Explanation

Answer Example

The income statement shows a company’s profitability over a specific period, detailing revenues and expenses to arrive at net income. The balance sheet provides a snapshot of the company’s financial position, including assets, liabilities, and equity. The cash flow statement tracks cash inflows and outflows, categorized into operating, investing, and financing activities. These statements are interconnected: net income from the income statement flows into the equity section of the balance sheet and the operating section of the cash flow statement. For example, an expense recorded on the income statement reduces net income, impacts retained earnings on the balance sheet, and adjusts cash flow in the cash flow statement.