Why Does an Accountant Prepare the Income Statement First

question 96

Multiple Choice

Why does an accountant prepare the income statement first?

• A) Management, being profit oriented, is more interested in the company's net income than in the assets the company owns and the debts it owes.
• B) It is easier to adjust income statement accounts first than it is to adjust balance sheet accounts.
• C) Net income must be computed first to properly complete the other financial statements.
• D) There is no particular order in which financial statements must be prepared.

---

Definitions:

Aging

The process of categorizing accounts receivable based on the length of time an invoice has been outstanding.

Accounts Receivable

The total owed by customers for goods or services they've received from a company yet haven't paid for.

Bad Debts

Accounts receivable that a company does not expect to collect and writes off as a loss in its financial statements.

Balance Sheet Approach

A method for evaluating foreign subsidiaries in which assets and liabilities are translated at the current exchange rate, whereas equity accounts are translated at the historical exchange rates.