Chapter 8. Consolidated Financial Statements

This chapter covers Napavale's consolidated financial statements: the Balance Sheet, the Income Statement, and Statement of Cash Flows. Many readers may be familiar with these financial statements as they are widely used to assess a business's financial condition and the SEC (U.S. Securities and Exchange Commission) requires publicly traded companies to file these financial statements on a regular basis.

As I covered the Balance Sheet in Chapter 7 and the Income Statement in Chapter 5, the majority of this chapter will be focused on the Statement of Cash Flows. I will, however, provide a review of the source of each line item in Napavale's Balance Sheet and Income Statement. By identifying the budget from which values flow into the Balance Sheet and Income Statement, I hope to provide some perspective on the interrelated nature of financial statements (and financial models in general).

BALANCE SHEET

The Balance Sheet, as noted in Chapter 7, presents a business's Assets, Liabilities, and Owners' Equity accounts. To be correct, a Balance Sheet must always "balance"—in other words, the value of a business's Assets must be equal to the value of that business's Liabilities plus its Owners' Equity. This, as you may remember, is also referred to as the central accounting identity (Assets = Liabilities + Owners' Equity). Figure 8.1 offers a view of Napavale's Balance Sheet as of the end of Chapter 7.

Figure 8.2 presents another view of Napavale's ...

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