Exploring One Link at a Time

Please refer to Chapter 4 Exhibit on page 20. This exhibit is extracted from the "master" Exhibit D presented in Chapter 3 (page 18). Exhibit D presents the big picture; it ties together all three of the company's financial statements. This chapter is the first of several that focus on just one connection at a time. Only one line of connection is highlighted in Chapter 4 Exhibit—the one between sales revenue in the income statement and accounts receivable in the balance sheet.

Chapter 4 Exhibit presents the company's income statement and balance sheet, but not its cash flow statement for the year. The connections between changes in the balance sheet accounts and the cash flow statement are explained in later chapters. Including the cash flow statement here would be a distraction.

Also, please notice that subtotals are stripped out of the balance sheet in Chapter 4 Exhibit—to focus on the accounts for the company's assets, liabilities, and stockholders' equity. Removing the subtotals gives a cleaner balance sheet to work with as we explore each linkage between an income statement account and its connecting account in the balance sheet. (Well, to be more accurate, one chapter deals with the connection between two balance sheet accounts.)

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