Not that you care about the boring accounting stuff, but there are three main financial statements: (i) income statement or profit and loss statement, (ii) balance sheet, and (III) cash flow statement.
The income statement is exactly what it sounds like. It includes your revenues (sales) and expenses, and it shows your profit or loss for the period. This does not, however, always (or even often) represent the cash profit or loss of the business. A business can stack up a lot of cash and show a loss, or they can show a big profit and be bleeding cash. The reason is that generally accepted accounting principles (GAAP) is accrual accounting, so you match the revenue or expense to the period that it's received or incurred in.
Say you sell a three-year subscription to a thing and collect all the cash up front. You'd only count 1/3rd of that revenue in the first year. Cash-wise, you've got all that cash on hand, but accountin-wise, your revenue is 1/3rd of the cash you received. Similarly, on the expense side, your customer would so the same thing. All the cash goes out immediately, but only 1/3rd of the expense would be recognized in the first year.
That beings us to the balance sheet. The revenues / expenses not yet recognized would be captured as either deferred revenue or prepaid expenses. You'd also see your cash balance here.
The cashflow statement (the thing this graph is showing) reconciles the income statement to the balance sheet. Starting from the very bottom of the income statement, net income, it adds back the change in all the relevant balance sheet accounts. An increase in accounts payable (money you owe people like vendors, suppliers, etc.) would be a source of cash (since you recognized the expense, but you haven't actually paid for it yet). Similarly, an increase in accounts receivable (money you're owed) would be a use of cash, since you recognized the revenue, but you haven't received cash for it yet.
Beyond those, you'd also have non-cash items like amortization of intangible assets (like a patent that now has one less year of useful life), depreciation (the reduction in the value of an asset, say a car or a piece of machinery, that is now closer to the end of its useful life), etc. You'd also see investments like buying back stock, buying equipment, machinery, land, etc., buying stock in another company, etc. As well as a handful of other things.
DoodleVnTaintschtain t1_j75129k wrote
Reply to comment by Lily_Loud_Cat in [OC] McDonald’s High-Level Cash Flow Statement Visualized with a Waterfall Chart. by Square_Tea4916
You got it.
Not that you care about the boring accounting stuff, but there are three main financial statements: (i) income statement or profit and loss statement, (ii) balance sheet, and (III) cash flow statement.
The income statement is exactly what it sounds like. It includes your revenues (sales) and expenses, and it shows your profit or loss for the period. This does not, however, always (or even often) represent the cash profit or loss of the business. A business can stack up a lot of cash and show a loss, or they can show a big profit and be bleeding cash. The reason is that generally accepted accounting principles (GAAP) is accrual accounting, so you match the revenue or expense to the period that it's received or incurred in.
Say you sell a three-year subscription to a thing and collect all the cash up front. You'd only count 1/3rd of that revenue in the first year. Cash-wise, you've got all that cash on hand, but accountin-wise, your revenue is 1/3rd of the cash you received. Similarly, on the expense side, your customer would so the same thing. All the cash goes out immediately, but only 1/3rd of the expense would be recognized in the first year.
That beings us to the balance sheet. The revenues / expenses not yet recognized would be captured as either deferred revenue or prepaid expenses. You'd also see your cash balance here.
The cashflow statement (the thing this graph is showing) reconciles the income statement to the balance sheet. Starting from the very bottom of the income statement, net income, it adds back the change in all the relevant balance sheet accounts. An increase in accounts payable (money you owe people like vendors, suppliers, etc.) would be a source of cash (since you recognized the expense, but you haven't actually paid for it yet). Similarly, an increase in accounts receivable (money you're owed) would be a use of cash, since you recognized the revenue, but you haven't received cash for it yet.
Beyond those, you'd also have non-cash items like amortization of intangible assets (like a patent that now has one less year of useful life), depreciation (the reduction in the value of an asset, say a car or a piece of machinery, that is now closer to the end of its useful life), etc. You'd also see investments like buying back stock, buying equipment, machinery, land, etc., buying stock in another company, etc. As well as a handful of other things.
Clear as mud?