The income statement is related to the balance sheet because:
A) Income increases owners' equity and total assets (or reduces liabilities).
B) Income increases only owners' equity.
C) Assets and expenses have debit balances.
D) Liabilities and revenue have credit balances.

Question

Quizplus · Accepted Answer

The income statement shows the revenue and expenses of a company, and the resulting net income or loss. Net income increases owners' equity and can also increase total assets (or reduce liabilities) if the company chooses to reinvest the profits. Therefore, the income statement is related to the balance sheet, which shows the assets, liabilities, and owners' equity of a company at a specific point in time.

The Income Statement Is Related to the Balance Sheet Because