Definition: The statement of stockholders’ equity is a financial report that shows the changes in all of the major equity accounts during a period. In other words, it’s a financial statement that reports the transactions that increase or decrease the stockholders’ equity accounts during an accounting period.
What Does Statement of Stockholders’ Equity Mean?
Many companies choose not to issue a statement of retained earnings and simple issue a statement of stockholders’ equity instead because the retained earnings account changes are also reported in the stockholders’ equity report. That’s what makes this report unique. It lists the beginning and ending balances of all equity accounts along with the changes made during the year. The rows of the report usually include:
- Beginning balance
- Net income
- Issuance of stock
- Ending balance
The columns list the equity accounts including:
- Common stock shares and price
- Retained Earnings
- Total Equity
As you can see from the cross section of all the rows and columns, every equity account is listed along with their beginning balances, ending balances, and activity during the period.
This report is typically shorter than the other standard financial statements because not that many transactions affect the equity accounts of a company. For example, the main three business events that influence equity are issuances of stock or purchases of treasury stock, income earned or losses incurred, and contributions by or distributions made to stockholders. Those are typically the only transactions that will affect the equity accounts and thus be reported on this financial statement.
External users typically analyze the statement of shareholders’ equity to understand how and why the total equity balance changed during a period. For instance, creditors want to know if a company incurs losses and as a result requires owners’ contributions to maintain the minimum equity levels to meet the debt agreements.