Without It There Is No Cash Flow
We have already discussed in Chapter 2 that the profit and loss statement is the theory of matching expenses to revenue for a given period.
What happens to sales that have been invoiced but not collected at the end of a period? Or what about expenses incurred by suppliers that haven’t been paid for yet? Or inventory not sold?
All of these transactions end up on the balance sheet.
By understanding what the balance sheet is telling us we then have everything we need to know to understand the cash flow of a business.
So while the profit and loss is a very important theory in determining the profitability of the business, the balance sheet is where we find ...