To prove economic damages, attorneys likely should analyze the defendant’s financial statements. While financial statements comprise balance sheets along with statements of income, cash flow and retained earnings, the balance sheet and the income statement are the most frequently available. Discovering what the balance sheet and income statement intend to present leads to more accurate discovery.
Before reading an income statement or balance sheet, one must understand the method of accounting used to prepare it to know what is included: the cash method will record items only if cash has been received or disbursed, and the accrual method will recognize items for which rights and obligations have arisen. But hybrid methods also exist. Under the cash method, no accounts receivable or payable appear because they have not been respectively received or paid.
