Question

Your book this week discussed financial reporting, and the balance sheet. Discuss the interrelationship among the income statement, balance sheet, and statement of cash flows.

Answer 1

It is clear that there is an interrelationship between income statement, balance sheet and cash flow statement. The net profit in the income statement is split to retained earnings and shareholders dividend.The same amount shown in liability side of balance sheet. in balance sheet there will be opening balance of cash, which has carry forward from previous year. the same amount also shown in income statement also. then current year net income is also added to it. the cash balance shown in balance sheet will be same as the closing balance in income statement. in simple terms, cash flow shows reveals inflows and outflows of cash. income statement shows the reason and source of such money inflows and outflows, and the excess of income over expense is called profit. balance sheet is a statement shows source and application of fund.