Which of the following sets are the three financial statements used in reporting a business's finances?

• A. Cash flow statement, Income statement, Balance sheet
• B. Cash flow statement, Income statement, Budget variance report
• C. Income statement, Balance sheet, Marketing plan
• D. Cash flow statement, Statement of changes in equity, Income statement

Answer: (A)

Three statements give a complete picture of a business’s finances: they show profitability, liquidity, and financial position. The income statement reveals whether the company earned more than it spent over a period, highlighting profitability. The balance sheet shows what the business owns and owes at a specific point in time, illustrating its financial position. The cash flow statement tracks the actual cash moving in and out during a period, clarifying liquidity and how operations, investing, and financing activities affect cash.

These three work together: net income from the income statement affects retained earnings on the balance sheet, while the cash flow statement explains how cash is generated or used to support that activity, with changes reflected in the balance sheet over time. That combination is the standard set used to report a business’s finances, which is why it’s the best choice.

The other options blend non-financial documents (like a marketing plan) or internal management reports (like a budget variance), or substitute one of the core statements with a different financial statement. While some frameworks include a statement of changes in equity, the three primary external statements most commonly taught are the cash flow statement, the income statement, and the balance sheet.