The primary reason the income statement is forecast prior to the balance sheet in the financial planning process is because ______ must be estimated.
A)current liabilities that change naturally with changes in sales
B)funds that must raise externally through new borrowing or by selling new stock
C)the market value of stock in the coming year
D)the amount of retained earnings the company expects to generate during the year
E)the total of cash flows from various activities during the year

Question

The primary reason the income statement is forecast prior to the balance sheet in the financial planning process is because ______ must be estimated. 
A)current liabilities that change naturally with changes in sales
B)funds that must raise externally through new borrowing or by selling new stock
C)the market value of stock in the coming year
D)the amount of retained earnings the company expects to generate during the year
E)the total of cash flows from various activities during the year

Quizplus · Accepted Answer

The amount of retained earnings a company expects to generate during the year is a key figure that is derived from the income statement and is necessary for forecasting the balance sheet. Retained earnings are affected by the net income, which is calculated in the income statement, hence the need to forecast the income statement first.

The Primary Reason the Income Statement Is Forecast Prior to the Balance