Step 3: The Mobley Matrix — Discover the match that connects your financial statements

Step 3 shows the discovery Lou Mobley made at IBM in 1959 — that by placing the beginning and ending balance sheets on the left and right edges of the page, one can put the accounts on the income statement next to the balance sheet accounts to which they connect. This placement allows the cash equivalent for each balance sheet account to be easily deduced and summed up to the change in cash. This compilation creates a mathematical matrix, or "magic square," that automatically trial-balances the statements and shows the common sense linking the statements, both visually and mathematically.

This became known at IBM as the "Mobley Matrix." When it was used to learn about the cash patterns of other companies, IBMers called it "Mobleying," which meant they knew more about the other companies than the companies knew about themselves. Once the common sense of how the bank account relates to financial results is obvious, everyone can make sense of their roles in creating those results.

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