The income statement measures profit over a period. The balance sheet shows assets, liabilities, and equity on a specific date. The cash flow statement explains how cash changed.
Worked example. A new business receives $1,000 from its owner and completes a $600 job on credit. It pays $250 in expenses. Accrual profit is $350. Ending cash is $750, receivables are $600, and equity is $1,350. When the customer pays later, cash rises and receivables fall without a second sale.
Pass eight of ten, including the last two questions, to complete the unit.
Build an income statement and balance sheet for the example. Then collect $200 of the invoice and explain which totals change.