Part 2: Understanding financial statement items 1. State the purpose and information revealed about each of the four financial reports I Income Statement II Balance Sheet III Statement of Cash Flows IV Statement of Changes in Equity 2. Select three items from financial statements I - III, and state how the items contribute to a firm's performance. See Figure 1 for an example. Statement Item Income Statement Tax Expense Contribution to performance Higher tax expenses causes total expenses to increase and profit to decrease Figure 1: Construct of an item's contribution to performance