> ## Documentation Index
> Fetch the complete documentation index at: https://docs.lerian.studio/llms.txt
> Use this file to discover all available pages before exploring further.

# Financial statements

> The three reports that summarize a business's money — the Balance Sheet, Income Statement, and Cash Flow Statement — and what each answers, in plain language.

All those carefully recorded transactions add up to something useful: **financial statements**. These are the summaries that turn thousands of tiny entries into a picture anyone can read. There are three main ones, and each answers a different question about the business.

You don't need to know how to *build* them — just what each one **tells you**.

## The three statements at a glance

***

| Statement               | The question it answers               | Think of it as       |
| ----------------------- | ------------------------------------- | -------------------- |
| **Balance Sheet**       | What do we own and owe *right now*?   | A snapshot           |
| **Income Statement**    | Did we make a profit *over a period*? | A highlight reel     |
| **Cash Flow Statement** | Where did the cash actually *move*?   | A bank-account story |

## The Balance Sheet — a snapshot in time

***

The **Balance Sheet** is a photograph of the business at a single moment. It lists everything the company **owns** (assets), everything it **owes** (liabilities), and what's **left over for the owners** (equity). It's the [accounting equation](/en/fundamentals/accounting/assets-liabilities-equity) — *Assets = Liabilities + Equity* — printed as a report. If you want to know how healthy a business is *today*, this is where you look.

## The Income Statement — profit over time

***

The **Income Statement** (also called the *Profit & Loss* or *P\&L*) covers a stretch of time — a month, a quarter, a year. It starts with the **money earned** (revenue), subtracts the **money spent** (expenses), and shows whether the business ended up with a **profit or a loss**. Where the Balance Sheet is a snapshot, this is the story of what happened *between* two snapshots.

## The Cash Flow Statement — where the cash moved

***

The **Cash Flow Statement** tracks one thing only: **actual cash** going in and out over a period. This matters because a business can look profitable on paper yet still run out of cash — for example, if customers haven't paid their bills yet. This statement follows the real money, so you can see whether the business can actually pay its rent next week. Profit is an opinion; cash is a fact.

## How they fit together

***

The three aren't separate — they're three views of the same reality:

```mermaid theme={null}
flowchart TD
    A["Income Statement<br/><i>Did we make a profit?</i>"]:::is --> B["Profit changes<br/>equity"]:::link
    D["Cash Flow Statement<br/><i>Where did cash move?</i>"]:::cf --> E["Cash balance<br/>changes"]:::link
    B --> C["Balance Sheet<br/><i>What do we own & owe now?</i>"]:::bs
    E --> C
    classDef is fill:#dbeafe,stroke:#2563eb,color:#1e3a8a
    classDef cf fill:#fef3c7,stroke:#d97706,color:#78350f
    classDef bs fill:#dcfce7,stroke:#16a34a,color:#14532d
    classDef link fill:#f3f4f6,stroke:#6b7280,color:#111827
```

* The **Income Statement** shows whether you earned a profit.
* That profit flows into **equity** on the **Balance Sheet**.
* The **Cash Flow Statement** explains why the cash on that Balance Sheet went up or down.

Read together, they tell you whether a business is profitable, solid, and able to pay its bills — the three things anyone lending money or making decisions needs to know.

<Note>
  **See also in Core Banking**

  See how a ledger's records are proved against the outside world in [The outside world](/en/fundamentals/core-banking/external-accounts-and-reconciliation).
</Note>

## In short

***

* The **Balance Sheet** is a snapshot of what you own and owe right now.
* The **Income Statement** shows whether you made a profit over a period.
* The **Cash Flow Statement** tracks where the actual cash moved — because profit and cash aren't the same thing.

<Note>
  **Next up**

  You just saw that profit and cash aren't the same thing. See exactly why — and when each one gets recorded — in [Accrual vs. cash accounting](/en/fundamentals/accounting/accrual-vs-cash).
</Note>