Start with timing
Imagine a consultant completing a £1,000 job in March. If it meets the conditions for revenue recognition, the sale appears in March revenue even if the customer pays in April. Until payment, the business holds a receivable rather than that cash.
Three questions, three statements
The income statement explains revenue and expenses over a period. The balance sheet shows assets, liabilities and equity at a date. The cash flow statement tracks cash movements. Read them together: one view cannot answer every question.
Try a simple check
Compare customer payment dates with the dates bills fall due. A profitable business can still have a cash shortfall. Our example ignores expenses and tax; actual accounts contain more detail.
Explore accrual accounting and the balance sheet.
Further reading: SEC guide to financial statements.
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