Types of Financial Statements – Interdependence

Practice Question

Intro to Financial Accounting
Financial Statements and Business Decisions
Types of Financial Statements
True or False

Each financial statement is prepared independently of the others.

Answer +
Final Answer: FALSE
Explanation +

Financial statements are interrelated, and transactions recorded in one statement often affect others. For example, net income from the income statement impacts retained earnings on the balance sheet, and the statement of cash flows reconciles net income to cash position.

Understanding these relationships is essential for accurate financial reporting and effective decision-making.