Question

list how the major financial statements are related and explain how the four major financial statements are related

Answer 1

The four major financial statements are:

the Income statement

The balance sheet

Statement of Cash flows

Statement of Retained earnings

The Income statement , the most important of the four, presents the operating results of the business--the core purpose of the entire exercise --ie.it presents all the revenues earned during the period as well as all the expenses incurred to earn those revenues---which provides the numbers for current year additions to retained earnings --after meeting all expenses including dividends to the owners

The balance sheet is a statement of assets owned & liabilities pending as at a particular date ,usually the reporting date ,in pursuing business as said in the Income Statement.It is connected with the former in drawing up figures for various assets after depreciation for the current year ,interest receivable or payable and also thecurrent year net income to add to the existing retained earnings ,to the Owners'equity

Statement of cash flows presents all the actual cash inflows & outflows,irrespective of revenue or capital in nature & when read in comparison with the Income statement, provides valuable and almost conclusive insights into the financial state of affairs of the business during the period.

It connects & explains the opening balances to their ending balances & is entirely dependent on figures from both the above statements---- for its construction .

Similar to the cash flow statement ,Statement of retained earnings presents the changes to the Owner's equity --connecting the beginning balance & ending balance of this group of accounts- which includes,balances in account heads such as ,common stock,paid-in-capital,retained earnings ,sale& re-purchase of stock and ,dividend payments .

This again, depends on the current year income statement ,balance sheet for the numbers to be used.

Thus all the four statements are inter-related & lend meaning ,when read in conjunction with one-another.