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The Relationship Between Financial Statements: Articulation

August 14, 2015 by Ed Becker

The financial statements are not isolated items, they are closely related and flow between each other to give a larger picture of the business’ financial circumstances. Each statement can stand alone to offer a snapshot of the given information. But separately, they do not allow an in depth view of the whole financial state of the company.

The Balance Sheet is directly related to the statement of cash flows, the income statement and the statement of changes in equity. It reports the balances of assets, liabilities and equity at the beginning and ending of the period, increase or decrease in net assets from net profit (income statement) and from net gains (statement of changes in equity), increase or decrease on equity from share capital (statement of changes in equity), decrease in net assets and equity from dividends (statement of changes in equity).

The Income Statement, also called Profit and Loss Statement, directly links to the cash flow statement, the balance sheet and the statement of changes in equity. The increases or decreases of net assets from the profit and loss as reported in the income statement is also in the balances reported in the balance sheet for the period end. The profit and loss in the income statement are recorded in the cash flow statement. Net profit or loss is reported in the statement of changes in equity.

The Statement of Changes in Equity directly relates to the income statement and the balance sheet. The statement of changes in equity records the movement of equity as reported in the balance sheet. The change in equity is also reported in the income statement as well as revaluation surplus. The Cash Flow Statement is mostly related to the balance sheet because it reports the effects of changes in cash balances at the beginning and ending of the period.

The cash flow statement reflects increases and decreases from: changes in share capital reserves, changes in retained earnings from net profit or loss (from the income statement), changes in long term loans, working capital changes reflected in the balance sheet and changes in non-current assets from investing activities. The financial statements present and record a snapshot of the financial health and well-being of the company at a specific reporting period date or ending date. They were created and intended to directly relate to each other in order to flow together to show detailed financial information for the reporting period. Yes, you can review each statement separately and glean information, but when to get the whole picture of the reporting period you need to review the statements individually and together as a whole. In the next segment we will discuss the inherent purpose of the financial statements.

The Relationship Between Financial Statements: Articulation The financial statements are not isolated items, they are closely related and flow between each other to give a larger picture of the business’ financial circumstances. Each statement can stand alone to offer a snapshot of the given information. But separately, they do not allow an in depth view of the whole financial state of the company. The Balance Sheet is directly related to the statement of cash flows, the income statement and the statement of changes in equity. It reports the balances of assets, liabilities and equity at the beginning and ending of the period, increase or decrease in net assets from net profit (income statement) and from net gains (statement of changes in equity), increase or decrease on equity from share capital (statement of changes in equity), decrease in net assets and equity from dividends (statement of changes in equity). The Income Statement, also called Profit and Loss Statement, directly links to the cash flow statement, the balance sheet and the statement of changes in equity. The increases or decreases of net assets from the profit and loss as reported in the income statement is also in the balances reported in the balance sheet for the period end. The profit and loss in the income statement are recorded in the cash flow statement. Net profit or loss is reported in the statement of changes in equity. The Statement of Changes in Equity directly relates to the income statement and the balance sheet. The statement of changes in equity records the movement of equity as reported in the balance sheet. The change in equity is also reported in the income statement as well as revaluation surplus. The Cash Flow Statement is mostly related to the balance sheet because it reports the effects of changes in cash balances at the beginning and ending of the period. The cash flow statement reflects increases and decreases from: changes in share capital reserves, changes in retained earnings from net profit or loss (from the income statement), changes in long term loans, working capital changes reflected in the balance sheet and changes in non-current assets from investing activities. The financial statements present and record a snapshot of the financial health and well-being of the company at a specific reporting period date or ending date. They were created and intended to directly relate to each other in order to flow together to show detailed financial information for the reporting period. Yes, you can review each statement separately and glean information, but when to get the whole picture of the reporting period you need to review the statements individually and together as a whole. In the next segment we will discuss the inherent purpose of the financial statements.

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