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In what ways do the elements of the four financial statements interact with one another' There are four reports that are part of the financial statements: the balancesheet, income statement, cash flow statement and the statement of earnings. All of this four financial statements are interactive between each other. They affect or are affected by the another in various ways. They all serve an unique purpose, but they all have as a commong goal to evaluate the health of a business at a certain period of time. This purpose consists of three fundamental activities that are indentifying, recording, and communicating the financial decisions and actions of a business. (Horngren) These statements are all linked together in many aspects. The balance sheet's assets and liabilities are reconcile with the income statement's revenues and expenses. This shows the comapany’s gains or losses for the period. The cash assets are shown in the information presented by the cash flows, they are also seen on a balance sheet, that at the same time reconciles with the income statement, in some instances (2010). The last report is the statement of earnings that allows for investors a view of the profits and loses that are also shown on the other previous statements. How might changing one of the financial statements affect the other financial statements' When we consider changing one of the financial statements it implies influencing all other statements as they are all feed from the same financial data, they are marely presented in different ways. They all provide financial data, cash flow information, information on profits and losses of the organization. They in general report the information that could affect our financial decisions of a company. They will be affected from accounting adjustments. (Horngren) Why is it essential to understand the relationship between the financial statement' I find that It is important that we all have an understanding of how all four main financial statements relate to each other and they share important financial information of a business. This financial statements can be used to take better decisions of a company. This reports offer finanicial information as well as information from manager and the type of management they have.