Answer
P2-3B(c) answer:
The income statement and retained earnings (RE) statement shows activity over a specified period of time whereas balance sheet discloses the financial position at a certain date. Therefore, income and RE statement is an activity statement and balance sheet is a position statement.
Income statement relates with retained earnings statement in that the profit is transferred to retained earnings statement where dividends and other transfer to reserves are adjusted. The closing balance of RE statement relates with the balance sheet since the closing balance of RE is transferred to equity section of the balance sheet.
Work Step by Step
Income tax payable and income tax expense is different. The former is a current liability whereas the latter is an expense which is disclosed in income statement. Same rule goes for interest expense and interest payable. Make sure to understand what to include in Income Statement and what item should be disclosed on the balance sheet.
