Final answer:
The Retained Earnings balance on the balance sheet does not directly come from the ending balance on the income statement. Instead, it's affected by the prior period's earnings, current net income, and dividends paid.
Step-by-step explanation:
The statement that the Retained Earnings balance on the classified balance sheet is transferred from the ending balance on the income statement is false. The Retained Earnings account does not directly come from the income statement's ending balance; rather, the Retained Earnings balance is part of the equity section of the balance sheet and it changes based on the prior period's retained earnings, current period net income, and any dividends paid. To clarify the concept, let's apply an example to Singleton Bank which holds $10 million in deposits. Assuming this is all equity, and no income or dividends are involved in a given period, the Retained Earnings would simply be the cumulative earnings of the bank over time after any dividends have been distributed to shareholders. If Singleton Bank had a net income from interest on loans, it would add to the Retained Earnings, while any dividends paid out would reduce it. However, in our example, Singleton Bank is not earning any interest income nor is it paying any dividends.