7. Relationships between the financial statements

Financial statements provide information that is used for making decisions. There are four basic financial statements. This problem is designed to help you understand the purpose of each statement and how the statements interact.

There is a natural progression from one statement to the next. The following boxes represent the four financial statements. The set of financial statements is prepared at the end of each accounting period to communicate information about the companys operations during that period to its users. Use the selection lists to demonstrate your knowledge of the relationships between the statements. In the headings, you will need to select the appropriate statement name and time period.(Hint: Ask yourself if the statement covers a period of time or if it is a snapshot at a given point in time.) Then complete the blanks following the headings.)

Statement 1:

ABC Company

This statement summarizes the .

Which item from this financial statement appears on the next financial statement?

This statement shows how profitable a company is. It is sometimes referred to as the profit and loss (P&L) statement.

Statement 2:

ABC Company

This statement summarizes the .

Which item from this financial statement appears on the next financial statement?

This statement shows how much, if any, of the net income is distributed to the owners. It is sometimes expanded to show changes to all equity items.

Statement 3:

ABC Company

This statement summarizes the .

Which item from this financial statement appears on the next financial statement?

This statement reflects the accounting equation. It is sometimes referred to as the statement of financial position.

Statement 4:

ABC Company

This statement summarizes the .

This statement is created using information from two other financial statements. Therefore, it is created last.