Final answer:
Net income is transferred to the Statement of Retained Earnings, which shows how profits are retained or distributed, and it links the Income Statement and the Balance Sheet.
Step-by-step explanation:
Net income is transferred to the Statement of Retained Earnings. After net income is computed on the Income Statement, it is then moved to the Statement of Retained Earnings, where it is added to any beginning retained earnings and adjusted for dividends paid to shareholders. This figure is then carried over to the Balance Sheet under shareholders' equity. It is not directly transferred to the Balance Sheet or the Statement of Cash Flows. The Statement of Retained Earnings links the Income Statement and Balance Sheet, showing how the period's profits are either retained in the business or distributed as dividends.