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Finance Foundations · Interactive template

See the three statements move as one.

Start with the standard layouts, then follow one accounting change through the income statement, cash-flow statement and balance sheet. The model stays deliberately simple so the linkage—not spreadsheet complexity—is the lesson.

Before the template

What each statement is actually telling you.

The three statements answer different questions. Accounting links them through double entry: every recognised transaction changes at least two accounts, even when no cash moves.

01 · Income Statement

Performance measured on an accrual basis.

Revenue is recognised when the performance obligation is satisfied—not necessarily when the customer pays. Expenses are recognised when incurred or matched to the related revenue—not simply when cash leaves the bank.

  • Revenue: value earned from goods or services delivered
  • Gross profit: revenue less direct cost of sales
  • EBITDA: operating profit before D&A
  • EBIT: EBITDA after D&A
  • Net income: profit after interest and tax
02 · Cash-Flow Statement

The bridge from accounting profit to cash.

For modelling, operating cash flow can be presented as EBITDA less cash taxes and the increase in NWC. Reported accounts commonly use the indirect method, starting from net income and reversing non-cash items. Both are valid presentations when reconciled consistently.

  • Model build: EBITDA − cash taxes − increase in NWC
  • Indirect method: net income + non-cash items − increase in NWC
  • Investing: capex, disposals and acquisitions
  • Financing: debt, equity, repayment and dividends
  • Closing cash: opening cash plus the net movement
03 · Balance Sheet

A snapshot of resources and claims.

The balance sheet shows what the company owns or controls and how those resources are financed at one specific date. It is cumulative: retained earnings include historic profits less dividends.

  • Assets: cash, receivables, inventory, PP&E and intangibles
  • Liabilities: payables, accruals, deferred revenue and debt
  • Equity: the balancing claim after liabilities; Equity = Assets − Liabilities
  • Core check: Assets = Liabilities + Equity

Recognition vs cash

Revenue can change assets or liabilities before cash and earnings align.

The commercial event, invoice, cash receipt and accounting recognition can occur at different times. This is why revenue, profit and cash generation aren't interchangeable.

TransactionIncome StatementBalance SheetCash-Flow Effect
Sale recognised; customer pays laterRevenue and profit increaseAccounts receivable increases; retained earnings increaseNo immediate cash receipt; receivables are a working-capital outflow
Customer pays before service is deliveredNo revenue yetCash increases; deferred revenue liability increasesOperating cash inflow before revenue recognition
Deferred revenue is earned laterRevenue and profit increaseDeferred revenue decreases; retained earnings increaseNo new cash; liability reduction is an operating adjustment
Expense incurred but not yet paidExpense increases; profit fallsAccrued liability increases; retained earnings fallNo immediate cash payment; accrual increase supports operating cash flow
Example 1

£100 credit sale

Recognise £100 of revenue and a £100 receivable. When the customer pays, receivables fall and cash rises; there is no second revenue entry.

Example 2

£100 customer prepayment

Cash rises £100 and deferred revenue rises £100. Revenue is recognised only as the product or service is delivered, reducing the liability.

Example 3

£50 capital expenditure

Cash falls and PP&E rises by £50 initially. The income statement is affected later through depreciation, rather than recording the full £50 as an immediate expense.

The template

One model. Three linked outputs.

Blue rows link between statements. Grey rows are supporting calculations. The highlighted rows show the effect of the selected depreciation exercise.

01
Performance over a period

Income Statement

Revenue—
Cost of sales—
EBITDA—
Depreciation(£10)
EBIT / operating profit(£10)
Net interest—
Tax benefit£2.5
Net income → CFS & equity(£7.5)
02
Cash generated and used

Cash-Flow Statement

EBITDA ← P&L—
Less: increase in NWC—
Less: cash taxes / (tax benefit)£2.5
Operating cash flow (OPCF)£2.5
Capital expenditure / investing—
Debt, equity and dividends—
Change in cash → balance sheet£2.5
03
Position at a point in time

Balance Sheet

Cash ← CFS£2.5
Working-capital assets—
PP&E(£10)
Change in total assets(£7.5)
Debt and other liabilities—
Retained earnings ← net income(£7.5)
Balance check£0

Short exercise

Walk through £10 of additional depreciation.

Assume no change to revenue, EBITDA, capex, debt or working capital, and a 25% tax rate. Answer before revealing the solution.

What happens to cash, assuming the tax benefit is usable immediately?
Income StatementNet income
→
Cash-Flow StatementClosing cash
→
Balance SheetCash + retained earnings