Link word in the Profit and Loss Statement effortlessly

Aug 6th, 2022
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How to Link word in the Profit and Loss Statement

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hey everybody welcome back to the corporate finance academy today we are going to talk about how the financial statements link together so the income statement balance sheet and cash flow statement how does that work how are they all linked together [Music] okay so just like we said beginning we are going to talk through how the income statement the balance sheet and the cash flow statement linked together and as we go along were going to show you some examples uh in a template to how that actually happens in microsoft excel its easier when you can visualize it so how the financials work together the statements are very much dependent on one another and if you really want to know how to analyze the company and how financial statements work you will have to know how this linking works its critical so if we start with the income statement the income statement feeds both the balance sheet and the statement of cash flows so lets look at these first two line items here with net income

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Explanation: The retained earnings statement is prepared after the income statement and it is the connecting link between the income statement and balance sheet. Net income is added to the retained earnings each period and retained earnings forms part of the stockholders equity.
The profit and loss (PL) account summarises a business trading transactions - income, sales and expenditure - and the resulting profit or loss for a given period. The balance sheet, by comparison, provides a financial snapshot at a given moment.
Finally, it is important to note that the income statement, statement of retained earnings, and balance sheet articulate. This means they mesh together in a self-balancing fashion. The income for the period ties into the statement of retained earnings, and the ending retained earnings ties into the balance sheet.
The changes in assets and liabilities that you see on the balance sheet are also reflected in the revenues and expenses that you see on the income statement, which result in the companys gains or losses.
But if youre looking for investors for your business, or want to apply for credit, youll find that four types of financial statementsthe balance sheet, the income statement, the cash flow statement, and the statement of owners equitycan be crucial in helping you meet your financing goals.
Solution(By Examveda Team) Trial Balance is not a financial statement.
The account Retained Earnings provides the connection between the balance sheet and the income statement.
The account Retained Earnings provides the connection between the balance sheet and the income statement.
Overview: The balance sheet - also called the Statement of Financial Position - serves as a snapshot, providing the most comprehensive picture of an organizations financial situation. It reports on an organizations assets (what is owned) and liabilities (what is owed).
The main link between the two statements is that profits generated in the income statement get added to shareholders equity on the balance sheet as retained earnings. Also, debt on the balance sheet is used to calculate interest expense in the income statement.

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