If Bertha’s Birds see an increase in sales and no increase in expenses, which of its financial statements will be affected:
I balance sheet
II income statement
III statement of retained earnings
Explanation
Answer: E - An increase in sales with no offsetting expense increase will affect the balance sheet, the income statement, and the statement of retained earnings.
Key Takeaway: Revenues are reported on the income statement, so an increase in revenues will impact the income statement. Since net income is increased, retained earnings increase, so the statement of retained earnings will also be impacted. Since retained earnings increase and retained earnings are a component of the balance sheet, the balance sheet will also be impacted.
