How does a balance sheet complement another financial statement?
A balance sheet is an essential financial statement that complements other financial statements by providing a snapshot of a company's financial position at a specific point in time. To understand how it complements other financial statements, we need to consider the following:
1. Income Statement: The income statement shows a company's financial performance over a specific period. It provides information on revenues, expenses, and net income. The balance sheet complements the income statement by showing how the net income from the income statement has impacted the company's overall financial position. Specifically, the net income (or loss) from the income statement is carried over to the balance sheet as retained earnings or accumulated deficit.
2. Cash Flow Statement: The cash flow statement details the cash inflows and outflows during a specific period, categorized into operating, investing, and financing activities. While the cash flow statement focuses on cash movements, the balance sheet complements it by indicating the company's cash balance at the end of the period. The ending cash balance reported on the cash flow statement should match the cash and cash equivalents figure on the balance sheet.
3. Statement of Changes in Equity: This statement illustrates the changes in a company's equity accounts, including share capital, additional paid-in capital, retained earnings, and other comprehensive income. The balance sheet complements this statement by reflecting the closing balances of these equity accounts for a specific period. In other words, the equity section of the balance sheet represents the cumulative changes in equity over time.
By considering these relationships, we can see how the balance sheet complements other financial statements, providing a comprehensive view of a company's financial health and facilitating analysis and decision-making by stakeholders. Remember that to obtain accurate and up-to-date balance sheet information, it is essential to consult the company's financial reports or statements prepared in accordance with generally accepted accounting principles (GAAP).