How to Read a Financial Report, 9th Edition

5 SALES REVENUE AND ACCOUNTS RECEIVABLE

Exploring One Link at a Time

Please refer to Exhibit 5.1, which shows the connection between sales revenue in the income statement and the accounts receivable asset account in the balance sheet. This exhibit is based on Exhibit 4.1, which ties together all the connections between the annual income statement and year-end balance sheet. This chapter is the first of many that will focus on just one connection at a time. Only one line of connection is highlighted in Exhibit 5.1—the one between sales revenue in the income statement and accounts receivable in the balance sheet.

EXHIBIT 5.1 SALES REVENUE AND ACCOUNTS RECEIVABLE Dollar Amounts in Thousands

Recall that in Exhibit 5.1 the income statement and balance sheet are stripped of subtotals. (The same is true of all exhibits in the coming chapters.) For example, the income statement is a single-step statement, meaning that it does not contain lines showing gross margin and other intermediate measures of profit. Likewise, in the balance sheet no subtotals are shown for current assets and current liabilities and for the amount of property, plant, and equipment less accumulated depreciation. Excluding subtotals gives us lean and mean financial statements to work with.

Furthermore, Exhibit 5.1 does not include the company’s statement of cash flows for the year. The connections between changes ...