Every transaction which affects an income statement account also affects a balance sheet account.

Question

Quizplus · Accepted Answer

This statement is true because every transaction that affects an income statement account will either increase or decrease a corresponding balance sheet account, such as cash, accounts receivable, or retained earnings. For example, when revenue is earned, it increases both a revenue account on the income statement and an asset account on the balance sheet (such as accounts receivable or cash). Similarly, when expenses are incurred, they decrease a corresponding expense account on the income statement and a liability or equity account on the balance sheet (such as accounts payable or retained earnings). Therefore, income statement and balance sheet accounts are closely intertwined and must be considered together in any financial analysis.

Every Transaction Which Affects an Income Statement Account Also Affects