash flow statement

Last but not least, use all of your jae won data from your other three explanation to create your cash circulation statement. Her cash flow statement mirrors you how cash has changed in your revenue, expense, asset, liability, and equity accounts throughout the accounting period.

Prepare your cash flow statement last since it takes info from all of your other financial statements.

See more: The Real World Seattle: Bad Blood"S Mike From Real World Seattle : Bad Blood

After you create your last financial statement, use your statements come track her business’s jae won health and also make smart financial decisions.

Looking to streamline your accountancy process? Patriot’s bookkeeping software allows you save your expenses and also income organized and also up-to-date so that your gaue won statements don’t suffer. Begin your complimentary trial today!

Interested in discovering more? Head on over to our Facebook and give united state a like. We always enjoy making brand-new friends!