Three Statement Model | Three Financial Statements

Posted by Wilbur Omar Chua on September 7th, 2021

Three Statement Model | Three Financial Statements

What is the three statement model? Balance sheet, Income Statement, and Cash flow statement, these are what is in the three statement model. It is a general financial model structure that is used to understand any kind of business better, aside from this we have provided 3 statement model example templates for you to appreciate what we are discussing. 

On this page, we will discuss The three statement operating model and how each of these statements come together. We also offer Three statement financial model xls for your convenience.

Balance Sheet

In the balance sheet, this is where you see the Assets, Liabilities, and the Equities of the current business or entity being discussed as of the last reporting date. This shows the income and expense of the business at a certain point in time. Assets = Liabilities + Equities is also what we follow here as the basic accounting equation. It just means that The Assets of a company are either from the pockets of the owners, or are borrowed from any lending institution like a bank. Balance Sheets are considered as the second most element in a financial statement since it shows both the capitalization and the liquidity of an entity or a business.

Income Statement

In the income statement, it shows you the P&L (profits and losses), Revenues and Expenses generated in a certain period of time. Others call this the Profit and Loss account, which presents the breakdown or the details or a net income or net loss of the business over a certain period. It shows all the business operations and the financial activities that come with it, which is why this is the most important among all the other financial statements. It shows how it operates and what results are obtained from those activities. It’s basically a summary of the business operations and assets relative to the capital invested by the shareholders.

Cash Flow Statement

In the cash flow statement, we show all the cash inflows and outflows from the business operations in a certain period of time. It will present all the changes in the businesses’ cash flows and we can use it as a reference to compare the income statement with. We do this to evaluate whether everything was reflected vs the amount of profit and loss for a given period of time. Cash flow statement shows where the money comes from and where it is going. We use this to measure the effectiveness of the business to generate cash and the expenses to repay the debts it owes. With this, businesses can plan and budget the amount of money to use.