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The "Statement of Owner's Equity", or "Statement of Changes in Owner's Equity", summarizes the items
affecting the capital account of a sole proprietorship business.
A sole proprietorship's capital is affected by four items: owner's contributions, owner's withdrawals,
income, and expenses.
In this tutorial, we will prepare a statement of changes in owner's equity using information from previous
lessons. We will be using the adjusted trial balance from this lesson: Adjusted Trial Balance.
Note: Since the company started in December 1, 2014, the beginning balance of the capital account is
zero. In the second year of operations, an amount would already be shown in the capital's beginning
balance.
$
0
13,200
Tip: You may need to refer to the journal to find out how much contributions were made by the owner.
Other sources of information may also be used such as a log of owner's capital contributions.
$
0
13,200
1,060
$
0
13,200
1,060
$
0
13,200
1,060
7,000
$ 7,260
Conclusion
So there you have the preparation of a Statement of Changes in Owner's Equity. It is a report that shows
the items that affect the capital or equity account. Simply, we are just presenting this formula in a formal
report:
Capital, ending = Capital, beg. + Additional Contributions + Net Income - Withdrawals
where: Net Income = Income - Expenses