How to Read a Financial Report, 10th Edition

7SALES REVENUE AND ACCOUNTS RECEIVABLE

Exploring One Link at a Time

Please refer to Exhibit 7.1, which shows the connection between sales revenue in the income statement and the accounts receivable asset account in the balance sheet. This exhibit is based on Exhibit 6.1, which ties together all the connections between the annual income statement and year-end balance sheet. This chapter is the first of many that will focus on just one connection at a time. Only one line of connection is highlighted in Exhibit 7.1—the one between sales revenue in the income statement and accounts receivable in the balance sheet. Please note that as we move through the material focused on connections between the income statement, balance sheet, and statement of cash flows (presented in Chapters 7 through 16), I’ll often make reference to a “year,” which in this case means the fiscal year ending (“FYE”) 12/31/23, unless otherwise noted. For ease of presentation and to save space, exhibits for the prior FYE 12/31/22 have not been presented, but I should note that the same exact concepts apply.

Please note that in the balance sheet, no subtotals are shown for current assets and current liabilities and for the amount of property, machinery, and equipment less accumulated depreciation. Excluding subtotals gives us lean and mean financial statements to work with.

Furthermore, Exhibit 7.1 does not include the company’s statement of cash flows for the year. The connections between changes in the balance ...