Definition: The statement of partner’s capital is a financial report that shows the changes in total partners’ capital accounts during an accounting period. In other words, it’s a financial statement that reports the increases and decreases in the partners’ accounts over the course of a period.
What Does Statement of Partner’s Equity Mean?
Similar to the statement of owner’s equity, the statement of partner’s equity is a short financial report that only lists a few different types of transactions that affect the equity accounts. Unlike the owner’s equity report, the partner’s equity is only used for partnerships. Thus, it uses net income or and the partner contributions and distributions throughout the year to calculate the ending capital balance. Here is the basic partner’s equity equation.
- Beginning Capital balance
- Net income
- Partner’s contributions
- Net loss
- Partner’s distributions
- Ending Capital balance
The beginning balance is always derived from the previous year’s ending capital account. Obviously, the first year the partnership is started, there will not be a beginning balance in the capital accounts. After the first year, the ending balance is always carried forward to the following year and becomes the future year’s beginning balance.
Let’s take a look at an example.
Mac’s Repair Shop, LLC is an auto body shop in downtown San Francisco that was started this year with Tim and Paul’s investment of $20,000. During the year, the company make a profit of $10,000 and Tim decided to withdrawal $10,000 from the company to pay for her living expenses. The statement of partner’s equity would calculate the ending capital balance of $20,000 (0 + $20,000 + $10,000 – $10,000). This ending balance will be carried forward to the following year as the future beginning balance.
Keep in mind that this report doesn’t keep track of the individual partners’ capital account. It only reports the changes to total company-wide equity and capital levels.