Relationship Among Financial Statements

How the Statements Connect

The financial statements are interconnected. Net income from the income statement flows into retained earnings, which appears in the statement of changes in equity and ultimately affects shareholders' equity on the balance sheet. Ending cash from the statement of cash flows becomes the cash balance reported on the balance sheet.

• Net income increases retained earnings.
• Retained earnings are part of shareholders' equity.
• Ending cash equals the cash balance on the balance sheet.
• Disclosures in the notes support amounts reported in every statement.

Financial statements tell one financial story from different perspectives.