Financial statements — Excel guide
The three financial statements answer three questions: what do we own and owe (balance sheet), did we profit (income statement), and where did cash actually go (cash flow statement).
The accounting equation
Assets = Liabilities + Equity, always. Every transaction keeps it true — that's what double-entry enforces.
How the three statements link
Net income (income statement) flows into retained earnings (balance sheet) and starts the indirect cash flow statement. Ending cash on the cash flow statement equals the balance sheet's cash line. A model whose statements don't tie is broken by definition.
Balance sheet layout
US practice lists assets by LIQUIDITY: cash, receivables, inventory, then long-term. 'Current' means converting to cash within one year (or the operating cycle, if longer). Contra accounts sit inside their section as negatives — accumulated depreciation under assets, treasury stock under equity.
Multi-step income statement
Revenue − COGS = GROSS PROFIT; minus operating expenses = OPERATING INCOME; then non-operating items and tax down to NET INCOME. Each subtotal tells a different margin story.
| Line | Meaning |
|---|---|
| Gross profit | What's left after making the product |
| Operating income | …after running the business |
| Net income | …after everything, the bottom line |