statement of changes in equity
   HOME

TheInfoList



OR:

A statement of changes in equity and similarly the statement of changes in owner's equity for a sole trader, 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, business entity, businesses, interest-based organizations, schoo ...
, 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 Shareholders' equity, equity that has been derived by the issue of Share (finance), shares in the corporation to a shareh ...
, 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 to the next. Line items typically include profits or losses from operations,
dividends A dividend is a distribution of Profit (accounting), 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 ...
paid, issue or redemption of shares, revaluation reserve and any other items charged or credited to
accumulated 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 The United States of America (U.S.A. or USA), commonly known as the United States (U.S. or U ...
. 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 busine ...

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 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
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 busine ...

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'', ''stateme ...
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'', ''stateme ...
and provides information to 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 busine ...

balance sheet
. Retained earnings are part of 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 busine ...

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 for the period, showing separately amounts attributable to owners of the
parent A parent is a caregiver of the offspring in their own species. In humans, a parent is the caretaker of a child (where "child" refers to offspring, not necessarily age). A ''biological parent'' is a person whose gamete resulted in a child, a male t ...
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, separately disclosing: ::* profit or loss ::* each item of other comprehensive income ::* transactions with owners, showing separately contributions by and distributions to owners 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), ''Notes'' (album), a 1987 album by Paul Bley and Paul Motian * ''Notes'', a common (yet unofficial) sho ...
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.


See also

*
International Financial Reporting Standards International Financial Reporting Standards, commonly called IFRS, are accounting standards issued by the IFRS Foundation and the International Accounting Standards Board (IASB). They constitute a standardised way of describing the company's fina ...
(and its
requirements In product development and process optimization, a requirement is a singular documented physical or functional need that a particular design, product or process aims to satisfy. It is commonly used in a formal sense in engineering design, incl ...
) *
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 ...
*
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 ...
* Comprehensive income *
Accumulated 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 The United States of America (U.S.A. or USA), commonly known as the United States (U.S. or U ...


References

* {{Accounting navbox Financial statements Accounting terminology Financial capital