Your client, Mary Barnhart, wants to open her own business. She is having difficulty understanding the purposes of financial statements and how they fit together across time. REQUIRED: Write a one-page letter to Ms. Barnhart explaining the purposes of the income statement, statement of owners' equity, and the balance sheet and how they are linked. Use the attached example for guidance.

Henry Whiteapples

123 Maple Street

Columbus, OH, 45888

December 21, 2004

Dear Mr. Whitebridge,

I understand you are concerned about the Statement of Cash Flows and what it means.

The Statement of Cash Flows is one of four important financial statements for every business. It provides details about the sources and uses of cash during a fiscal period (month, quarter, or year). There are three sections to the Statement of Cash Flows: Operating Activities, Investing Activities, and Financing Activities. The Operating Activities section provides details about cash receipts and payments for day-to-day operations. The Investing Activities section provides details about cash receipts and payments for long-term assets and the Financing Activities section provides details about cash receipts and payments for debt (long-term borrowing) and equity (stock) transactions. The total on this statement is equal to the cash account balance on the Balance Sheet for the same period.

I hope this explanation helps you better understand the Statement of Cash Flows. Please feel free to contact me if you have additional questions.

Sincerely,

Kelsey Sioen