Table of contents

1. Introduction to Accounting1h 21m
2. Transaction Analysis1h 13m
3. Accrual Accounting Concepts2h 38m
4. Merchandising Operations2h 30m
5. Inventory1h 55m
6. Internal Controls and Reporting Cash1h 16m
7. Receivables and Investments3h 8m
8. Long Lived Assets5h 1m
9. Current Liabilities2h 19m
10. Time Value of Money1h 23m
- Time Value of Money Equations
  35m
- Using Time Value of Money Tables
  47m
11. Long Term Liabilities2h 45m
12. Stockholders' Equity2h 15m
13. Statement of Cash Flows2h 24m
14. Financial Statement Analysis5h 25m
15. GAAP vs IFRS56m

12. Stockholders' Equity

Retained Earnings

Financial Accounting

12. Stockholders' Equity

Retained Earnings

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Multiple Choice

Which item flows from the income statement to the statement of retained earnings?

Net income

Dividends declared

Cash balance

Total assets

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Understand the relationship between the income statement and the statement of retained earnings. The income statement reports a company's financial performance over a period, including revenues, expenses, and net income. The statement of retained earnings shows changes in retained earnings, which are influenced by net income and dividends declared.

Identify the key item that connects the two statements. Net income, calculated on the income statement, is transferred to the statement of retained earnings as it directly impacts the retained earnings balance.

Recognize that dividends declared also affect the statement of retained earnings, but they do not flow from the income statement. Dividends are subtracted from retained earnings after net income is added.

Eliminate incorrect options. Cash balance and total assets are part of the balance sheet and do not flow from the income statement to the statement of retained earnings.

Conclude that the correct item flowing from the income statement to the statement of retained earnings is net income, as it is the primary link between the two financial statements.