1) A few days ago i said something like:

Think of the company's financials as a vehicle

• Income Statement is the flashy (or beaten up) exterior

• Balance Sheet is the Fuel Tank

• Cash Flow Statement is the Engine

2) 𝐓𝐡𝐞 𝐈𝐧𝐜𝐨𝐦𝐞 𝐒𝐭𝐚𝐭𝐞𝐦𝐞𝐧𝐭

Something that is often overlooked, especially with newer investors is the fact that income statement is an 𝐚𝐜𝐜𝐫𝐮𝐚𝐥 based report of incomes

What does accrual based accounting mean i hear you say?

3) Johnny owns a coffee stand and his friend Sally comes over and buys $20 worth of coffee using a credit card

It is the last day of the financial year, and Johnny reports his income statement tomorrow

But Sally's card payment won't come for three days

4) The reality of this situation is that Johnny would record $20 in sales on his income statement, despite not actually receiving cash

The $20 in lieu would be an accounts receivable, in that he has provided the product/service but not yet been paid

5) "Accrual accounting is an accounting method where revenue or expenses are recorded when a transaction occurs rather than when payment is received or made"

The income statement can be easily manipulated by management to 'smooth' earnings during good/bad years

6) If we were to take a look at Johnny's cash flow statement, we would see that he has not been paid $20

The income statement is usually my least important filing that i study