What financial statement starts with net income and adjusts for assets and liabilities?

The statement of cash flows starts with net income and then adjusts for non-cash items as well as changes in asset and liability accounts. This format helps to convert the net income, which is derived from the income statement and includes accrued and non-cash revenues and expenses, into cash flow from operating activities.

In this statement, adjustments are made for items such as depreciation, changes in accounts receivable, inventory levels, accounts payable, and other working capital components. By doing this, it provides a clearer picture of how much actual cash is generated or used in the business during the reporting period. This is crucial for assessing the liquidity and overall cash position of a company, which isn't directly reflected in the income statement or balance sheet.

The balance sheet reflects the company’s financial position at a specific point in time, listing assets, liabilities, and equity, but it doesn't involve starting with net income. The income statement summarizes revenues and expenses over a period, leading to net income but doesn't adjust for assets and liabilities. Proforma financial statements are projections or hypothetical scenarios rather than actual results and don’t follow this specific adjustment process related to net income.