Which two financial statements are connected through cash or cash balance?

The connection between the balance sheet and the cash flow statement is grounded in how cash transactions are reflected in financial reporting. The cash flow statement provides a detailed account of all cash inflows and outflows during a specific period, highlighting how cash movements affect the overall cash balance.

This statement links back to the balance sheet by showing changes in the cash account from one period to the next. The balance sheet presents a snapshot of a company's financial position at a specific moment, including the cash balance as one of its components. Therefore, the cash flow statement essentially reconciles the beginning and ending cash balances reported on the balance sheet by dissecting the sources and uses of cash during the reporting period.

To further understand the context, while the income statement measures profitability and shows the performance over a period, it does not provide direct information on cash movements. The statement of changes in equity focuses on movements in equity accounts and its relation to net income but does not address cash flows directly. Finally, the cash flow statement and retained earnings link through net income, but retained earnings are not a direct measure of cash or cash balance in the way the balance sheet reflects.