Which item is transferred from the income statement to the statement of retained earnings?

• A. Total assets
• B. Dividends declared
• C. Net income
• D. Cash flows from operations

Answer: (C)

Verified step by step guidance

1. Understand the relationship between the income statement and the statement of retained earnings. The income statement reports a company's revenues and expenses, resulting in net income or net loss. The statement of retained earnings starts with the beginning retained earnings balance, adds net income (or subtracts net loss), and subtracts dividends to calculate the ending retained earnings balance.
2. Identify the key item that connects the two statements. Net income is the result of the income statement and is transferred to the statement of retained earnings as it directly impacts the retained earnings balance.
3. Eliminate the other options: Total assets are reported on the balance sheet, not the income statement or retained earnings statement. Dividends declared are subtracted in the statement of retained earnings but are not transferred from the income statement. Cash flows from operations are part of the statement of cash flows, not the income statement or retained earnings statement.
4. Recognize that net income is the correct item transferred from the income statement to the statement of retained earnings because it represents the company's profitability and directly affects retained earnings.
5. Conclude that the correct answer is net income, as it is the only item that flows from the income statement to the statement of retained earnings.