How do the 3 accounting financial statements tie together and connect?
January 12, 2010 - 4:25 am
How do the 3 accounting financial statements (balance sheet, income statement, cashflow statement) tie together and connect?
(1) Income statement: shows the "retained earnings" of the company for a particular period.
(2) Balance sheet: shows the cumulative "retained earnings" of the company since inception.
(3) Cash flow: shows the net cash of the company for a particular period.
Think of (2) as the cumulative of all of the (1)s put together.
Think of (3) as follows: At any point in time, the company owes some people cash and other people owe the company cash. When all of the cash obligations are eventually settled, that means the cash flow should equal (1).
January 12th, 2010 at 9:30 am
(1) Income statement: shows the "retained earnings" of the company for a particular period.
(2) Balance sheet: shows the cumulative "retained earnings" of the company since inception.
(3) Cash flow: shows the net cash of the company for a particular period.
Think of (2) as the cumulative of all of the (1)s put together.
Think of (3) as follows: At any point in time, the company owes some people cash and other people owe the company cash. When all of the cash obligations are eventually settled, that means the cash flow should equal (1).
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