An introduction to the three main financial statements using a tree analogy. If you like this, just imagine what I can do in person at your next event. Go to www.geniwhitehouse.com or www.evenanerd.com for more information and my list of topics, expertise, and nerdy obsessions. My next deck is going to include basset hounds (see my post from 2023). That is a promise.

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Understanding
Financial Statements
By Geni Whitehouse, CPA
Countess of Communication

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Imagine your business is a tree.

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Imagine your business is a tree.
A fruit-bearing tree.

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Imagine your business is a tree.
A fruit-bearing tree.
Like an apple tree.

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This is your business.

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The income statement measures the fruits of
your business efforts.

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Like a tree, your business produces an
annual yield...

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...that gets reset every year.

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The Income Statement
starts at zero at the beginning
of every year
and measures the
annual yield.

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Profit =
Revenue – Expenses
Above the line

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Department Focus
Profit =
Revenue – Expenses
Above the line

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Department Focus
Bottom Line
Profit =
Revenue – Expenses
Above the line

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At the end of each year,

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At the end of each year,
net earnings (or Net Income) is
added to

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At the end of each year,
net earnings (or Net Income) is
added to
Retained Earnings on the
Balance Sheet.

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At the end of each year,
net earnings (or Net Income) is
added to
Retained Earnings on the
Balance Sheet.

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At the end of each year,
net earnings (or Net Income) is
added to
Retained Earnings on the
Balance Sheet.

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The Balance Sheet is a picture in time.

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The Balance Sheet is a picture in time.
It measures the cumulative result of your business
efforts.

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The Balance Sheet is a picture in time.
It measures the cumulative result of your business
efforts.
It sustains your business
over the long haul.

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A tree can not bear fruit
without the support of a strong trunk.

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A business can not produce annual Net Income
without a solid Balance Sheet.
A tree can not bear fruit
without the support of a strong trunk.

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The Balance Sheet measures what you own
and what you owe.

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The Balance Sheet measures what you own
and what you owe.
What you own is called your Assets.
What you owe is called your Liabilities.

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The equity section is the difference between
the two.
Assets – Liabilities = Equity

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The equity section is the difference between
the two.
Assets – Liabilities = Equity
Equity approximates
the net value of your
business.
Equity is sometimes called Net Worth.

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If you slice open the trunk of a tree,
you can read the story
of each year
in its life.

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You will find lean years...
...with little or no Net Income.

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And strong years...
...with plentiful Net Income.

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Those rings are like the equity
section of the Balance Sheet.

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Those rings are like the equity
section of the Balance Sheet.
Accumulated Retained Earnings
=
Equity

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Equity =
Assets – Liabilities

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What
you
Own
Equity =
Assets – Liabilities

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What
you
Own
What
you
Owe
Equity =
Assets – Liabilities

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What
you
Own
What
you
Owe
Accumulated Earnings
Equity =
Assets – Liabilities

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Without water, no tree can survive for long.
No business can survive without cash.

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The Cash Flow Statement
shows
where the water went
in your business.

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How much cash
was consumed
by the Income
Statement?
Income
Statement

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How much cash
was consumed
by the Income
Statement?
Income
Statement
Balance
Sheet
How much cash
was consumed
in growing
the Balance Sheet?

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The Cash Flow Statement
connects
the Income Statement
to
the Balance Sheet.

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The Cash Flow Statement
connects
the Income Statement
to
the Balance Sheet.
The answer is on the Statement of Cash Flows.
“If I produced
Net Income this
year, where did the
money go?”

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...keeps the business
running
Operating cash
flow ...

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...keeps the business
running
Operating cash
flow ...

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Net Increase (Decrease) (3,700)
... To cash in the
bank.
From Net
Income ...

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Income
Statement

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Income
Statement
Balance
Sheet

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Income
Statement
Balance
Sheet
Statement of
Cash Flows
Success in
business
requires a
focus on all
three
financial
statements.

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Concepts by Geni Whitehouse
Even a Nerd Can Be Heard
Artwork (if you can call it that) also by Geni Whitehouse.
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The End