Step 4: Making sense -- Reveal the common sense that unifies your financial statements

The fundamental role of accounting is to tell the basic facts of the business’ story — the status of property and contract at a given moment, or in a given period of time. The balance sheet is a statement of property at a specific point in time that connects assets (the things the business uses) to the people who are owed or own those things. That is why it balances — because the numbers are the same for the people and the things.

The income statement is a non-cash record showing the total dollars on the agreement, (or promise) side of the contracts, whether to buy from the business or purchase for the business. The cash statement shows cash transactions that affect the bank account balance, which is the settlement (or fulfillment) side of the contracts.

On the matrix / scoreboard, those accounts are organized by the statements on the balance sheet. The derivation of this statement by the Mobley Matrix and its power to show the bank account clearly was one of the pillars of the secret competitive advantage that IBM maintained in the marketplace for most of the 1960s and 1970s.

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