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Balance sheet items can also be used by investors to determine the financial health of a given company. This can be done through the analysis of the relevant financial ratios including but not limited to liquidity ratios.
4. The Cash Flow Statement
Of the financial statements discussed in this text, the cash flow statement is typically the last financial statement prepared. A cash flow statement in the opinion of Cunningham et al. (2011) "shows the changes in a business' cash during an accounting period by listing the cash inflows and outflows from its operating, investing and financing activities..."
Reasons for Preparing the Financial Statements in the Order Above
One of the main reasons why financial statements have to be prepared in a prescribed logical order has got to do with the need to transfer some pieces of information from one financial statement into the next. In this case, entries in one financial statement...
Thus in basic terms, the financial statements prepared by entities tend to be largely interrelated and in such a case, their preparation typically follows a logical order.
Conclusion
Based on the discussion above, it is clear that of the four financial statements highlighted, none can be said to be independent. Instead, they are all interrelated and in such a case, they could be relied upon to give a story of the financial events that affect a given entity within a specified period of time.
References
Cunningham, B., Nikolai, L.A., Bazley, J., Kavanagh, M., Slaughter, G. & Simmons, S. (2011). Accounting: Information for Business Decisions. South Melbourne, Victoria Australia: Cengage Learning.
Porter, G.A. & Norton, C.L. (2010). Financial Accounting: The Impact on Decision Makers (7th ed.). Mason, OH: Cengage Learning.
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