How do the three financial statements link together?
Answer
Several connection points. Net income from the income statement increases retained earnings on the balance sheet and starts the cash flow statement. D&A from the IS is added back on the CFS as a non-cash item. CapEx on the CFS (a cash outflow) increases gross PP&E on the balance sheet. New debt in the financing section of the CFS increases long-term debt on the BS. And the ending cash on the CFS equals the cash line on the BS.
Why interviewers ask this
The interviewer wants to know whether your understanding is mechanical or just memorized. The most underrated point to mention: net income flows into TWO places — retained earnings on the BS AND the top of the CFS — and any non-cash charge on the IS gets added back on the CFS. If you can also explain the bidirectional nature (financing activity on the CFS rolls into long-term debt and equity on the BS; investing activity rolls into PP&E), you've shown the full picture.