Describe the relationships among the four basic financial statements and how management uses financial statements.

¢ There is a natural relationship among the four basic financial statements so that financial statements are prepared in a particular order.

¢ Starting with the statement of financial position at the beginning of the accounting period, financial statements are generally prepared in the following order: the statement of earnings, the statement of cash flows, the statement of changes in equity, and the statement of financial position at the end of the accounting period.

¢ The statement of cash flows explains the change in cash on the statements of financial position at the beginning and end of the accounting period.