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The retained earnings statement is often described as a "bridge" between which two financial statements?
AThe cash flow statement and the balance sheet
BThe journal and the ledger
CThe trial balance and the chart of accounts
DThe statement of profit or loss and the balance sheet
Answer & Solution
Correct answer: D. The statement of profit or loss and the balance sheet
1. The net income on the retained earnings statement comes from the statement of profit or loss.
2. Its ending Retained Earnings balance feeds into the equity section of the balance sheet.
3. It therefore links the profit or loss statement to the balance sheet.
4. It does not connect the cash flow statement (A), the trial balance and chart of accounts (C), or the journal and ledger (D).
5. Therefore it bridges the statement of profit or loss and the balance sheet.
_Source: Jonick, Principles of Financial Accounting (CC BY-SA 4.0), §1.7.3 "Retained Earnings Statement", p.44_
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