Question

Describe, in your own words, the three financial statements and explain how they relate to each other.

Answer 1

The three financial statements are as following

the income statement

the balance sheet,

and statement of cash flows.

The income statement is a statement that illustrates the profitability of the company. It begins with the revenue line and after subtracting various expenses arrives at net income.The income statement covers a specified period like quarter or year.

Different from the income statement. the balance sheet does not account for the entire period and rather is a snapshot of the company at a specific point in time such as the end of the quarter or year.The balance sheet shows the company's resources (assets) and funding for those resources (liabilities and stockholder's equity ). Assets must always equal the sum of liabilities and equity.

Lastly the statement of cash flows is a magnification of the cash account on the balance sheet and accounts for the entire period reconciling the beginning of period to end of period cash balance.It typically begins with net income and is then adjusted for various non cash expenses and non cash income to arrive at cash from operating.Cash from investing and financing are then added to cash flow operations to arrive at net change in cash for the year.