Question

analyzing financial statements reading quiz
question 6 of 10: why is the balance sheet created last?
a) the statement of cash flows needs to calculate cash first to appear in the asset section
b) net income is calculated then added to statement of retained earnings so that balance is accurate
c) in order to be able to complete the worksheet
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Explanation:

To determine why the Balance Sheet is created last, we analyze each option:

• Option a: The Statement of Cash Flows calculates cash, but this doesn't directly relate to why the Balance Sheet is last.
• Option b: The Balance Sheet's equity section (including Retained Earnings) depends on the Income Statement (for Net Income) and the Statement of Retained Earnings. Net Income from the Income Statement is used in the Statement of Retained Earnings, and the ending Retained Earnings from that statement is needed for the Balance Sheet's equity. So the Balance Sheet must be created after the Income Statement and Statement of Retained Earnings (which use Net Income), making this the correct reason.
• Option c: The Worksheet is a tool for preparing statements, but it doesn't explain why the Balance Sheet is last.

Answer:

b) Net Income is calculated then added to statement of Retained Earnings so that balance is accurate