Module 3 of 5 in Financial literacy and accounting
The three financial statements
The income statement, balance sheet and cash flow statement, line by line, and how a change in one shows up in the others.
4 lessons in this module. Progress is saved in your browser as you go.
Companies report their results in three standard statements. This module takes each one in turn, explains every major line in plain English, and then shows how a single transaction, such as selling goods on credit, moves through all three.
By the end of this module you should be able to
- Read an income statement from revenue down to net profit.
- Read a balance sheet and explain the main groups of assets and liabilities.
- Read a cash flow statement and separate operating, investing and financing cash flows.
- Trace how one transaction affects all three statements.
Lessons in order
Module test
10 questions, chosen at random from a bank of 36 questions and balanced across this module's learning goals and difficulty levels. Every question comes with an explanation. You need 80% to pass, and you can retake it as often as you like with a fresh set of questions.
This module builds on
- Revenue, expenses and profit: The income statement is a formal version of revenue minus expenses at different levels of profit.
- Profit compared with cash flow: The income statement is prepared on an accrual basis, so its profit is not the same as cash.
- Assets, liabilities and equity: The balance sheet is the accounting equation laid out line by line.
- Working capital, inventory and receivables: The current assets and current liabilities on a balance sheet make up working capital.
- Depreciation, amortisation and capital expenditure: Depreciation is added back because it reduced profit without using cash.