Definition: The statement of owner’s equity is a financial statement that reports the changes in the equity section of the balance sheet during an accounting period. In other words, it reports the events that increased or decreased stockholder’s equity over the course of the accounting period.
What Does Statement of Owner’s Equity Mean?
The statement of owner’s equity is one of the shorter financial statements because there aren’t many transactions that actually affect the equity accounts. It typically lists the net income or loss for the period along with the owners’ contributions or withdrawals during the period.
The report itself is presented in a simple equation style format like this.
- Beginning equity balance
- Net income
- Owner’s contributions
- Net loss
- Owner’s withdrawals
- Ending equity balance
The ending equity account balance is always carried forward to the following year and becomes the future year’s beginning balance. Obviously, the first year a business is started, it will not have a beginning balance. Let’s take a look at an example.
Kaitlin’s Kupcakes is a bakery in downtown Seattle that was started this year with Kaitlin’s investment of $15,000. During the year, the company make a profit of $10,000 and Kaitlin decided to withdrawal $5,000 from the company to pay for her living expenses. The statement of owner’s equity would calculate the ending balance in the equity account of $20,000 (0 + $15,000 + $10,000 – $5,000). This ending balance will be carried forward to the following year as the future beginning balance.
External users analyze this report to understand the transactions that affect the equity balance. For instance, when a creditor would like to see the amounts that Kaitlin put into her business and the amounts that she withdrew throughout the year. If Kaitlin were to keep putting money into the business, it would typically indicate that the business can’t fund its own operations.