A statement of changes in equity and similarly the statement of changes in owner's equity for a

sole trader A sole proprietorship, also known as a sole tradership, individual entrepreneurship or proprietorship, is a type of enterprise owned and run by one person and in which there is no legal distinction between the owner and the business entity. A sole ...

, statement of changes in partners' equity for a

partnership A partnership is an arrangement where parties, known as business partners, agree to cooperate to advance their mutual interests. The partners in a partnership may be individuals, businesses, interest-based organizations, schools, governments ...

, statement of changes in shareholders' equity for a

company A company, abbreviated as co., is a legal entity representing an association of people, whether natural, legal or a mixture of both, with a specific objective. Company members share a common purpose and unite to achieve specific, declared ...

or statement of changes in taxpayers' equity for government financial statements is one of the four basic

financial statement Financial statements (or financial reports) are formal records of the financial activities and position of a business, person, or other entity. Relevant financial information is presented in a structured manner and in a form which is easy to un ...

s. The statement explains the changes in a company's

share capital A corporation's share capital, commonly referred to as capital stock in the United States, is the portion of a corporation's equity that has been derived by the issue of shares in the corporation to a shareholder, usually for cash. "Share capital ...

, accumulated reserves and

retained earnings The retained earnings (also known as plowback) of a corporation is the accumulated net income of the corporation that is retained by the corporation at a particular point of time, such as at the end of the reporting period. At the end of that peri ...

over the reporting period. It breaks down changes in the owners' interest in the organization, and in the application of retained profit or surplus from one

accounting period An accounting period, in bookkeeping, is the period with reference to which management accounts and financial statements are prepared. In management accounting the accounting period varies widely and is determined by management. Monthly accoun ...

to the next. Line items typically include profits or losses from operations,

dividends A dividend is a distribution of profits by a corporation to its shareholders. When a corporation earns a profit or surplus, it is able to pay a portion of the profit as a dividend to shareholders. Any amount not distributed is taken to be re-in ...

paid, issue or redemption of shares, revaluation reserve and any other items charged or credited to accumulated other comprehensive income. It also includes the non-controlling interest attributable to other individuals and organisations. The statement is expected under the

generally accepted accounting principles Publicly traded companies typically are subject to rigorous standards. Small and midsized businesses often follow more simplified standards, plus any specific disclosures required by their specific lenders and shareholders. Some firms operate on th ...

and explains the owners' equity shown on the

balance sheet In financial accounting, a balance sheet (also known as statement of financial position or statement of financial condition) is a summary of the financial balances of an individual or organization, whether it be a sole proprietorship, a business ...

, where:

owners' equity = assets − liabilities

Requirements of the U.S. GAAP

In the United States this is called a ''statement of retained earnings'' and it is required under the U.S.

Generally Accepted Accounting Principles Publicly traded companies typically are subject to rigorous standards. Small and midsized businesses often follow more simplified standards, plus any specific disclosures required by their specific lenders and shareholders. Some firms operate on th ...

(U.S. GAAP) whenever comparative balance sheets and income statements are presented. It may appear in the

, in a combined

income statement An income statement or profit and loss accountProfessional English in Use - Finance, Cambridge University Press, p. 10 (also referred to as a ''profit and loss statement'' (P&L), ''statement of profit or loss'', ''revenue statement'', ''stateme ...

and changes in retained earnings statement, or as a separate schedule. Therefore, the statement of retained earnings uses information from the

and provides information to the

. Retained earnings are part of the

(another basic financial statement) under "stockholders equity (shareholders' equity)" and is mostly affected by net income earned during a period of time by the company less any dividends paid to the company's owners / stockholders. The retained earnings account on the balance sheet is said to represent an "accumulation of earnings" since net profits and losses are added/subtracted from the account from period to period. Retained Earnings are part of the "Statement of Changes in Equity". The general equation can be expressed as following: : ''Ending'' Retained Earnings = ''Beginning'' Retained Earnings − Dividends Paid + Net Income This equation is necessary to use to find the Profit Before Tax to use in the Cash Flow Statement under Operating Activities when using the indirect method. This is used whenever a comprehensive income statement is not given but only the balance sheet is given.

Requirements of IFRS

IAS 1 requires a business entity to present a ''separate statement of changes in equity'' (SOCE) as one of the components of financial statements. The statement shall show: (IAS1.106) # total comprehensive income for the period, showing separately amounts attributable to owners of the parent and to non-controlling interests # the effects of retrospective application, when applicable, for each component # reconciliations between the carrying amounts at the ''beginning'' and the ''end'' of the period for each component of

equity Equity may refer to: Finance, accounting and ownership *Equity (finance), ownership of assets that have liabilities attached to them ** Stock, equity based on original contributions of cash or other value to a business ** Home equity, the diff ...

, separately disclosing: ::* profit or loss ::* each item of

other comprehensive income Note: Reference cited below, FAS130, remains the most current accounting literature in the United States on this topic. In 1997 the United States Financial Accounting Standards Board issued Statement on Financial Accounting Standards No. 130 en ...

::* transactions with owners, showing separately contributions by and distributions to

owners Ownership is the state or fact of legal possession and control over property, which may be any asset, tangible or intangible. Ownership can involve multiple rights, collectively referred to as title, which may be separated and held by different ...

and changes in ownership interests in subsidiaries that ''do not result in a loss of control'' However, the amount of dividends recognised as distributions, and the related amount per share, ''may'' be presented in the

notes Note, notes, or NOTE may refer to: Music and entertainment * Musical note, a pitched sound (or a symbol for a sound) in music * ''Notes'' (album), a 1987 album by Paul Bley and Paul Motian * ''Notes'', a common (yet unofficial) shortened versio ...

instead of presenting in the statement of changes in equity. (IAS1.107) For

small and medium enterprises Small and medium-sized enterprises (SMEs) or small and medium-sized businesses (SMBs) are businesses whose personnel and revenue numbers fall below certain limits. The abbreviation "SME" is used by international organizations such as the World Bank ...

(SMEs), the statement of changes in equity should show all changes in equity including: * total comprehensive income * owners' investments * dividends * owners' withdrawals of capital * treasury share transactions They can omit the statement of changes in equity if the entity has no owner investments or withdrawals other than dividends, and elects to present a combined statement of comprehensive income and retained earnings.

Example statement

The following statement of changes in equity is a very brief example prepared in accordance with IFRS. It does not show all possible kinds of items, but it shows the most usual ones for a company. Because it shows Non-Controlling Interest, it's a consolidated statement.

References

* {{Accounting navbox Financial statements Accounting terminology Financial capital

Requirements of the U.S. GAAP

Requirements of IFRS

Example statement

See also

References