Three statements.
One financial picture.

Read these reports together. Each answers a different question.

Income statement

Question: What did the business earn over a period?

Revenue less direct costs produces gross profit. Subtract operating expenses to understand operating performance. Compare trends and margins, not only the revenue total.

Balance sheet

Question: What does the business own and owe at a point in time?

Assets equal liabilities plus equity. Review receivables, payables, debt, inventory, and cash. A balance is useful only when it is supported by reliable records.

Cash flow statement

Question: Why did cash change during the period?

Operating, investing, and financing activity explain movements in cash. Profit can differ from cash because of timing, noncash expenses, investment, and borrowing.

Five questions for your next review

1. What changed in gross margin, and why?
2. Which receivables are overdue?
3. What payments and debt obligations are approaching?
4. What explains the difference between profit and cash?
5. Which operating decision follows from this information?

General educational guide. Review classifications and decisions with your accounting adviser.