{"id":2453,"date":"2019-09-12T13:33:00","date_gmt":"2019-09-12T13:33:00","guid":{"rendered":"https:\/\/analystprep.com\/cfa-level-1-exam\/?p=2453"},"modified":"2026-02-19T18:54:03","modified_gmt":"2026-02-19T18:54:03","slug":"relationships-among-statements","status":"publish","type":"post","link":"https:\/\/analystprep.com\/cfa-level-1-exam\/financial-reporting-and-analysis\/relationships-among-statements\/","title":{"rendered":"Relationships Among Statements"},"content":{"rendered":"\n<script type=\"application\/ld+json\">\n{\n  \"@context\": \"https:\/\/schema.org\",\n  \"@type\": \"QAPage\",\n  \"mainEntity\": {\n    \"@type\": \"Question\",\n    \"name\": \"Which financial statement explains the ending cash balance on the balance sheet?\",\n    \"text\": \"Which of the following financial statements provides information that helps explain the ending cash balance on a company\u2019s balance sheet?\\n\\nA. The income statement\\n\\nB. Statement of cash flows\\n\\nC. Statement of owners\u2019 equity\",\n    \"answerCount\": 1,\n    \"acceptedAnswer\": {\n      \"@type\": \"Answer\",\n      \"text\": \"The correct answer is B. The statement of cash flows explains how the ending cash balance on the balance sheet was derived from the beginning cash balance by detailing cash inflows and outflows from operating, investing, and financing activities.\"\n    }\n  }\n}\n<\/script>\n\n<script type=\"application\/ld+json\">\n{\n  \"@context\": \"https:\/\/schema.org\",\n  \"@type\": \"VideoObject\",\n  \"name\": \"Financial Reporting Standards (2021 Level I CFA\u00ae Exam \u2013 Reading 22)\",\n  \"description\": \"This video lesson covers financial reporting standards, highlighting the objectives and importance of consistent, comparable, and useful financial statements. It explains the roles of standard-setting bodies and regulators, differences between IFRS and US GAAP, key reporting principles, and implications for financial analysis, valuation, and global convergence in accounting standards.\",\n  \"uploadDate\": \"2018-11-23T00:00:00+00:00\",\n  \"thumbnailUrl\": \"https:\/\/img.youtube.com\/vi\/HEL3pNskRoQ\/maxresdefault.jpg\",\n  \"contentUrl\": \"https:\/\/www.youtube.com\/watch?v=HEL3pNskRoQ\",\n  \"embedUrl\": \"https:\/\/www.youtube.com\/embed\/HEL3pNskRoQ\",\n  \"duration\": \"PT31M49S\"\n}\n<\/script>\n\n\n\n<iframe loading=\"lazy\" width=\"560\" height=\"315\" src=\"https:\/\/www.youtube.com\/embed\/HEL3pNskRoQ?si=82lRXNlz43z2ot_0\" title=\"YouTube video player\" frameborder=\"0\" allow=\"accelerometer; autoplay; clipboard-write; encrypted-media; gyroscope; picture-in-picture; web-share\" referrerpolicy=\"strict-origin-when-cross-origin\" allowfullscreen><\/iframe>\n\n\n\n<p>Financial statements use the financial data that is reported in the accounting system to present data in a more meaningful manner. The primary financial statements are: balance sheet, income statement, statement of cash flows, statement of owners\u2019 equity, and statement of retained earnings.<\/p>\n\n\n\n<h2 class=\"wp-block-heading\"><strong>Financial Statements Explained<\/strong><\/h2>\n\n\n\n<p>The balance sheet gives us information on a company\u2019s financial position. The other financial statements provide information relating to activities of a company i.e. its profitability, cash flow, and changes in owners\u2019 equity during a period of time.<\/p>\n\n\n\n<p>The balance sheet provides a snapshot of a company\u2019s financial position by showing its assets, liabilities, and owners\u2019 equity at a specific point in time.<\/p>\n\n\n\n<p>The income statement tells us how profitable a company was over a specified period of time.&nbsp; It reports a company\u2019s revenue, expense, and net income or loss during this period of time.<\/p>\n\n\n\n<div style=\"margin:22px 0;\">\n  <a href=\"https:\/\/analystprep.com\/free-trial\/\"\n     target=\"_blank\"\n     rel=\"noopener noreferrer\"\n     style=\"\n        display:block;\n        width:100%;\n        text-align:center;\n        padding:14px 0;\n        border:2px solid #2f5bea;\n        border-radius:40px;\n        text-decoration:none;\n        font-weight:500;\n        font-size:18px;\n        color:#2f5bea;\n        background-color:transparent;\n        box-sizing:border-box;\n     \">\n     Practice statement linkages with our free trial.\n  <\/a>\n<\/div>\n\n\n\n\n<div class=\"wp-block-group is-nowrap is-layout-flex wp-container-core-group-is-layout-ad2f72ca wp-block-group-is-layout-flex\">\n<p>The statement of cash flows presents information on a company\u2019s cash flows over a specified period of time. This, it does by reflecting the company\u2019s cash inflows (receipts) and cash outflows (payments) during a period. The cash flows are categorized according to three groups of business activities: operating, financing, and investing.<\/p>\n<p>The statement of owners\u2019 equity reports the composition and changes in owners\u2019 equity for a company during a specified period of time.<\/p>\n<p>The statement of retained earnings provides information on the changes in a company\u2019s retained earnings during a specified period of time.<\/p>\n<h2><strong>Financial Statement Relationships<\/strong><\/h2>\n<p>The following notes illustrate the interrelationships among financial statements:<\/p>\n<ul>\n<li>a comparison of a company\u2019s balance sheet over two accounting periods allows us to see the beginning and ending amounts of a company\u2019s assets, liabilities, and owners\u2019 equity in the current accounting period;<\/li>\n<li>the statement of owners\u2019 equity will present a breakdown of any changes in owners\u2019 equity observed on the balance sheet, from one accounting period to the next;<\/li>\n<li>the statement of retained earnings reflects any changes in retained earnings which would have contributed to any changes in owners\u2019 equity;<\/li>\n<li>any changes in retained earnings could have stemmed from changes in net income, which is presented on the income statement;<\/li>\n<li>the income statement provides a breakdown of revenues and expenses which would result in the net income figure that is reflected in retained earnings within owners\u2019 equity appearing on the balance sheet&#8217; and<\/li>\n<li>the statement of cash flows provides information on the changes in cash flows which occurred during the period based on business activity (operating, investing and financing). It explains how the ending cash balance appearing on the balance sheet was derived from the beginning cash balance.<\/li>\n<\/ul>\n<blockquote>\n<h2><strong>Question<\/strong><\/h2>\n<p>Which of the following financial statements provides information which helps to explain the ending cash balance on a company\u2019s balance sheet?<\/p>\n<p>A. The income statement<\/p>\n<p>B. Statement of cash flows<\/p>\n<p>C. Statement of owners\u2019 equity<\/p>\n<p><strong>Solution<\/strong><\/p>\n<p>The correct answer is B.<\/p>\n<p>The statement of cash flows explains how the ending cash balance on the balance sheet was derived from the beginning cash balance.<\/p>\n<\/blockquote>\n<p><em>Reading 22 LOS 22f:<\/em><\/p>\n<p><em>Describe the relationships among the income statement, balance sheet, statement of cash flows, and statement of owners\u2019 equity<\/em><\/p>\n<div class=\"notes_inv\"><hr \/>\n<p><em><a href=\"https:\/\/analystprep.com\/cfa-level-1-exam\/financial-reporting-and-analysis\/learning-sessions-curriculum-financial-reporting-and-analysis\/\">Financial Reporting and Analysis &#8211; Learning Sessions<\/a><\/em><\/p>\n<\/div>\n<\/div>\n\n\n\n<div style=\"text-align:center; margin:42px 0 10px;\">\n\n  <a href=\"https:\/\/analystprep.com\/free-trial\/\"\n     target=\"_blank\"\n     rel=\"noopener noreferrer\"\n     style=\"\n        display:inline-block;\n        padding:16px 36px;\n        background-color:#3f78d7;\n        color:#ffffff;\n        text-decoration:none;\n        font-weight:600;\n        font-size:18px;\n        border-radius:40px;\n        line-height:1.1;\n     \">\n     Start Free Trial\n  <\/a>\n\n  <p style=\"\n        margin-top:18px;\n        max-width:720px;\n        margin-left:auto;\n        margin-right:auto;\n        font-size:17px;\n        line-height:1.6;\n     \">\n     Use AnalystPrep\u2019s free trial to drill Financial Reporting &#038; Analysis with exam-style questions, detailed explanations, and mock exams built to reinforce links across the financial statements.\n  <\/p>\n\n<\/div>\n\n","protected":false},"excerpt":{"rendered":"<p>Financial statements use the financial data that is reported in the accounting system to present data in a more meaningful manner. The primary financial statements are: balance sheet, income statement, statement of cash flows, statement of owners\u2019 equity, and statement&#8230;<\/p>\n","protected":false},"author":1,"featured_media":0,"comment_status":"closed","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":{"_acf_changed":false,"footnotes":""},"categories":[5],"tags":[],"class_list":["post-2453","post","type-post","status-publish","format-standard","hentry","category-financial-reporting-and-analysis","blog-post","no-post-thumbnail","animate"],"acf":[],"yoast_head":"<!-- This site is optimized with the Yoast SEO plugin v26.9 - https:\/\/yoast.com\/product\/yoast-seo-wordpress\/ -->\n<title>Relationships Among Financial Statements | CFA Level 1<\/title>\n<meta name=\"description\" content=\"Understand how financial statements connect, including the relationship between the balance sheet, income statement, and cash flow statement.\" \/>\n<meta name=\"robots\" content=\"index, follow, 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