So, how do these reports tie together? With reported revenues on the P&L not always equaling cash collected from customer, and reported expenses not
equaling cash paid out during that period, net income in an increase in ending retained earnings on the statement of retain earning. Ending retained
earning then is one of the components of shareowner’s equity on the balance sheet. And The cash flow statement describes the causes of the change in
cash reported on the balance from end of the last period to the of the current period.
Therefore, we can consider the income statement as explaining, through the statement of retained earnings, how the company’s operations progressed the financial position of the current period. The cash flow statement clarifies how the operating, investing, and financing activities of the company affected the cash balance on the balance sheet in that same period.
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