Three statements, different time views
An income statement summarizes revenues and expenses over a period. A balance sheet reports assets, liabilities and equity at one date. A cash-flow statement tracks cash inflows and outflows over a period, usually grouped into operating, investing and financing activities. Profit and cash generation are related but are not identical.
The SEC's beginner guide describes the U.S. public-company statement framework and urges readers to inspect notes and management discussion. This tutorial uses a wholly fictional company and simplified accrual accounting; it is not a substitute for GAAP filings or accounting advice.
Fictional statements that reconcile
All figures below are invented dollars for one fictional quarter. Beginning balance sheet: cash $30, accounts receivable $20, inventory $30 and net equipment $50 = total assets $130. Accounts payable $12 and debt $28 = liabilities $40; equity is $90. Thus assets $130 = liabilities $40 + equity $90.
1. Income statement for the quarter
| Revenue | $200 |
|---|---|
| Cost of goods sold | −$100 |
| Operating costs excluding depreciation | −$50 |
| Depreciation expense | −$10 |
| Operating income | $40 |
| Interest expense | −$5 |
| Pretax income | $35 |
| Illustrative tax expense | −$7 |
| Net income | $28 |
The $7 tax is a made-up accounting input, not a tax-rate claim or advice.
2. Cash-flow statement for the quarter
Operating cash flow: net income $28 + noncash depreciation $10 − receivables increase $5 − inventory increase $4 + payables increase $3 = $32. Investing cash flow: equipment purchases −$15. Financing cash flow: debt repayment −$6 and dividend paid −$8, total −$14. Net cash change = $32−$15−$14 = +$3; beginning cash $30 becomes ending cash $33.
3. Ending balance sheet
Cash $33 + receivables $25 + inventory $34 + net equipment $55 = assets $147. Liabilities: payables $15 + debt $22 = $37. Equity: beginning $90 + net income $28 − dividend $8 = $110. Therefore liabilities $37 + equity $110 = $147, matching assets.
Cross-check: the $28 profit is not the $32 operating cash flow; noncash depreciation and working-capital changes explain the difference in this simplified example. The balance sheet reflects the cash, equipment, payables, debt and retained-earnings changes.
Read notes, dates and accounting policies
When reading real filings, identify whether statements are consolidated, audited or interim; compare the reporting period and balance-sheet date; inspect accounting policies, estimates, debt maturities, contingencies and cash-flow classifications in the notes. A single ratio or statement line cannot establish financial health, future performance or whether a security is suitable.
Source: SEC, Beginners' Guide to Financial Statements (published 12 January 2014; reviewed 26 October 2026). It is introductory U.S. public-company education; it does not verify the fictional values or provide accounting/tax advice.