Question

Explain the relationship between net income and retained earnings and why net income may not be attributable to capital.

Answer 1

Well net income is the income that company earned after substracting the costs of sales and other expenses from your total revenue made. Net income is usually located in the statement of profit and loss and other comprehensive incomes..

Whereas, after taking the tax out of the net income of the company, the profit would then be put into the company's reserves which is retained income. The retained incomes are usually used to pay the dividends of the shareholders. Retained profits is located in the statement of changes in equity..

And net income is not attributable to capital as it is of revenue nature and shown in statement of profit and loss hence it will not affect capital as cpaital is an item of balance sheet...