13) The four financial statements are linked together as follows: a. The net inc

Question

13) The four financial statements are linked together as follows:

a. The net income or loss links to both the balance sheet (through retained earnings into stockholders’ equity) and statement of cash flows (as the first line on the cash flows from operating activities).

b. Retained earnings is equal to the previous period’s retained earnings plus net income or minus net loss from the current period less dividends paid for the current period.

c. In terms of the cash flow statement, net income is the first line as it is used to calculate cash flows from operations. Also, any non-cash expenses or non-cash income from the income statement (i.e., depreciation and amortization) flow into the cash flow statement and adjust net income to arrive at cash flow from operations.

d. Any balance sheet items that have a cash impact (i.e., working capital, financing, Property Plant & Equipment, etc.) are linked to the cash flow statement since it is either a source or use of cash. The net change in cash on the cash flow statement and cash from the previous period’s balance sheet comprise cash for this period.

Explanation / Answer

Answer

True

Explanation: All the statements are true as all the four financial statements that is income statement, position statement, cash flow statement and statement of retained earnings are connected to each other. Income statement provides items for cash flow statement, balance sheet and for retained earnings statement too. In the same way balance sheet provides items for cash flow statement and retained earnings statement.

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