Question

The Balance Sheet should be prepared a. before the income statement and after the statement of owner's equity. b. after the income statement and before the statement of owner's equity. c. before the income statement and the statement of owners equity. d. after the income statement and the statement of owner's equity.

Answer 1

Answer:

The answer is B. After the income statement and before the statement of owner's equity.

Explanation:

Income Statement shows the profitability of a business over a period of time.

Balance sheet shows the financial position of a business at the end of the period.

Statement of owner's equity shows the changes in owner's equity over a period of time.

Balance sheet is prepared after the income statement because profit for the year(net profit) in income statement is a line item under owner's equity in balance sheet. It must be known and the figure(net income) must be transferred to balance sheet (equity).

It is prepared before the statement of owner's equity because changes in equity (difference between opening and closing balance under equity in balance sheet) is a line item under changes in owner's equity. Also, issues of shares(in balance sheet) is a line item under statement of changes in owner's equity.