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Simple English definitions for legal terms
statement of change in equity
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A quick definition of statement of change in equity:
A statement of change in equity is a financial statement that shows how a business owner's investment in the company has changed over a certain period of time. It includes information about the company's profits or losses, any money paid out to shareholders as dividends, any money taken out of the company by the owner, and any changes in accounting policies. It also shows how much money the company has saved up over time.
A more thorough explanation:
A statement of change in equity, also known as a statement of retained earnings, is a financial statement that shows how a company's owners' equity has changed over a specific period of time. It includes the following elements:
- Net profit or loss
- Dividend payments
- Equity withdrawals
- Effect of accounting policy changes
- Effects of prior accounting period corrections
- Accumulated reserves and retained earnings
For example, let's say a company had a net profit of $100,000 for the year. They paid out $20,000 in dividends to shareholders and withdrew $10,000 from their equity. They also made a change to their accounting policy that resulted in a $5,000 adjustment. The statement of change in equity would show these changes and the resulting increase or decrease in the company's retained earnings.
The statement of change in equity is important because it helps investors and stakeholders understand how a company's equity has changed over time and what factors have contributed to those changes.