Financial accounting and reporting rules require that businesses follow a specific order when presenting financial statements. These norms include international financial reporting standards, or IFRS, and generally accepted accounting principles, or GAAP. Nonprofits such as government agencies and academic institutions must present operating data in accordance with generally accepted government accounting standards.
A properly ordered balance sheet indicates corporate assets by liquidity and liabilities by maturity. In other words, the report first shows the most liquid assets and indicates debts that become due in the short term. A liquid asset is a resource an owner can sell quickly and without significant loss of value. Besides cash, which is by essence the most liquid asset, other liquid resources include accounts receivable and inventories. Long-term assets -- the least liquid ones -- include land, equipment and production plants. Liabilities with a shorter maturity date include salaries, taxes and accounts payable. Debts with a long-term repayment window include bonds payable and notes due.
GAAP and IFRS recommend that a business present its income statement using a multiple-step order or single-step format. In a multiple-step income statement, the business shows operating expenses and revenues in one section and non-operating items in another. The firm then calculates operating income by subtracting all expenses from revenues. It ultimately determines net income by subtracting taxes from operating income. In a single-step income statement, the business shows all expenses in one section and all revenues in another. This format doesn’t factor in the nature of the expense or revenue item.
Statement of Cash Flows
A statement of cash flows is also known as a liquidity report or cash-flow statement. Accounting rules require that a business follow a specific order to present liquidity data, mostly based on the nature of the transaction. The firm must indicate cash flows from operating activities separately from cash flows from investing activities and cash flows from financing activities. Corporate accountants must properly label each section to show investors how the company spends its money and how much it saves for future investments.
Statement of Retained Earnings
A properly ordered statement of retained earnings starts with the beginning balance of shareholders’ equity and ends with the ending balance of stockholders’ equity. To determine the ending balance, financial accountants must add or subtract specific items, depending on the transaction. Accountants must add to the beginning equity balance such items as net income, retained earnings and stock issuance. They subtract amounts related to stock repurchases and dividend payments.
Marquis Codjia is a New York-based freelance writer, investor and banker. He has authored articles since 2000, covering topics such as politics, technology and business. A certified public accountant and certified financial manager, Codjia received a Master of Business Administration from Rutgers University, majoring in investment analysis and financial management.