A balance sheet is a static picture of a business at a point in time. It describes what the business owns and who owns it. A business has assets such as cash, accounts receivable, inventories and equipment (fixed assets). At the same time a business owes money to vendors, banks, taxing authorities etc. Whatever’s left over is the owner’s stake in the business, called equity. An income statement depicts the revenue and expense activity for the business over a given period of time: monthly, quarterly, annually. It reflects how profitable the company is. These are the two classic financial statements. Neither one gives you a complete snapshot as to where the money came from or where it went. Cash flow statements are a bridge between the balance sheet and the income statement. They explain those changes in cash positions which are so important to the entrepreneur, but which are not emphasized using typical accounting techniques.
