The correct answer is Option (3) → (D), (C), (B), (A)
The preparation of financial statements follows a logical sequence, where the output of one statement (like profit) is used as an input for the next.
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(D) Trading Account: Prepared first to calculate the Gross Profit or Gross Loss from the buying and selling of goods.
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(C) Profit and Loss A/c (or Statement of Profit and Loss): Prepared second, using the Gross Profit from the Trading Account, to calculate the Net Profit or Net Loss for the accounting period.
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(B) Balance Sheet: Prepared third, using the Net Profit/Loss (which adjusts the capital/reserves) and the final balances of all assets and liabilities to show the financial position of the firm as of a specific date.
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(A) Cash Flow Statement: Prepared last, using information from both the Profit and Loss A/c and the Balance Sheet (comparing two periods) to show the movement of cash under operating, investing, and financing activities.
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