The Statement of Changes In Equity
The statement of changes in equity is one of the main financial statements. The purpose of the statement is to show the equity movements during the accounting period and to reconcile the beginning and ending equity balances. Equity movements include the following:
- Net income for the accounting period from the income statement
- Other comprehensive income (not included in the income statement)
- Changes in accounting polices and corrections of errors
- Amounts invested by equity investors
- Dividends and other distributions to equity investors
From the accounting equation we know that Equity = Assets – Liabilities, so the statement also reflects the change in net assets of the business during the period.
Statement of Changes in Equity Format
The layout of a statement of changes in equity for a company for annual reporting purposes is legally defined. A typical and useful format is shown in the example below.
| Capital | R/E | Total | |
|---|---|---|---|
| 1 April | 5,000 | 2,500 | 7,500 |
| Prior period error | 200 | 200 | |
| Net income | 2,300 | 2,300 | |
| Other comprehensive income | 1,200 | 1,200 | |
| Dividends | -500 | -500 | |
| Issues of new capital | 1,500 | 1,500 | |
| 31 March | 6,500 | 5,700 | 12,200 |
* R/E = Retained Earnings
As an example, the annual report for Apple shows a typical statement of changes in equity layout.
About the Author
Chartered accountant Michael Brown is the founder and CEO of Double Entry Bookkeeping. He has worked as an accountant and consultant for more than 25 years in all types of industries. He has been the CFO or controller of both small and medium sized companies and has run small businesses of his own. He has been a manager and an auditor with Deloitte, a big 4 accountancy firm, and holds a BSc from Loughborough University.