Question

The Impact the income statement has on the statement of retained earnings

Answer 1

There are two main element which affect the statement of retained earnings one is net income and other is dividend. But the most important element is net income which we get from the income statement. So the balance of retained retainings is depend on net income or net loss. Net income arises when there is excess of income over expenses and net loss occurs due to excess of expenses over income.The net income reduces when expenses increases and income increases when expenses reduces. As the net income or net loss in the income statement changes that will directly affect on the balance of retained earnings. As net income increases the retained earning also increases in the retained earnings statement and decrease in net income or incurring net loss the balance of retained earnings decreases. Therefore,there is a direct relationship between net income and retained earnings of the company.