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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 the sole trader, 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 sol ...
, statement of changes in partners' equity for a
partnership A partnership is an arrangement where parties, known as business partner A business partner is a commercial entity with which another commercial entity has some form of Business alliance, alliance. This relationship may be a contractual, exclus ...

partnership
, statement of changes in shareholders' equity for a
company A company, abbreviated as co., is a Legal personality, legal entity representing an association of people, whether Natural person, natural, Legal person, legal or a mixture of both, with a specific objective. Company members share a common pu ...

company
or statement of changes in taxpayers' equity for
government financial statementsGovernment financial statements are annual financial statements 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 pres ...
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 __NOTOC__ A corporation's share capitalGlossary on Trade Financing Terms - S
in the U ...
, accumulated reserves and
retained earnings The retained earnings (also known as plowback) of a corporation A corporation is an organization—usually a group of people or a company—authorized by the State (polity), state to act as a single entity (a legal entity recognized by pri ...
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 Bookkeeping is the recording of financial transactions, and is part of the process of accounting Accounting or Accountancy is the measurement, processing, and communication of financial and non fin ...
to the next. Line items typically include profits or losses from operations,
dividends A dividend is a distribution of profits by a corporation A corporation is an organization—usually a group of people or a company—authorized by the state to act as a single entity (a legal entity recognized by private and public law 'b ...
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 In accounting, minority interest (or non-controlling interest) is the portion of a subsidiary corporation's stock that is not owned by the parent corporation. The magnitude of the minority interest in the subsidiary company is generally less than 50 ...
attributable to other individuals and organisations. The statement is expected under the
generally accepted accounting principles Publicly traded companies typically are subject to the most rigorous standards. Small and midsized businesses often follow more simplified standards, plus any specific disclosures required by their specific lenders and shareholders. Some firms oper ...
and explains the owners' equity shown on the
balance sheet In financial accounting Financial accounting is the field of accounting Accounting or Accountancy is the measurement, processing, and communication of financial and non financial information about economic entity, economic entities such ...

balance sheet
, 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 the most rigorous standards. Small and midsized businesses often follow more simplified standards, plus any specific disclosures required by their specific lenders and shareholders. Some firms oper ...
(U.S. GAAP) whenever comparative balance sheets and income statements are presented. It may appear in the
balance sheet In financial accounting Financial accounting is the field of accounting Accounting or Accountancy is the measurement, processing, and communication of financial and non financial information about economic entity, economic entities such ...

balance sheet
, 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'', ''statemen ...
and changes in retained earnings statement, or as a separate schedule. Therefore, the statement of retained earnings uses information from the
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'', ''statemen ...
and provides information to the
balance sheet In financial accounting Financial accounting is the field of accounting Accounting or Accountancy is the measurement, processing, and communication of financial and non financial information about economic entity, economic entities such ...

balance sheet
. Retained earnings are part of the
balance sheet In financial accounting Financial accounting is the field of accounting Accounting or Accountancy is the measurement, processing, and communication of financial and non financial information about economic entity, economic entities such ...

balance sheet
(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 In a companies' financial reporting, comprehensive Income (or comprehensive earnings) "includes all changes in equity during a period except those resulting from investments by owners and distributions to owners". Because that use excludes the effe ...
for the period, showing separately amounts attributable to owners of the
parent A parent is a caregiver of the offspring In biology, offspring are the young creation of living organisms, produced either by a Asexual reproduction, single organism or, in the case of sexual reproduction, two organisms. Collective offspring ...
and to
non-controlling interest In accounting, minority interest (or non-controlling interest) is the portion of a subsidiary corporation's stock that is not owned by the parent corporation. The magnitude of the minority interest in the subsidiary company is generally less than 50 ...
s # 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 differe ...
, separately disclosing: ::* profit or loss ::* each item of other comprehensive income ::* transactions with owners, showing separately contributions by and distributions to
owners Ownership is the state or fact of exclusive rights and control over property, which may be any asset, including an object, land or real estate, intellectual property, or until the nineteenth century, slaves, human beings. Ownership involves multi ...
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 In music Music is the of arranging s in time through the of melody, harmony, rhythm, and timbre. It is one of the aspects of all human societies. General includ ...
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 numbers fall below certain limits. The abbreviation "SME" is used by international organizations such as the World Bank, the Europe ...
(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 In accounting, minority interest (or non-controlling interest) is the portion of a subsidiary corporation's stock that is not owned by the parent corporation. The magnitude of the minority interest in the subsidiary company is generally less than 50 ...
, it's a consolidated statement.


See also

*
International Financial Reporting Standards International Financial Reporting Standards, commonly called IFRS, are accounting standard Publicly traded companies typically are subject to the most rigorous standards. Small and midsized businesses often follow more simplified standards, plus ...
(and its
requirements In product development In business Business is the activity of making one's living or making money by producing or buying and selling Product (business), products (such as goods and services). Simply put, it is "any activity or enterprise e ...
) *
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'', ''statemen ...
*
Cash flow statement In financial accounting, a cash flow statement, also known as ''statement of cash flows'', is a financial statements, financial statement that shows how changes in balance sheet accounts and income affect cash and cash equivalents, and breaks the a ...
*
Comprehensive income In a companies' financial reporting, comprehensive Income (or comprehensive earnings) "includes all changes in equity during a period except those resulting from investments by owners and distributions to owners". Because that use excludes the effe ...
* Accumulated other comprehensive income


References

* {{Accounting navbox
Retained earnings The retained earnings (also known as plowback) of a corporation A corporation is an organization—usually a group of people or a company—authorized by the State (polity), state to act as a single entity (a legal entity recognized by pri ...
Accounting terminology Financial capital