> ## Documentation Index
> Fetch the complete documentation index at: https://docs.lerian.studio/llms.txt
> Use this file to discover all available pages before exploring further.

# Financial statements

> The three reports that summarize a business's money — the Balance Sheet, Income Statement, and Cash Flow Statement — and what each answers, in plain language.

All those carefully recorded transactions add up to something useful: **financial statements**. These are the summaries that turn thousands of tiny entries into a picture anyone can read. There are three main ones, and each answers a different question about the business.

You don't need to know how to *build* them — just what each one **tells you**.

## The three statements at a glance

***

| Statement               | The question it answers               | Think of it as       |
| ----------------------- | ------------------------------------- | -------------------- |
| **Balance Sheet**       | What do we own and owe *right now*?   | A snapshot           |
| **Income Statement**    | Did we make a profit *over a period*? | A highlight reel     |
| **Cash Flow Statement** | Where did the cash actually *move*?   | A bank-account story |

## The Balance Sheet — a snapshot in time

***

The **Balance Sheet** is a photograph of the business at a single moment. It lists everything the company **owns** (assets), everything it **owes** (liabilities), and what's **left over for the owners** (equity). It's the [accounting equation](/en/fundamentals/accounting/assets-liabilities-equity) — *Assets = Liabilities + Equity* — printed as a report. If you want to know how healthy a business is *today*, this is where you look.

## The Income Statement — profit over time

***

The **Income Statement** (also called the *Profit & Loss* or *P\&L*) covers a stretch of time — a month, a quarter, a year. It starts with the **money earned** (revenue), subtracts the **money spent** (expenses), and shows whether the business ended up with a **profit or a loss**. Where the Balance Sheet is a snapshot, this is the story of what happened *between* two snapshots.

## The Cash Flow Statement — where the cash moved

***

The **Cash Flow Statement** tracks **cash and cash equivalents** (shortened to *cash* on this page) going in and out over a period. This matters because a business can look profitable on paper yet still run out of cash — for example, if customers haven't paid their bills yet. Under accrual accounting, revenue is recognized when it is earned and expenses when they are incurred, not when cash moves; cash-flow reporting tracks whether the business has the liquidity to pay its bills.

## How they fit together

***

The three aren't separate — they're three views of the same reality:

```mermaid theme={null}
flowchart TD
    A["Income Statement<br/><i>Did we make a profit?</i>"]:::is --> B["Profit changes<br/>equity"]:::link
    D["Cash Flow Statement<br/><i>Where did cash move?</i>"]:::cf --> E["Cash balance<br/>changes"]:::link
    B --> C["Balance Sheet<br/><i>What do we own & owe now?</i>"]:::bs
    E --> C
    classDef is fill:#dbeafe,stroke:#2563eb,color:#1e3a8a
    classDef cf fill:#fef3c7,stroke:#d97706,color:#78350f
    classDef bs fill:#dcfce7,stroke:#16a34a,color:#14532d
    classDef link fill:#f3f4f6,stroke:#6b7280,color:#111827
```

* The **Income Statement** shows whether you earned a profit.
* That profit flows into **equity** on the **Balance Sheet**.
* The **Cash Flow Statement** explains why the cash on that Balance Sheet went up or down.

Read together, they tell you whether a business is profitable, solid, and able to pay its bills — the three things anyone lending money or making decisions needs to know.

<Note>
  **See also in Core Banking**

  See how a ledger's records are proved against the outside world in [The outside world](/en/fundamentals/core-banking/external-accounts-and-reconciliation).
</Note>

## In short

***

* The **Balance Sheet** is a snapshot of what you own and owe right now.
* The **Income Statement** shows whether you made a profit over a period.
* The **Cash Flow Statement** tracks where cash and cash equivalents moved — because profit and cash aren't the same thing.

<Note>
  **Next up**

  You just saw that profit and cash aren't the same thing. See exactly why — and when each one gets recorded — in [Accrual vs. cash accounting](/en/fundamentals/accounting/accrual-vs-cash).
</Note>