The four principal financial statements are:

• Income Statement. It summarizes revenues earned and expenses incurred, and thus measures the success of business operations for a given period of time.

• Balance Sheet. It provides a "snapshot" of a company's financial condition. Think of the balance sheet as a photo of the business at a specific point in time. It reports major classes and amounts of assets, liabilities, stockholders' equity, and their interrelationships as of a specific date.
  Liabilities are typically fulfilled by payment of cash.

• Cash Flow Statement. The primary purpose is to provide information about a company's cash receipts and cash payments during a period. It reports the cash receipts and cash outflows classified according to operating, investment, and financing activities.

• Statement of Shareholders' Equity. This statement reports the amounts and sources of changes in equity from capital transactions with owners. It reports ownership interests.

These four financial statements, augmented by footnotes and supplementary data, are interrelated.

Income Statement - Cash Flow Statement

They are connected through net income. It is the bottom line of the income statement, and the starting line item at the top of the cash flow statement. From there, net income is adjusted for non-cash expenses like depreciation & amortization and the change in net working capital (NWC) to calculate how much of net income was collected in real cash.

Cash Flow Statement - Balance Sheet

Conceptually, the cash flow statement is linked to the balance sheet since one of its purposes is to track the changes in the balance sheet's working capital accounts (i.e. current assets and liabilities).

An increase in net working capital (e.g. accounts receivables, inventory) represents an outflow of cash as more cash is tied up in operations. In contrast, a decrease in NWC is an inflow of cash - for example, if A/R decreases, that means the company collected cash payments from customers.

The impact from capital expenditures - i.e. the purchase of PP&E - is also reflected on the cash flow statement. CapEx increases the PP&E account on the balance sheet but does NOT appear on the income statement directly. Instead, the depreciation expense - i.e. the allocation of the CapEx amount across the useful life assumption - reduces PP&E.

In addition, the issuance of debt or equity to raise capital increases the corresponding amount on the balance sheet, while the cash impact is reflected on the cash flow statement.

Finally, the ending cash balance at the bottom of the cash flow statement flows to the balance sheet as the cash balance for the current period.

Income Statement - Balance Sheet

They are connected via retained earnings. Of the portion of net income kept by the company, as opposed to being paid out as dividends to shareholders, the remainder flows into retained earnings on the balance sheet, which represents the cumulative sum of all net earnings (or losses) of the company minus dividends issued to shareholders.

The retained earnings balance in the current period is equal to the prior period's retained earnings balance plus net income minus any dividends issued during the current period.

Interest expense, the cost associated with debt financing, is expensed on the income statement and calculated off the beginning and ending debt balances on the balance sheet.

Lastly, PP&E on the balance sheet is reduced by depreciation, which is an expense embedded within cost of goods sold (COGS) and operating expenses (OpEx) on the income statement.