Completing the Statement of Equity requires net profit from the Income Statement.

Completing the Statement of Equity requires net profit from the Income Statement.

• A. False
• B. True
• C. Not required
• D. Not sure

Answer: (B)

Net income from the Income Statement is what increases the company’s equity through retained earnings. When you prepare the Statement of Changes in Equity, you start with the opening equity balance, add the period’s net income (net profit), and then deduct any dividends or other adjustments. That net income is what boosts retained earnings and thus raises total equity, so it must be included to complete the statement accurately. For example, if the period shows net profit, retained earnings grow; if there are dividends, they reduce equity accordingly. This linkage shows how the profit earned during the period affects the owners’ stake in the business.

Net income from the Income Statement is what increases the company’s equity through retained earnings. When you prepare the Statement of Changes in Equity, you start with the opening equity balance, add the period’s net income (net profit), and then deduct any dividends or other adjustments. That net income is what boosts retained earnings and thus raises total equity, so it must be included to complete the statement accurately. For example, if the period shows net profit, retained earnings grow; if there are dividends, they reduce equity accordingly. This linkage shows how the profit earned during the period affects the owners’ stake in the business.