Relationships between Financial Statements
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How are the financial statements related?
Why do these relationships exist?
What is the impact of a miscalculation in the income statement on other financial statements?
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Solution Summary
The 400 word solution presents a comprehensive discussion about the three main types of financial statements, and then summarizes the purpose and relationship between each.
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The income statement presents results of operations and non-operating items for a specified period of time: usually one year. It is almost impossible to assess the company results without having an income statement for both comparability and for analysis of certain items of gain or loss. For example, what if the company presented no income statement and sold a building during the year at a huge gain. The balance sheet might show a profit for the year but maybe the building gain (a non-recurring item) masked an operating loss.
The balance sheet is essential because it discloses the nature ...
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