Could you give me a detailed response to the statement below?
The purpose of why all of the financial statements are all interrelated is because they serve a specific function within each other. For example, as Miller-Nobles, Mattison & Matsumura states, the income statement reports the income (or loss) of the period, which is used to compute the change in equity. The equity balance is reported in the balance sheet. The statement of cash flows reports the change in cash from the beginning of the period to the end of the period, and both of these balances are reported on the balance sheet. In addition, they are interrelated because the goal of each financial statement, is to deliver data regarding the financial condition; to substantiate how the organization is doing and to form a comparison. Each statement plays a vital role as outlined above.
Miller-Nobles, Mattison & Matsumura states the income statement reports the profitability of a company for a period of time. Without a sustainable profit over a period of years, a company would not be able to continue as a going concern; it is the reporting of revenue and expenses. It seems to me that investors would take this one mainly into account because inconsistent revenues designate a higher risk. If I were an investor I would certainly want to safeguard funds, determine the outcome of the business and base my predictions on generating more cash flow in order to receive a nice return on my investment.
References - Miller-Nobles, T., Mattison, B., & Matsumura, E. M. (2016). Horngren's Accounting (11th ed.). Upper Saddle River, NJ: Pearson.