If a company prepared its income statement entirely on a cash basis (i.e., no accounts receivable, nothing capitalized, etc.) it would have no balance sheet other than shareholders’ equity and cash. The income statement is not prepared on a cash basis – that means accounting principles such as revenue recognition, matching, and accruals can make the income statement very different from the cash flow statement of the business. Want to see a live demonstration? Watch CFI’s free webinar on how to link the 3 financial statements in Excel. In this tutorial, we will break it down for you step-by-step, although we assume you already have a basic understanding of accounting fundamentals and know how to read financial statements. See CFI’s free interview guides to learn more. This is also a common question for investment banking interviews, FP&A interviews, and equity research interviews. In financial modeling, your first job is to link all three statements together in Excel, so it’s critical to understand how they’re connected. The 3 financial statements are all linked and dependent on each other. Updated JanuHow are the 3 Financial Statements Linked?
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