Income Statement And Balance Sheet Relationship

The explanation for the movement in equity lies in the relationship between balance sheet and income statement.

Income statement and balance sheet relationship. If we now look at the income statement for the period we see the following. Often balance sheets and income statements overlap. Relation of income statements and balance sheets. The income statement and balance sheet of a company are linked through the net income for a period and the subsequent increase or decrease in equity that results.

For example a company may make a payment on a debt for a piece of factory equipment. The income that an entity earns over a period of time is transcribed to the equity portion of the balance sheet. However to make the balance sheet balance there has to be a movement on equity of 300 which needs to be explained.