Financial Statements: Dates, How Statements Tie Together
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Why are the dates on financial statements important?
How do the primary financial statements (income statement, balance sheet, and cash flow) tie together?
What managerial assessments can you make about a company that has a profit and a negative cash flow in the same accounting period?
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Solution Summary
The 559 word solution presents a comprehensive discussion about why dates on the financial statements are important followed by a discussion about each component statement. It explains how the statements work together to present a complete picture of a company. The last section provides 7 examples of how a company could have positive earnings and negative cash flow at the same time.
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Why are the dates on financial statements important? Dates are important because they define the period of coverage. Maybe a company issues a six month statement, and if so, that would be important to know for comparative analysis to that of the prior periods. Maybe a company's sales are seasonal (such as retail) where comparability would be really important. Maybe an important event happened about the time the statements were issued. It would be essential to know if the amounts in the financial statements were prior to the important event. The report date (by an audit firm) is critical because it is the final date of responsibility by the audit firm.
How do the primary financial statements (income statement, balance sheet, and cash flow) tie together? The income statement presents results of operations and ...
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