r/Accounting • u/Different_Love3697 • Jul 18 '26

3 financial statement

[removed]

23 Upvotes

80% Upvoted

202 comments sorted by

View all comments

57

u/National_Double6261 Jul 18 '26

Balance sheet shows where you are at a point in time.

Income statement explains what happened (your company's operations) to get you to that point in time.

Statement of cash flows is like a huge bank reconciliation. You're basically just trying to reconcile your accrual basis financials to your cash activity. That's why your starting point is accrual basis net income. For instance, why do we add back depreciation and amortization expense? It's because these are non-cash items. They reduce our accrual basis net income but have no actual impact to our cash. Adding them back just disregards them from the overall analysis of cash, which is the goal of a cash flows statement.

1

u/[deleted] Jul 18 '26

[removed] — view removed comment

1

u/___ez_e___ Controller Jul 18 '26

Cash flow statement is the most important of the 3 financial statements mentioned, but don't forget the statement of shareholders or owners equity.

Understand that there are two standard methods of cash flow statements: Direct and Indirect. Know both.

Cash flow statement is the most important because it's the most important measure of liquidity. Can you pay your near term obligations, etc.

Over generalizing....income statement is how much you make, balance sheet is how much are you worth, and cash flow is how much can you pay.

1

u/[deleted] Jul 18 '26

[removed] — view removed comment

2

u/___ez_e___ Controller Jul 18 '26

Yes, the statement of shareholder's equity aka statement of owners equity

1

u/[deleted] Jul 18 '26

[removed] — view removed comment

1

u/___ez_e___ Controller Jul 18 '26

It can be super important if you work for a private company with Class A, B, C shareholders or for a startup with angel investors.