Statement of Changes in Equity

What is Statement of Changes in Equity?

Statement of changes in equity or statement of retained earnings is one of the four financial statements that shows all the changes in equity for a period of time. It reflects all changes in equity between the beginning and the end of the accounting period arising from transactions such as new capital investment, the dividend paid, owner’s withdrawal, net profit or loss, and fixed assets revaluation, etc.

Statement of changes in equity shows a linkage between the balance sheet and income statement of the company. It also shows the transactions that are not presented on the balance sheet and the income statement, such as dividend paid and the owner’s withdrawal.

Key elements of statement of changes in equity

Statement of changes in equity provides the users with financial information about three main elements of equity, including:

• A reconciliation between the carrying amount at the beginning and the end of the period of each component of equity, such as share capital, retained earnings, and revaluation
• Changes in accounting policy which requires the adjustment in the equity account due to the effects of the retrospective application of accounting policies
• Error correction in the prior period which requires the adjustment in the equity account due to the effects of the retrospective restatement of prior period errors

Example of Statement of Changes in Equity: