Accounting and Finance Foundations

Unit 7

Accounting and Finance Foundations Unit 7: Financial Statements 586

Financial Statements

Chapter 18

Student Guide

Relationship Among Financial Statements2.3.9Lesson 18.5

The relationship among the financial statements is imperative to understanding the components of each

statement. Our discussion so far has focused on:

1. What elements are reported in each statement


2. How the elements are related by the equation for each statement


3. How the elements are important to the decisions of investors, creditors, and others

We’ve also seen how the statements are related to each other. We’ve learned:

1. Net income or net loss from the income statement results in an increase or decrease in ending
   capital on the statement of owner’s equity.


2. Ending capital from the statement of owner’s equity is the value of owner’s equity on the balance
   sheet.


3. The change in cash on the statement of cash flows added to the beginning of the year in cash is
   equal to the end of the year cash on the balance sheet.