Now let’s say they sell the iPads for revenue of $20, at a cost of $10. Walk me through the 3 statements under this scenario.

Income Statement: Revenue is up by $20 and COGS is up by $10, so Gross Profit is up by $10 and Operating Income is up by $10 as well. Assuming a 40% tax rate, Net Income is up by $6.

Cash Flow Statement: Net Income at the top is up by $6 and Inventory has decreased by $10 (since we just manufactured the inventory into real iPads), which is a net addition to cash flow – so Cash Flow from Operations is up by $16 overall.

These are the only changes on the Cash Flow Statement, so Net Change in Cash is up by $16.

On the Balance Sheet, Cash is up by $16 and Inventory is down by $10, so Assets is up by $6 overall.

On the other side, Net Income was up by $6 so Shareholders’ Equity is up by $6 and both sides balance.