Microsoft Office Tutorials and References
In Depth Information
The account that ties the balance sheet and income statement together is Retained Earnings. Figure 13-11 shows
an income statement that includes a statement of retained earnings at the bottom.
The Retained Earnings classification on the balance sheet refers to the Ending Retained Earnings classification
on the income statement. Ending Retained Earnings is computed by taking Beginning Retained Earnings,
adding net income (or subtracting net loss), and subtracting dividends.
Finally, the balance sheet must be in balance: hence, the name. Total assets must equal total liabilities and
equity. This error-checking formula is used in cell B31 on the balance sheet:
=IF(ABS(B29–B15)>0.01,”Out of Balance”,””)
If the difference between assets and liabilities and equity is more than a penny, an error message is displayed
below the schedule; otherwise, the cell appears blank. The ABS function is used to check for assets being more
or less than liabilities and equity. Because the balance sheet is in balance, the formula returns an empty string.
Figure 13-11: The income statement can include a statement of retained earnings.