Which Of The Following Statements Are Correct Regarding How The Financial Statements Are Linked

The correct options are c and d, as Net Income or Net Loss for the period is transferred to Statement of Retained Earnings and then the ending or closing balance of retained earnings account is shown on Balance Sheet / Statement of Financial Position on a particular date.

Income Statement or Statement of Comprehensive Income consists of Temporary Accounts which include Revenues and Expenses accounts. The revenues are matched with relevant expenses during the accounting period according to Matching Principle. Excess of revenues over expenses resulted in Net Income or Net Profit while the excess of expenses over revenues shows Net Loss for the period. After preparing Income Statement, the net income or loss is needed in the statement of retained earnings in order to find out ending retained earnings or retained loss which is shown on balance sheet that consists of Permanent Accounts such as Assets, Liabilities and Equity. In this way, Financial Statements are interconnected with each other and can’t ignore any one of these statements.

The Answer Of MCQ “Which Of The Following Statements Are Correct Regarding How The Financial Statements Are Linked (Check All That Apply.)”

Total assets are shown on balance sheet while the ending balance in retained earnings account is calculated by adding Net Income / Net Profit, which is computed from Income Statement, and subtracting Dividend to beginning retained earnings.

So, Financial Statements are interconnected or linked with each in a systematic way and not in an inappropriate way.