A statement of changes in equity can be created for sole proprietorships, partnerships or corporations. Sole proprietorships and partnerships follow a similar format for their statements of changes in equity, while the corporation format is slightly different. The purpose of the statement is to summarize the activity in the equity accounts for the period.
Investments/Withdrawals for the Sole Proprietor
Investments and withdrawals may be made at any point during the period by the owner of the company. Investments increase the owner’s equity and withdrawals decrease the owner’s equity.
Income/Loss for the Sole Proprietor
The business owner should have the income or loss amount from the income statement. This amount would be included on the statement. A profit increases the owner’s equity. A loss decreases the owner’s equity.
Format for the Sole Proprietor
The owner’s capital at the beginning of the period is listed first. Any additions, investments or income during the period are listed next. Any subtractions, withdrawals or loss for the period are listed last. The ending balance is calculated at the bottom and should tie out to the ending balance listed on the company’s balance sheet.
Stock Transactions for the Corporation
Decisions to issue or retire stock at any point during the period by the corporation’s board of directors adjust the company’s total stock balance.
Retained Earnings for the Corporation
Retained earnings are the amount of profit the company keeps for growing the organization. Retained earnings are increased by net income and decreased by net loss or by issuing dividends.
Format for the Corporation
The first section starts with the beginning stock balance, adds or subtracts any stock transactions during the period and calculates an ending stock balance. The second section starts with the beginning retained earnings balance, adds or subtracts any transactions that affect retained earnings during the period and calculates an ending retained earnings balance. The ending balance for the stock and the retained earnings should tie out to the ending balances listed on the company’s balance sheet.