Relationship Among the Financial Statements

How Financial Statements Connect

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

• Income statement determines net income.
• Net income updates retained earnings.
• Retained earnings affect shareholders' equity.
• Ending cash equals cash reported on the balance sheet.

Financial statements are different chapters of the same financial story.