The three statements at a glance
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 (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 cash and cash equivalents (shortened to cash on this page) 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. Accrual accounting recognizes revenue when a business earns it, and expenses when the business incurs them, not when cash moves. Cash-flow reporting tracks whether the business has the liquidity to pay its bills.
How they fit together
The three are views of the same reality:
- 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.
See also in Core BankingSee how a ledger’s records are proved against the outside world in The outside world.
Next steps
Next upSee why profit and cash differ, and when each one enters the records, in Accrual vs. cash accounting.