Which financial statement is prepared first in the order of financial statements?

The Income Statement is prepared first in the order of financial statements because it provides a summary of the company’s revenues, expenses, and profits or losses over a specific period. This statement uses data about the company’s operations to determine its profitability, which is then used to inform the other financial statements.

Once the Income Statement is completed, the net income or net loss figure is then carried over to the Statement of Stockholder Equity, impacting retained earnings. The retained earnings figure is essential for the Balance Sheet, where it appears under equity. Additionally, the net income is also utilized in the Statement of Cash Flows to reconcile cash flows from operating activities. Therefore, starting with the Income Statement establishes a foundation for the subsequent statements, providing critical information for the evaluation of a company's financial health.