• The balance sheet is like a company's credit report because it tells you how much the company owns (assets) relative to what it owes (liabilities).
• The income statement shows how much the company made or lost in ac-
counting profits during a year or a quarter. Unlike the balance sheet,
which is a snapshot of the company's financial health at a precise moment,
the Income statement records revenues and expenses during a set period,
such as a fiscal year.
• The third key financial statement—the statement of cash flows—records all the cash that comes into a company and all of the cash that goes out.
• Accrual accounting is a key concept for understanding financial state
ments. The income statement matches sales with the corresponding ex
penses when a service or a good is provided to the buyer, but the cash flow
statement is concerned only with "when cash is received and "when it goes
out the door.
• The income statement and cash flow statement can tell different stories
about a business because they're constructed using different sets of rules.
To get the most complete picture, be sure to look at both.
