How are the three financial statements (income statement, balance sheet, and cash flow statement) linked?

1.  Only the assets are reflected in the cash flow statement, and the net income expenses correlate with the liabilities.
2.  The net income goes to retained earnings, but the cash flow remains independent.
3.  The gross profit goes to retained earning, and the shareholder equity total is added to the cash flow statement
4.  The net income goes to the retained earning and to the cash flow statement

Correct Answer:

•  The net income goes to the retained earning and to the cash flow statement

‘MT: odd qns. But it should be net profit “npat” flows to retained earnings, and also starts the cashflow statement (so all linked and not independent). Assets are in balance sheet, net income is in income statement. npat goes to retained earnings, not gross profit.