Module I· Three-Statement Mechanics & LinkagesBasic
Question
What are the three financial statements, and what does each show?
Answer
Three statements
| Statement | What | Period |
|---|---|---|
| Income statement | Performance (revenue − expenses = NI) | Period |
| Balance sheet | Assets = equity + liabilities | Point in time |
| Cash flow statement | Cash movements (op/inv/fin) | Period |
Rule of thumb
Income statement + CF = period; balance sheet = point in time.
Linkage
Net income (income statement) → flows into retained earnings (balance sheet) → starting point of the indirect CF calculation.