How To Link The 3 Statements

Question 1

First

Answer 1

Net income from the bottom of the income statement becomes the top line of the cash flow statement.

Question 2

Second

Answer 2

Add back non-cash expenses from income statement, flip signs of items like gains and losses.

Question 3

Third

Answer 3

Reflect changes in operational balance sheet line items:

• if an asset goes up, cash flow goes down
• if liability goes up, cash flow goes up

Question 4

Fourth

Answer 4

Reflect purchases and sales of investments and PP&E in Cfi

Question 5

Fifth

Answer 5

Reflect dividends, debt issued or repurchased, shares issued or repurchased in CFF

Question 6

Sixth

Answer 6

Calculate net change in cash at the bottom of the CFS, and then link this into cash at the top of the next period’s balance sheet

Question 7

Seventh

Answer 7

Update balance sheet to reflect changes in cash, debt, equity, investments, PP&E, etc things which came from CFS