Question

the _____is the critical connection between the pro forma income statement and the pro forma balance sheet.a. change in net working capital b. change in cost of goods sold c. change in dividends d. change in retained earnings

Answer 1

The Critical Connection between the Pro forma income statement and the Pro Forma Balance Sheet is

d) Change in Retained Earnings

As per the Accountion Equation Assets = Liablites + Owners Equity.

In the head Owners Equity it includes change in Retained Earnings. We get the earnings during a period from preparation of Income Statement. The Earnings / Net income for the period goes in to the balanesheet under the head Owners Equity. In this way both Balancesheet and Income Statement are connected.