Multiple choice
Accounting · 4 min read
How the three financial statements link together
Almost every accounting question in a banking interview is a test of one idea: how the income statement, cash flow statement and balance sheet connect.
What each statement shows
- Income statement: revenue, costs and profit over a period. It ends in net income.
- Balance sheet: what the company owns (assets) and how it's funded (liabilities and equity) at one point in time. Assets always equal liabilities plus equity.
- Cash flow statement: how cash moved over the period, split into operating, investing and financing activities.
The links
- Net income from the income statement is the first line of the cash flow statement.
- The cash flow statement adds back non-cash items (like depreciation) and adjusts for balance sheet changes (like stock and debtors) to reach the change in cash.
- Ending cash goes onto the balance sheet. Net income also flows into retained earnings, so the balance sheet still balances.
A UK detail worth knowing
From January 2027, IFRS 18 changes how UK and European companies lay out the cash flow statement: it starts from operating profit rather than net income. Interviews still mostly use the net income version, but mentioning the change shows you read real accounts.
Check you've got it
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