Three statements Updated November 2026

Three-statement model

A three-statement model links the income statement, balance sheet and cash flow statement: net income flows to retained earnings and starts the cash flow statement, D&A, working capital, capex and debt flows complete it, and closing cash becomes the balance sheet cash line. It balances when assets = liabilities + equity in every year.

Syntax

Closing cash = Opening cash + CFO + CFI + CFF;  Check: Total assets - Total liabilities - Equity = 0

Part	What it is
`Retained earnings`	Opening RE + net income - dividends
`CFO, CFI, CFF`	Operating, investing and financing cash flows for the year
`Balance check`	A row that must show 0 in every period

Examples

Build order
1 Revenue and costs to net income; 2 supporting schedules (PP&E, NWC, debt, tax); 3 balance sheet from schedules; 4 cash flow statement; 5 link closing cash to the balance sheet

Result: a model that balances by construction

Retained earnings: opening 400, net income 90, dividends 20
=400 + 90 - 20

Result: 470

Closing cash: opening 100, CFO 145, capex -120, debt repaid -30
=100 + 145 - 120 - 30

Result: 95

Balance check
=ROUND(total_assets - total_liabilities - total_equity, 2)

Result: 0

Common mistakes

Hard-coding cash on the balance sheet instead of linking it from the cash flow statement; the model then cannot balance.
Capex or depreciation differing between the PP&E schedule and the cash flow statement.
A sign error in working capital: the change in an asset enters the cash flow statement with the opposite sign to the change in a liability.

Practice Three-statement model

These drills check your answer on live data, free, no account needed.

Cash roll-forwardRoll cash forward. Outflows are already negative. Closing cash (row 10) is opening cash plus all the flows in rows 6 to 9. Each later year opens with the prior closing cash.
Cash flow from operationsNet working capital balances are given for each year end, including 2025. Fill the change in working capital (row 8) and cash flow from operations (row 9): net income plus depreciation less the increase in working capital.
Fixed asset roll-forwardRoll the fixed asset balance forward. Closing balance (row 8) is opening plus capital spending less depreciation. Each year after the first opens with the prior year's closing balance (row 5).

Questions

Why does my balance sheet not balance?

Trace the difference: if it equals one line item, that item is missing from the cash flow statement or has the wrong sign. If it grows each year, a flow (usually D&A, capex or NWC) is linked inconsistently.

What order should I build the three statements in?

Income statement first, then the schedules that drive balance sheet items, then the balance sheet, then the cash flow statement, and finally link cash back. Add a balance check row before anything else.

Cash flow from operationsCFO = net income + D&A + other non-cash charges - increase in working capital. How the indirect method works line by line, a worked example and sign errors.
PP&E roll-forwardThe fixed asset roll-forward links the balance sheet to capex and depreciation: closing PP&E = opening + capex - depreciation - disposals. Example and layout.
Debt scheduleA debt schedule rolls each loan forward: closing = opening + draws - repayments, with interest on the opening balance. Layout, example, amortization, sweeps.
EBITDA to net incomeNet income = EBITDA - D&A - interest - taxes. Each step of the bridge (EBIT, EBT, tax at the rate, net income) with exact numbers and the tax-on-losses rule.