The structure of three financial statements and how they are related

 The structure of three financial statements and how they are related

The balance sheet, income statement, and cash flow statement are the three basic financial statements. These documents contain crucial details about a company's financial performance, status, and cash flows.

The balance sheet 

The balance sheet serves as an overview of a company's financial status at a certain point in time. It lists the assets, liabilities, and equity of the company. The company's assets are what it owns, while its liabilities are what it owes. Equity denotes the owner's stake in the company. The balance sheet is divided into two sections: assets on the left and liabilities and equity on the right. The balance sheet equation is Assets = Liabilities + Equity, which means that a company's total assets must match the sum of its liabilities and equity.

The income statement 

The income statement represents a company's revenue and expenses over a certain time period, usually a quarter or a year. Net income is calculated by taking revenue and subtracting expenses (or net loss). Revenue is the money earned by a firm from selling its products or services, whereas expenses are the costs incurred in producing those products or services. Revenue - Expenses = Net Income is the income statement calculation (or Net Loss).

The cash flow statement

The cash flow statement represents a company's cash inflows and outflows over a certain time period, usually a quarter or a year. It is broken down into three categories: operational activities, investment activities, and financing activities. Cash flows from the company's day-to-day operations, such as sales and expenses, are included in operating activities. Investment operations involve cash flows from the purchase or sale of assets such as real estate, plant, and equipment. Cash flows from borrowing or repaying debt, issuing or buying back stock, and paying dividends are examples of financing activities. Cash Inflows - Cash Outflows = Net Cash Flow is the cash flow statement equation.

These three financial statements are linked in a variety of ways. The net income (or net loss) from the income statement is carried over to the balance sheet's equity section. The balance sheet displays the ending balances of assets, liabilities, and equity and is used to determine changes in these accounts over time. The cash flow statement reconciles the income statement's net income with the cash flows from operational activities, which indicate the cash generated by the company's fundamental business operations. Finally, the cash flow statement depicts the changes in the company's cash position over time, which is reflected in the cash and cash equivalents account on the balance sheet.