What is the component that links the three main financial statements? Explain how?

Answer 1

The 3 main financial statements are the balance sheet, the income statement and the statement of changes in equity.

The income statement will contain figures to arrive at profit before tax, tax, and profit after tax. The profit after tax will go into the retained earnings column in the statement of changes in equity to be added to opening retained earnings to give the closing retained earnings. The closing retained earnings figure will go into the balance sheet as an item under Shareholders' equity.