Connecting All Three Statements

What this unit covers

See the balance sheet, the profit and loss statement and the cash flow statement as three views of the same company.

By the end you will be able to

• Explain that the three statements describe one company from different angles.
• Distinguish profit from cash and explain why they can differ.
• Recognise a transaction's trace across statements as a cue to check more than one.

How it starts: Profit on Paper, Cash in the Bank

1. Your account book shows a healthy profit this month.
2. Your bank balance is lower than the profit figure suggests.
3. Both records are correct, so what happened to the money?

Words you will meet

Balance Sheet

A snapshot of what a company owns and owes at one point in time.

P&L

The Profit and Loss statement, showing what a company earned and spent over a period.

Cash Flow Statement

A record of the real cash that moved into and out of a company's bank account over a period.

Receivable

Money a company is owed by customers for sales already made but not yet paid for.

Revenue

The total value of sales a company records for a period, whether or not cash has been received.

In this module: Reading Financial Statements

1. Balance Sheet Made Easy
2. Profit & Loss Statement
3. Cash Flow Statement
4. Connecting All Three Statements (this unit)