The Goal of The Changes in Equity Statement (part 5)

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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. 

These changes include the issuance or purchase of shares, dividends issued, and profits or losses. This document isn’t usually included when the financial statements are issued internally, as the information in it is not overly useful to the management team. 

Owner’s equity represents the owner’s investment in the business minus the owner’s draws or withdrawals from the business plus the net income (or minus the net loss) since the business began.  

Mathematically, the amount of owner’s equity is the amount of assets minus the amount of liabilities. Certain transactions that change the owner’s equity when starting a proprietorship: 

  • Revenue- An increase in owner’s equity resulting from the operation of a business.  
  • Expense- A decrease in owner’s equity resulting from the operation of a business.  
  • Withdrawal- Assets taken out of a business for the owner’s personal use.  
  • Cash and Capital (Investment)- The accounts affected when receiving cash from the owner as an investment.  
  • Cash and Supplies- The accounts affected when paying cash for supplies.  
  • Cash and Prepaid Insurance- The accounts affected when paying cash for insurance.  
  • Supplies and a Liability Account- The accounts affected when buying supplies on account with a company.  
  • Cash and a Liability Account- The accounts affected when paying cash on account with a company.  
  • Cash and Capital (Revenue Account)- The accounts affected when receiving cash from sales.  
  • Cash and Capital (Expense Account)- The accounts affected when paying cash for an expense.  
  • Cash and Capital (Withdrawal)- The accounts affected when an owner takes out cash for personal use. 

 

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