Which relationship correctly describes the connection between the income statement and the statement of changes in equity?
Correct answer: B. Profit or loss is included in the movement of retained earnings
- A. Closing profit is transferred to non-current assets
- B. Profit or loss is included in the movement of retained earnings
- C. Total expenses are added directly to share capital
- D. Revenue is transferred directly to trade payables
Explanation
The profit or loss for the period contributes to the change in retained earnings. Other equity movements may include owner contributions and distributions. Profit is not transferred to assets or liabilities as a separate balance.
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About Financial Statements
Financial statements present a business's financial performance and position through the income statement, statement of financial position, cash flow statement and changes in equity. Questions involve preparing and interpreting these statements, adjusting entries, depreciation, closing inventory, accrued and prepaid items, and distinguishing profit from cash flow.
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