Financial Statement Linkages
Financial statements are not independent islands, but a flawlessly synchronized ecosystem narrating a single truth from different angles.
The balance sheet, income statement, and cash flow statement constitute a triple alliance depicting the economic reality of a business. Net profit, the ultimate result of the income statement, is directly added to retained earnings in the equity section of the balance sheet and forms the starting point for the operating activities section of the cash flow statement. The net change in cash at the very bottom of the cash flow statement is the exact equivalent of the cash account under assets on the balance sheet. For someone learning to read finance from zero, establishing these links is to understand the fundamental law of accounting equilibrium; because the mathematical bond between these tables does not allow any number in the system to be lost or created out of nothing.
