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Week 2; Assessed Discussion Question: Financial Statements In what ways do the elements of the four financial statements interact with one another' Income Statement and Balance Sheets are types of financial statements which work together. The basic financial statements are the Income Statement and Balance Sheet. An Income Statement is known as profit & loss statement; the Income Statement summarizes revenue and expenses during a certain period of time. Balance Sheet is a snapshot at certain point in time, which shows a company’s financial positions. The balance sheets reflect a company’s assets and debt at certain date. A Balance Sheet illustrates a company's assets, liabilities and shareholder’s equities. When analyzing financial statement it is useless to have just one of them; Income statement and Balance Sheet work together for efficiency. Statement of Owner’s Equity, also known as Statement of Retained Earnings or Equity Statement, explains the changes in retained earnings. Retained earnings appear on the Balance Sheet, which are influenced by income and dividends. The Statement of Owner’s Equity takes information from the Income Statement and provides information to the Balance Sheet. For a company to have a Statement of Owner’s Equity; a company must have a good Balance Sheet from the beginning of the year and another one at the end of the year along with an accrual adjusted Income Statement for the year. Statement of Cash Flow summarizes sources and uses of cash, which indicates whether enough cash is available to carry on routine operations. The information listed in the Cash Flow Statement is a reflection of the information provided by the beginning and ending Balance Sheets and Income Statement. How might changing one of the financial statements affect the other financial statements' Why is it essential to understand the relationship between the financial statements' The four basic financial statements consist of: balance sheet, income statement, statement of equity, and cash flow statement. All financial statements are linked to one another. Net income from the income statement flows to the statement of equity which then flows to the balance sheet under the equity section. In addition, net income starts out the cash flow statement and it is then reconciled to cash from operations by taking the cash based changes in the balance sheet. The ending balance on the cash flow statement then carries back over to the balance sheet. It is vital to understand this relationship as an entry/adjustment to one statement will flow through to the other statements.