How are the 3 financial statements linked?

Question

Accepted Answer

The 3 financial statements are linked through the flow of information and transactions between them.

The income statement shows revenue and expenses for a period of time, which affects the retained earnings on the balance sheet.
The balance sheet shows assets, liabilities, and equity at a specific point in time, which affects the cash flow statement.
The cash flow statement shows the inflow and outflow of cash during a period of time, which affects the balance sheet.
Changes in the balance sheet affect the income statement and cash flow statement, and changes in the income statement affect the balance sheet and cash flow statement.
For example, if a company sells more products (income statement), it will increase its accounts receivable (balance sheet) and potentially increase its cash flow from operations (cash flow statement).

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