Balance sheet is one snapshot to show company's asset, liability and equity. It is the data at one time only. This is unlike income statment which normally covers a period of time. In balance sheet you can see Capital Expenditure or CapEx. Here we need to explain the difference between expenditure and expense: Expenditure is the money out or money spent. Expense is the spend over a period of time that is related to revenue. If the expenditure is not related to the revenue of the period of time, it is not reflected in the income statement as expense.

Take an example: Microsoft spent $10bn on data centre construction in FY26. The $10bn is CapEx. In balance sheet, it is reflected as: Cash = -$10bn, Asset = +$10bn, Expense = $0. Then on year 1, the data centre depreciates $1bn. Thus: Asset = +$9bn. Expense (in form of depreciation) = +$1bn. Massive AI infrasturcture will cause revenue ↑, depreciation ↑, cost of revenue ↑, gross margin ↓. So we say AI infrastructure is pressing margin.

Depreciation is for tangible assets. Amortization is for intangible assets. They are combined as D&A as part of expense.

Now we can summarize the roles of the three financial reports: if Microsoft spent $10bn cash for server purchase, then:

• Cash flow statement tells you that cash outflow = $10bn
• Balance sheet tells you that cash - $10bn, PP&E (Property, Plant and Equitments) + $10bn. This reflects one asset changes to another asset
• Income statement will not show expense of $10bn. Instead, it will split the $10bn into multiple future years' depreciation expense

So:

• Cash flow statement tell you when then cash is actually spent
• Balance sheet tells you asset conversation from one form to another
• Income statement shows how asset turns into expense and impact profit

Remember:

• Cash spent ≠ Expense
• CapEx ≠ immediate Expense
• Profit ≠ Cash flow