Question

Discuss the relationship between the balance sheet, income statement, statement of cash flow and, statement of owner’s equity?

Answer 1

There is an important relationship between the balance sheet, income statement and statement of cash flows with statement of the owners equity.

Balance sheet is reflecting the financial position of the company and income statement is reflecting the net profit positions of the company along with the cash flows which are reflecting the cash position of the company and statement of changes in equity will be stating the the ownership status of the companies so,these four statements are always reflected in order to maximize the value of the company and maximize the value of the shareholders so they are highly interdependent in nature .

the relationship of these statements can be stated by the statement of cash flows is trying to generate the cash for the business and these cash flows are often accounted into the income statement on the company and incomes are treated as net profit and they will be transferred through the balance sheet and either employed in the business or they are transferred to the Reserve and surplus and they are also hence affecting the shareholders equity position, so it can be summarised that all these statements aare important to each other because the value is transferred from one statement to the another statement and they all have the similar objective of maximization of the value of the company and maximization of the value of the shareholders.