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The Net Income in the Income Statement flows directly into the equity portion of the Balance Sheet via retained earnings.
The relationship between balance sheet and income statement is that the profit of the business shown in the income statement, belongs to the owners and this is shown by a movement in equity between the opening and closing balance sheets of the business.
The income statement reports a company's financial performance while the balance sheet reports its financial health. One proceeds from the other. A company's financial performance regulates its financial health. Performance and health are linked through the net income account on the income statement and the equity account on the balance sheet.
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