Explain the connection between the income statement, the retained earnings statement and the balance sheet.

Expert Solution

Income Statement is a financial statement which shows the company;s financial performance for a specific period (mostly 1 year).Financial performance is assessed by giving a summary of how the business incurs its revenues and expenses through both operating and non-operating activities.

The statement of retained earnings is a financial statement that outlines the changes in retained earnings for a specified period. The statement reconciles the beginning and ending retained earnings for the period, using information such as net income from the other financial statements.

A Balance Sheet is a statement of the financial position of a business which states the assets, liabilities, and owners' equity at a particular point in time. In other words, the balance sheet illustrates your business's net worth.

Net Income is added to previous periods Retained Earnings and deducted by dividends declared to get the new balance for Retained earnings which is added in balance sheet as part of shareholders Equity

ekkarill92 answered 2 years ago

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