For credit sales, the income statement

shows net sales while the balance sheet

reflects the increase in accounts
receivable.

Upon payment by customers, accounts Sales Transactions

receivable is converted into cash,
reflecting on the cash flow statement.

When expenses are incurred, they are

recorded on the income statement and
result in an increase in accounts
payable on the balance sheet.

The balance sheet reflects a company’s

This link shows how operational costs Expense Recognition financial position at a specific moment,
directly affect the company’s financial detailing assets, liabilities, and
health. shareholders' equity.

Balance Sheet
Actions like selling stock or borrowing It acts as a snapshot, showing what the
funds are recorded on both the cash flow company owns and what it owes.
statement and the balance sheet, Practical Examples
illustrating capital inflow.
The income statement summarizes
revenues and expenses over a period,
These transactions can significantly resulting in net income or loss.
Financing Activities
alter cash positions and equity levels,
showcasing the importance of financing Basic Principles Income Statement
in operations. It indicates the operational performance
of a company, showing its ability to
generate profit.
The income statement affects
shareholders' equity through net
income, which is added to retained The cash flow statement tracks cash
earnings on the balance sheet, movements, detailing the inflows and
demonstrating profitability’s role in outflows over a specific timeframe.
equity growth.
Cash Flow Statement
It provides insights into the company’s
Income Statement Influence liquidity and overall cash management.

Financial
This interaction highlights the necessity
of managing both operational efficiency
and financial strategies.

Statements Assets are resources owned by the

Overview
company, including cash, inventory,
accounts receivable, and property.
The balance sheet, income statement,
and cash flow statement are Assets
interconnected, influencing each other’s They are critical for generating revenue
reported figures. and supporting business operations.
Interconnections of Financial
For example, net income from the Statements Liabilities represent the company’s
income statement increases retained obligations, such as loans, accounts
earnings on the balance sheet. payable, and other debts.
Core Components Liabilities
When a sale is made on credit, both net Managing liabilities is essential for
sales on the income statement and maintaining financial stability.
accounts receivable on the balance sheet
increase simultaneously.
Shareholders' equity reflects the owners’
Specific Actions Impacting Financial claim after all liabilities have been
Statements Applications settled, comprising retained earnings
Expenses incurred reduce net income on
the income statement and increase and capital stock.
accounts payable on the balance sheet.
Shareholders' Equity
It indicates the net worth of the company.
The cash flow statement reconciles cash
movements, indicating how cash
received from sales or paid for expenses
affects the balance sheet.

For example, when accounts payable are Cash Flow Management

settled, cash decreases on the cash flow
statement and accounts payable is
reduced on the balance sheet.