AcCOUNTING on Aimee: Understanding the Interconnection of Financial Statements

Financial statements are essential tools that offer a window into the health and performance of a business in the world of finance. While each financial statement serves a specific purpose, its real power is revealed when they are analyzed together. Understanding how the Income Statement, Balance Sheet, and Cash Flow Statement are interconnected is crucial for anyone involved in financial decision-making. Whether you’re an investor assessing the viability of a potential investment, a manager making strategic decisions, or an accountant preparing reports, grasping these connections will enable you to see the complete financial picture of a company.

 

The Income Statement: A Measure of Profitability

The Income Statement, often called the Profit and Loss Statement, is the most straightforward of the three financial statements. It summarizes the company’s revenues, costs, and expenses over a specific period, usually quarterly or annually. The Income Statement ends with the net income, a critical figure that shows the company’s profit or loss for the period.

Key Components:

  • Revenue: Total income generated from selling goods or providing services. It’s the starting point of the Income Statement.
  • Cost of Goods Sold (COGS): Direct costs attributable to the production of goods sold. Subtracting COGS from revenue gives the Gross Profit.
  • Operating Expenses: These are the day-to-day expenses incurred in running the business, including rent, utilities, and wages.
  • Operating Income: This is Gross Profit minus Operating Expenses, indicating the profitability of the company’s core business activities.
  • Net Income: After accounting for all expenses, including taxes and interest, this figure shows the company’s overall profitability.

The Income Statement is crucial for evaluating a company’s profitability and operational efficiency. It answers critical questions like Is the company making a profit? How well is it controlling its costs? However, to fully understand its implications, we must connect it to the Balance Sheet and Cash Flow Statement.

 

The Balance Sheet: A Snapshot of Financial Health

The Balance Sheet provides a snapshot of a company’s financial position at a specific point in time. Unlike the Income Statement, which covers a period, the Balance Sheet is static, showing what the company owns and owes at a particular moment.

Key Components:

  • Assets: These are the resources owned by the company. Assets are categorized into current assets (e.g., cash, accounts receivable) and non-current assets (e.g., property, equipment).
  • Liabilities: These are obligations the company owes to others. Like assets, liabilities are divided into current liabilities (e.g., accounts payable, short-term debt) and non-current liabilities (e.g., long-term debt).
  • Shareholders’ Equity: This represents the owners’ residual interest in the company after liabilities are subtracted from assets. It includes retained earnings and common stock.

The Balance Sheet reveals the company’s liquidity, solvency, and financial stability. It shows how well the company can meet its short-term obligations (liquidity) and how it’s financed (through debt or equity). However, the Balance Sheet alone doesn’t provide the complete picture. To understand how assets and liabilities change over time and how they impact cash flows, we need to look at the Cash Flow Statement.

 

The Cash Flow Statement: The Lifeblood of Business

The Cash Flow Statement tracks the flow of cash into and out of the company over a period. It’s divided into three sections: operating activities, investing activities, and financing activities.

Key Components:

  • Operating Activities: This section adjusts net income for non-cash items like depreciation and changes in working capital. It shows the cash generated or used by the company’s core business operations.
  • Investing Activities: Here, cash flows related to the purchase or sale of assets, such as equipment or investments, are recorded.
  • Financing Activities: This section includes cash flows from borrowing or repaying debt, issuing or repurchasing stock, and paying dividends.

The Cash Flow Statement is vital because it shows the company’s ability to generate cash to fund its operations, pay debts, and invest in growth. While the Income Statement may show a profit, it’s the Cash Flow Statement that reveals whether the company is actually generating enough cash to sustain itself. The connection between the Cash Flow Statement and the other financial statements is crucial for understanding the company’s financial health.

 

The Interconnection of Financial Statements: A Holistic View

To truly understand a company’s financial performance, it’s essential to see how the Income Statement, Balance Sheet, and Cash Flow Statement are interconnected. These statements don’t exist in isolation; they inform and affect each other in several critical ways.

 

Net Income and Shareholders’ Equity 

Net income from the Income Statement directly affects the Balance Sheet through retained earnings, a component of shareholders’ equity. Retained earnings represent the cumulative net income that has been reinvested in the business rather than paid out as dividends. When a company earns a profit, its retained earnings increase, thereby increasing shareholders’ equity on the Balance Sheet. Conversely, a net loss decreases retained earnings and equity.

 

Depreciation and Asset Valuation 

Depreciation is a non-cash expense that reduces net income on the Income Statement. It’s also reflected on the Balance Sheet as a reduction in the book value of assets over time. However, because depreciation doesn’t involve an actual cash outflow, it’s added back to net income in the operating activities section of the Cash Flow Statement. This adjustment highlights how the same figure—depreciation—affects all three statements: reducing net income, decreasing asset values, and influencing cash flow.

 

Working Capital and Cash Flow 

Working capital, defined as current assets minus current liabilities, is a key indicator of a company’s short-term financial health. Changes in working capital components, such as accounts receivable, inventory, and accounts payable, are reflected on both the Balance Sheet and Cash Flow Statement. For example, an increase in accounts receivable indicates that the company has made more sales on credit, which boosts revenue on the Income Statement but reduces cash flow because the cash hasn’t yet been received. This interplay between working capital and cash flow is crucial for understanding the company’s liquidity.

 

Capital Expenditures and Long-Term Investments 

When a company invests in long-term assets, such as new equipment or property, it’s reflected in multiple financial statements. The purchase of these assets increases non-current assets on the Balance Sheet and is recorded as a cash outflow in the investing section of the Cash Flow Statement. If the company finances the purchase through debt, this also increases liabilities on the Balance Sheet. The interest expense from the debt then appears on the Income Statement, reducing net income. This example illustrates how a single transaction can ripple across all three statements, affecting assets, liabilities, equity, cash flow, and profitability.

 

Dividends and Share Buybacks 

Dividends paid to shareholders are deducted from retained earnings on the Balance Sheet and are shown as cash outflows in the financing activities section of the Cash Flow Statement. Similarly, share buybacks reduce shareholders’ equity by decreasing the number of outstanding shares and are also recorded as a financing outflow. These activities show how decisions to return value to shareholders impact both the company’s equity and its cash reserves.

 

Inventory and Cost of Goods Sold (COGS)

Inventory management is another area where financial statements intersect. When a company purchases inventory, it increases current assets on the Balance Sheet. As this inventory is sold, it’s recognized as Cost of Goods Sold (COGS) on the Income Statement, reducing net income. At the same time, selling inventory reduces inventory levels on the Balance Sheet. Effective inventory management can therefore improve profitability and cash flow, underscoring the interconnected nature of these financial elements.

 

Understanding the interconnection of financial statements is fundamental to accurate financial analysis and sound decision-making. Each statement—the Income Statement, Balance Sheet, and Cash Flow Statement—provides unique insights into different aspects of a company’s financial health. However, it’s only by considering them together that one can truly grasp the complete financial picture.

For investors, managers, and other stakeholders, recognizing these interconnections is key to understanding how a company’s operations, financial position, and cash flows relate to each other. Whether evaluating investment opportunities, managing business performance, or preparing for financial reporting, this holistic approach to financial statements enables more informed decisions and better strategic planning.

By mastering the relationships between the Income Statement, Balance Sheet, and Cash Flow Statement, you gain the ability to not only assess past performance but also predict future financial outcomes, positioning yourself and your business for long-term success.



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Kimberly Mitchell
Partner Development Manager

 

Kim is a Partner Development Manager with 10 years of experience working with Strategic Partners. As a 19-year veteran with Intuit and a history of driving growth and sales results within the QuickBooks echo system Kim, brings a wealth of knowledge to our team by assisting us with sales and marketing initiatives while helping us strive for the highest net promoter (clients satisfaction) scores. Kim is passionate about creating and nurturing new partnership opportunities through the relationships she has built over the past 25 years of sales experience.

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Noah Raney
Senior Account Payroll Manager

 

Noah is our dedicated Intuit Senior Account Payroll Manager who can help you find the right payroll solution for you and your business. He is well versed in all of the QuickBooks platforms being desktop/online/standalone and payroll has been his world since joining Intuit 13 years ago. Whether you are looking for ways to save on time, reduce inflated payroll costs or just get set up with the best discounts, he is here to help. Your success and satisfaction are of utmost importance!

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Sean McCaffery
Global Channel Sales Partnerships and Alliances Leader

 

Sean McCaffery has more than 15 years of experience leading channel sales and cloud solutions in the US and Internationally. Sean has held leadership positions with Avaya in Europe growing the channel business with resellers and distributors in key countries driving double-digit growth. He then joined Rackspace Technology and was instrumental in developing sales growth strategies in cloud adoption for customers and partners. Most recently, he ran channels at Dizzion responsible for dynamically growing and expanding the partner ecosystem through SaaS-based VDI solutions before joining Intuit. Currently, he runs the QuickBooks Solution Provider Program supporting the strong business that solution providers and ISV partners have established as well as finding new opportunities to drive emerging mid-market growth together!

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Gabor Terebesi
Payments Account Manager

 

Gabor Terebesi is an Account Manager with the Payments Team of Intuit for over 15 years. He works in the partner division for Intuit payments to ensure Intuit partners along with any clients of theirs are in the most suitable and financially cost-effective solution accepting payments through eCommerce, QuickBooks, mobile payments, or any other options necessary for their business.

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Aimee

Aimee Garneau
Accounting Manager

 

Aimee joined Siegel in 2022 as the Accounting Manager overseeing the accounting and bookkeeping team. Aimee brings 18 years of experience with increased responsibility with privately and publicly held companies. Her experience lies with SaaS-based companies as well as in healthcare, consulting, education and nonprofits. Prior to joining Siegel, she held accounting leadership positions with Waban Projects, Elastic Path, Moltin, and Ned Davis Research. Aimee loves partnering with business owners to establish financial reporting and results that promote growth and expansion. When Aimee is not working, she loves spending time with her family and friends and exploring all New England has to offer. She is also an avid Red Sox fan and enjoys going to Fenway Park when she can.

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Jeffrey Siegel
CPA, CEO

Jeff has spent the last twenty years working providing solutions to emerging growth businesses. After graduating from Northeastern University, he spent five years working with two multinational CPA firms in an auditor capacity building a foundation for understanding how business work. He later went on to work in various controller and CFO roles before starting Siegel & Associates (previously Siegel Financial Group) in 2000. In those roles, he sold a company to ADP, raised funds for a major expansion of a large regional IVF clinic, and helped set up accounting and financial structures for dozens of companies. Since starting Siegel & Associates, Jeff has worked with hundreds of clients providing accounting system solutions. Those solutions include setting up QuickBooks in a single-user environment putting in QuickBooks Enterprise in a 30-user environment and integrating various add-ons including inventory, CRM, and e-commerce. He is a Certified Public Accountant, a QuickBooks Pro Advisor, a QuickBooks Advanced Pro Advisor, and an Intuit Solution Provider certified in Enterprise Solutions, Point of Sale & QuickBase. Jeff is also a Microsoft Certified Systems Engineer

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Lori Swartz
Client Support Manager

After graduating from Boston University, Lori spent eight years working in various managerial positions for two national companies. In those positions, Lori developed the skills necessary to manage multiple projects, clients, and resources. She later went on to work for a management company that handled over 25 real estate properties with multiple tenants. Lori joined Siegel Solutions in 2003 as a client services manager where she utilized her skills developed to manage multiple clients and multiple staff. She recently moved into the client support manager role where she is responsible for meeting with and onboarding new clients, managing and maintaining our technology stack along with QuickBooks setups, conversions, training, and consulting.

In her free time, Lori enjoys spending time with her family. She loves to travel, music, and theater.

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Kristin Hogan
Associate

Kristin has been with Siegel Solutions since 2008 when she started as a part-time Office Administrator. In addition to the administrative work for Siegel Solutions, Kristin also assists with bookkeeping for a handful of clients, and manages and processes payroll for about 25 clients. Kristin has been working in administrative roles for many years in various fields, including from an academic department in a local university, a start-up biomedical company, to recording and pricing inventory for a small gift shop. Kristin has also held customer service positions in food service, department stores, a local Boys & Girls Club, and a nursing home.

Outside of work, Kristin enjoys hanging out with family, friends, and the family’s black lab named Clyde. Kristin is a New England Revolution fan and goes to as many games as possible each season.

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Kathy Crouse
Senior Associate

Kathy graduated from Framingham State College. She then attended Bently College in their Accounting Certificate program, while also working as an Assistant Payroll Supervisor and Compensation Specialist in the corporate offices of a large contract employer. After many years of experience as a Full Charge Bookkeeper for a private investment firm, and various small CPA firms, Kathy joined Siegel Solutions in 2001. She enjoys learning about different types of businesses working for Siegel and the satisfaction of tailoring our role to best serve each client's needs.

During her free time, Kathy loves spending time with her family and her dog. She also enjoys DIY projects and exploring the beautiful New England coast.

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Janet Jodoin
Bookkeeping Associate

Janet joined Siegel Solutions in May of 2022 as an Associate Bookkeeper. In her younger years, while raising her family, she completed her degree in Business and she spent 20 years in the trades as a custom designer. Janet also has 16 years in corporate management. Her strong team support, training, and development led her to support and manage Human Resources. Janet's desire to change careers has led her to return back to bookkeeping at Siegel Solutions. In Janet's free time she enjoys spending time with her growing family. Her personal favorite is creative landscaping in her yard. She also enjoys working alongside her partner in construction and remodeling.

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Tricia Gullage
Associate

Tricia Joined Siegel Solutions in 2022 as a bookkeeper and works with our clients to keep their day-to-day bookkeeping in order. Tricia has 12 years of bookkeeping experience working for a large construction company for 10 of those years handling all their accounting and Payroll. She met Jeff our CEO while working there and decided she wanted to join our team.

When not working Tricia enjoys spending time with her family and friends. She recently moved up to the lakes region in NH and loves going to concerts, enjoying her time boating and snowmobiling.

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Ed Jaworski
Professional Services Manager

With over 21 years of corporate experience at PeopleSoft Consulting, Sun Life Financial, and KPMG, Ed brings a big business approach to small business solutions. Prior to joining Siegel Solutions in 2022, Ed helped small businesses get the most out of QuickBooks for 21 years as a co-founder of SMB Partners and the founder of Solutions for Office Software.

Ed is an Advanced Certified QuickBooks® ProAdvisor, a Certified QuickBooks® Point of Sale ProAdvisor, a Certified QuickBooks Enterprise Solutions ProAdvisor, and a Certified SOS Inventory Consultant. Ed holds an MS in Computer Information Systems from Bentley University and a BS in Business Administration from Northeastern University.

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Debby Mono
Firm Administrator

Prior to joining Siegel Solutions in March 2023, Debby had been working in administrative and executive assistant roles for many years in various fields. Her extensive background in these positions has provided her with a range of skills and knowledge that are valuable in her new role as a Virtual Administrative Assistant. She graduated from Suffolk University with a Bachelor's Degree.

Outside of work, Debby can be found at football fields or dojos cheering for her sons. She also enjoys hikes with her dog, Sawyer, reading, sports, and live music. She and her husband also love to entertain family and friends.

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Letitia Cote
Senior Associate

Letitia has an accounting degree and has been working in the Accounting/Bookkeeping industry for over 25 years. Tish is also an Acumatica Business Consultant. Outside of work, Tish has 4 grown children and 5 grandchildren, she loves to ski, hike, bike, and be outdoors. Tish has worked with Jeff for over 10 years.

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Ashley Sumner
Senior Associate

Ashley joined Siegel Solutions in April of 2023 as a Senior Associate. She has worked in accounting for 10 years, working her way up from an associate to a Senior Accountant/Controller at her previous jobs. Ashley loves working with numbers, helping clients out specifically with budgets and financial forecasting. She has an extensive background in Construction Finances including AIA billings, WIP schedules, and financial forecasting public and private construction projections.

When Ashley is not working, she loves spending time with her husband and 2 kids, extended family, and friends and watching her Boston Sports Teams!

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Alison Pickwick
Associate

Alison joined Siegel in 2023 as an Associate. She enjoys producing a product that assists company owners in seeing the big picture of their company. Previously, she put this passion to use as an auditor and as a financial advisor traveling the country to various companies in many different industries. With her passion, she also brings years of experience and vast knowledge to Seigel. After hours Alison doesn't stop working. She gardens, has chickens, teaches her godkids carpentry and small engine mechanics, fishes, makes maple syrup, and even brews her own wines and beers. Whenever she can, she goes to her family camp in northern New Hampshire where you can find her working on a project from planting blueberries to building a shed.

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Andrea Alencar
Associate

Andrea graduated from Bridgewater State with a Bachelor's degree in Accounting. Andrea joined Siegel Solutions in 2022. Andrea has gained accounting experience working in various industries including a CPA firm, legal, hospitality, and telecommunications. Before coming to Siegel Solutions Andrea previously worked as a bookkeeper and staff accountant.

Andrea has 4 kids which keep her busy. Outside of work, Andrea enjoys spending time with her kids, being outside, cooking, and going to softball/baseball games.

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Mike Derrico
IT

I started my career in 1983 when I designed and built a device to share a computer program, written by the president of a local bank and his son, running on an Apple Lisa computer. The device allowed the large and expensive Lisa's computer to be shared with bank employees. With this program, and with my device, we started a company to market this unique solution to banks. At this point, computer networks were just starting to be used in businesses. I transitioned my efforts to providing support for migrating banking terminal/mainframe functions to the emerging Personal Computer networking platform. For the next decade, I worked with, and beta tested, numerous technologies to integrate the banking functions from dumb terminals into the now smart desktop computers. After working with a few small consulting firms, I started my own company focusing on providing I.T. support to SMBs. More recently I am now doing the exact opposite by helping customers migrate their PC applications and data from their local computers to The Cloud. A few years ago, I joined Siegel Solutions to add my years of I.T. experience to their firm.

In my spare time, I like to travel, fly my drone and, most importantly, spend time with my family. I also still enjoy tinkering with technology.

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Pat Jaworski
Associate

After spending most of her corporate career in the insurance industry, Pat joined a QuickBooks consulting firm providing bookkeeping services to several small companies. Late in 2022, that firm merged with Siegel Solutions, Inc., bringing Pat and her clients to the group. She provides services to clients in a variety of industries: fitness, construction, beauty, equine care, and medical billing, to name a few. She enjoys supporting her clients by keeping their financial records in good shape and allowing them to focus on growing their respective businesses.

Pat resides in the 495/MetroWest area with her husband Ed, daughter Abby and Duffy, their lovable, energetic golden retriever.

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Noah Tan

Noah Tan

Associate

Noah has over 12 years of experience in accounting and graduated from the University of Bedfordshire in the UK. Prior to joining Siegel Solutions in August 2023, he has worked with clients in Asia and Europe across a variety of industries, including manufacturing, software, e-commerce, and education. Noah specializes in real estate, property management, and construction enterprises.

Noah is a passionate and results-oriented individual with a proven track record of success. He is skilled in financial planning and analysis, budgeting, forecasting, and reporting with expertise in business process improvement and risk management. Noah is committed to helping his clients achieve their financial goals.

Noah loves to travel and has been to over 50 countries and 4 continents with his wife. He is passionate about financial market analysis and enjoys using stock charts to identify trends and patterns.

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Tari Crowley

Administrative Assistant

Tari Crowley joined Siegel Solutions in September 2023 as a part-time Administrative Assistant. She actually wears many hats not just in her position, but in her every day life! She is also a real estate agent, softball coach, wife and full-time mother. When she isn’t busy with everyday life activities, she enjoys spending time with her chocolate lab, Bailey, as well as having fun and laughing with her family.

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DeeAnna Keyes

Sales and Marketing Associate

DeeAnna Keyes, has been our Sales and Marketing Associate since December 2023. She brings a wealth of experience, having worked at Intuit with a focus on Quickbooks Online and Quickbooks Desktop. With a robust sales history and a license as a real estate agent in Virginia, DeeAnna is a versatile professional. Outside of work, she cherishes family moments, indulges in camping with friends, and finds joy in entertaining at home with her husband and four children.

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