How the Three Statements Connect

Each financial statement covers different ground, but they're not independent — they're three views of the same underlying company, and they connect through specific numbers. The clearest connection starts with net income, the bottom line of the income statement.

Net income flows into the cash flow statement as the very first line of cash from operating activities — Brightleaf's $75 million in net income is the starting point before the adjustments discussed in the previous lesson. Net income also flows into the balance sheet: after dividends are paid out, whatever profit remains gets added to retained earnings, a component of equity.

Beginning Equity                    $190M
+ Net Income                          $75M
- Dividends Paid                     -$15M
----------------------------------------
Ending Equity                        $250M

Net income first appears on the income statement, then becomes the starting line of the cash flow statement's ____ activities section.

This is why the three statements are often described as connected, not separate: pull one thread — net income — and it shows up on all three statements in a different form. Analysts sometimes build all three statements together in a single spreadsheet model specifically because a change to one, like a jump in revenue, ripples through the other two automatically.

Which figure, once it appears on the income statement, also flows into both the cash flow statement and the balance sheet?

The three financial statements are essentially independent documents that don't relate to one another.