Linking Balance Sheet, Income, And Cash Flow Statements 2025 — How To Understand Financial Interconnections

A company’s financial health cannot be assessed by one statement alone. The income statement, balance sheet, and cash flow statement must be analyzed together. In 2025, investors and lenders expect transparent, reconciled financial reporting. Mackisen CPA Auditors Montreal ensures all financial statements align, revealing the true performance of your business and ensuring full CRA compliance.

Legal and Regulatory Framework

CPA Canada Handbook Sections 1520 and 1540: Define relationships between revenue, equity, and cash flows.
Income Tax Act (Canada) Section 9(1): Bases taxable income on profit derived from financial statements.
ASPE Section 1510: Requires balance sheet accuracy and reconciliation with income and cash flow data.
Taxation Act (Quebec): Mandates consistency between CO-17 filings and audited financial statements.

Key Court Decisions

McGill Holdings v. The Queen (2019): Reinforced that inconsistencies between tax filings and financial statements justify reassessment.
Richer Construction v. Quebec (2021): Required proof that retained earnings matched declared profits.
Perron Manufacturing v. The Queen (2020): Highlighted the importance of reconciling cash flow with accounting records for CRA audits.

Why CRA and Revenu Québec Audit Financial Linkages

CRA audits discrepancies between reported profits, retained earnings, and cash movements. Inconsistent capital balances or negative cash flow against declared profits can trigger investigations. Mackisen reconciles financial statements to ensure consistency and audit defensibility.

Mackisen’s Strategy

1. Statement Reconciliation — Ensure income statement, balance sheet, and cash flow align.

2. Equity Tracking — Reconcile retained earnings and dividends to reported profits.

3. Cash Flow Analysis — Verify that operational cash flow supports declared income.

4. Tax Integration — Match financial results with CRA and Revenu Québec filings.

5. Audit Documentation — Prepare reconciliation schedules and working papers for review.

Real Client Experience

A Quebec manufacturing firm declared profits but had negative cash flow, triggering CRA audit. Mackisen reconciled financials and justified timing differences, avoiding penalties. A Montreal consulting firm’s inconsistent equity reporting was corrected, aligning filings and improving credit approval.

Common Questions

Why must all statements link? To provide a full, accurate picture of performance and solvency.
What happens if they don’t? CRA or lenders may question accuracy and deny credit or reassess taxes.
Do I need a CPA to reconcile? Yes, for compliance and audit defense.

Why Mackisen

Mackisen CPA Auditors Montreal ensure your financial statements tell one consistent story. Our CPAs reconcile accounting, tax, and cash data to ensure transparency and audit readiness. Call Mackisen CPA Auditors Montreal today for your 2025 Financial Integration Consultation. The first meeting is free and ensures your numbers are consistent and credible.