Introduction to The Relationship between the Main Financial Statements
The statement of cash flows is now accepted, together with the income statement and the statement of financial position, like a main financial statement. The relationship among the three statements is displayed in diagram.
The statement of financial position imitates the combination of assets (involving cash) and claims (involving the equity of shareholders) of the business at a specific point in time.
The statement of cash flows and the income statement describe the changes over a period to two of the items in the statement of financial position.
The statement of cash flows describes the changes to cash. The income statement describes changes to equity, occurring from trading operations.
Figure: The relationship between the statement of financial position, the income statement and the statement of cash flows.
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