One sunny afternoon, Steady the turtle and Zippy the rabbit were back in their favorite upstairs room. The warm desk lamp glowed, the world map hung proudly on the wall, and the cozy rug invited them to sit down.
“Wow,” Zippy said, stretching his legs. “We’ve learned so much about financial statements lately!”
“Yeah,” Steady nodded. “Income statement, balance sheet, and cash flow statement… but I’m still not sure how they all fit together.”
Steady’s big brother smiled and closed his laptop. “Perfect time for a recap!”
📄 Why Do Financial Statements Matter?
“There are three main financial statements,” he began, “and each one gives a different view of how a business is doing.”
“Think of them like puzzle pieces,” he continued. “Each tells part of the story, but together they give you the full picture.”
💰 1. Income Statement – Did the Business Make a Profit?
“This one shows how much money a company earned and spent during a specific period,” he explained.
- Revenue (sales)
- Expenses (costs of running the business)
- Net Income (profit or loss)
“It’s like looking at how your lemonade stand did this summer — money in, money out!”
🏦 2. Balance Sheet – What Does the Company Own and Owe?
“This statement shows a company’s financial position at a specific moment in time.”
- Assets (what it owns)
- Liabilities (what it owes)
- Equity (what’s left for the owners)
“Remember: Assets = Liabilities + Equity,” Steady said proudly.
💵 3. Cash Flow Statement – Where’s the Money Going?
“This one tracks the movement of real cash in and out of the business.”
- Operating Activities (day-to-day business)
- Investing Activities (buying/selling assets)
- Financing Activities (borrowing/repaying money)
“Even if a business shows a profit, poor cash flow can cause big problems,” his brother said.
🧠 Putting It All Together
“All three statements work together,” he said. “The income statement shows profits, the balance sheet shows financial strength, and the cash flow statement shows liquidity.”
“Together, they help investors, owners, and managers make smart decisions.”
Zippy looked amazed. “So it’s like reading the full story instead of just one page!”
“Exactly,” Steady’s big brother smiled.
📌 Key Takeaways
- Financial statements give a complete picture of a company’s health.
- The income statement shows profit and loss over time.
- The balance sheet shows what a company owns and owes at a moment in time.
- The cash flow statement tracks actual cash movement.
- Investors use all three to understand and evaluate a business.
🎓 Quiz Time – Can You Remember?
Q1: Which statement shows profit and loss?
A) Balance Sheet
B) Cash Flow Statement
C) Income Statement
→ Answer: C
Q2: What is the formula on the balance sheet?
A) Profit = Revenue – Expenses
B) Assets = Liabilities + Equity
C) Cash = Income + Assets
→ Answer: B
Q3: Why is the cash flow statement important?
A) It tracks the CEO’s spending
B) It shows how cash actually moves
C) It lists the company’s goals
→ Answer: B
As the sun began to set, Steady and Zippy stood up with big smiles.
“Thanks for the review!” said Steady.
“I feel like we’re ready to read real company reports now!” Zippy grinned.
“Just remember,” their teacher smiled, “financial statements tell the truth—if you know how to read them.”
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