Question

In a company's annual report, which key numbers flow from one major financial statement to another? Why do these numbers tie together?

Answer 1

The financial statements consist of:

1. Income Statement

2. Statement of Retained Earnings

3. Balance Sheet

4. Cash Flow Statement

They are prepared in the following order that it is listed as above.

The income statement is one which shows a summary of income and expenses for a particular accounting period. The net income is also carried over to statement of retained earnings. It is added to the opening balance of retained earnings.

To get the closing the closing balance of retained earnings, the dividends are deducted from opening balance and net income. The closing balance of retained earnings is further reported in the balance sheet. The cash flow statement will require the opening balance of cash, which can be found in the balance sheet. The closing balance of cash reported in cash flow statement needs to tally/match with the closing cash balance reported in the balance sheet.