Question

In: Accounting

Explain the interrelationship of the financial statements. Specifically answer these questions: How are the income statement...

  1. Explain the interrelationship of the financial statements. Specifically answer these questions:
  2. How are the income statement and balance sheet related to each other?
  3. Does the statement of cash flow use information from both the balance sheet and income statement?
  4. Describe how the cash flow statement is generated from Sage.

Solutions

Expert Solution

Inter-relationship of the financial statements

· Inter relationship of the financial statement are very clear and specific,

· Basically financial information is a key for assessment and evaluation to internal and external beneficiaries of a company. Total out look of financial statements provide a clear picture to the monetary overview of the company.

· The amount of equity in the balance sheet will be altered when net income from statement of income is added to the retained earnings

· The net income from statement of income is included under the head cash flows from operating activities of statement of cash flow

· In the statement of cash flow cash balance from balance sheet will be included

· Any sale or purchase of asset will be recorded in both statement of income and balance sheet.

Mainly three financial statements are there:

1.BALANCE SHEET

2.INCOME STATEMENT

3.CASH FLOW STATEMENT

How are the income statement and balance sheet related to each other?

Balance sheet and income statement very firmly inerlinked. Through the net income for the period and the subsequent change in equity that follows.

the decrease or increase or decrease in net assets due to the loss or profit shown in the statement of income is reported in the balances shown in the balance sheet at end of the period.

Does the statement of cash flow use information from both the balance sheet and income statement?

Yes, definitely.

Cash flows statement provides the changes in cash and cash equivalents balances during beginning and end of the financial year in accordance with cash flow impact of changes in the components of balance sheet.(assests,liablities.etc.)

Basically the cash flow statement is derived from the income statement.

From the income statement’s net income the cash from operating ,investing and financing activities are added or deducted to get the net cash flow.

Describe how the cash flow statement is generated from Sage.

1.    Go to Reporting.

2. Click Cash Flow Statement.

3. Enter the range of dates for which you want to view the cash flow statement.

4. Use the Bank Accounts menu to select the bank accounts you want to include in the statement.

5. Click Calculate.

6. Use the Export menu to save or print the report to a PDF or CSV file.

7. To view a more detailed cash flow statement, click the Detailed button.

The detailed report shows the individual transactions that make up the values on the report. You can also print or save this report.


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