Step 7 Preparing financial statements From the adjusted trial balance of Pioneer Advertising Agency, all of the accounts listed in the adjusted trial balance will have to be reported on financial statements. Please noted that each account can only be appeared in one statement. We will always start from preparing the income statement. Recall the relationship of financial statements we learnt in chapter 1 , net income is first information we need to know as it has to be reported in the statement of retained earnings which is the second statement to be prepared. Balance sheet is therefore the last statement to be prepared. Closing entries *In case of net loss, the journal entry to transfer net loss to retained earnings account should be opposite to that of net income case After posting the closing entry in the T-account, the retained earnings T-account is now updated Before closing entry, the retained earnings T-account contain the beginning balance of retained earnings. So, closing entry does not only prepare revenue, expense, and dividend T-account for following period but also help updating retained earnings account