Introduction to Financial Reporting

1. Chapter 6
Owner’s Equity

2. • The statement of owner’s equity, the second
financial statement created by accountants,
• It summarizes changes in the owner’s capital
account as a result of business transactions
during the period.
• It shows how the equity (or value) of the
organization has changed over time.
Statement of Owner’s Equity
Assets – Liabilities = Owner’s Equity

3. • Equity is the difference between assets and
liabilities as shown on a balance sheet.
• In other words, equity represents the portion of
assets that are fully owned by the owners
(stockholders, partners, or proprietor) of a
business.
• Similar to the income statement, the statement of
owner’s equity is for a specific period of time.
Statement of Owner’s Equity

4. Statement of Owner’s Equity
Owner’s
withdrawals
Expenses
Decreased by
Increased by
Owner’s
investments
Revenues
• Increase and decrease in the Owner’s Equity
occurs in the following two cases:

5. • Information needed to prepare the statement of
changes in owner’s equity:
1. The income statement
2. The owner’s capital account General-Ledger
Statement of Owner’s Equity

6. Steps for completing:
1. Write Beginning Capital & enter the balance of the capital account
2. Write Add (increases to the capital account)
a. Investment by Owner
b. Net Income
3. Will get Subtotal
4. Write Less (Withdrawal by Owner)
5. We get Ending Capital Balance as on specific date
6
Statement of Owners' Equity
Beginning Balance, Jan 1, 2022 $ 125,000
Add: Investment by Owner 10,000
Net income 30,000 40,000
Subtotal 165,000
Less: Withdrawal by Owner (10,000)
Ending Balance 155,000
Statement of Owner’s Equity

7. Investments by owners: represent an exchange of
cash or other assets for which the investor is given an
ownership interest in the organization.
Distributions to owners: periodic rewards issued to the
owners in the form of cash or other assets. Distributions
to owners represent some of the value (equity) of the
organization.
Possible Changes to Owner’s Equity
Other than Net Income

8. Exercise:
Prepare a statement of owner’s equity for the
current year ended Dec 31, 2022.
• Beginning capital 800,000
• The owner invested an additional 500,000 in the
business
• During the year and withdrew cash of 50,000
for personal use.
• The business earned 100,000 as net income

9. ABC company
STATEMENT OF OWNER’S EQUITY
For the Year Ended Dec, 2022
Ahmad, capital, Jan 1, 2022 800,000
Add: investment by owner 500,000
Net income for the year 100,000 600,000
Subtotal 14,000,000
Less withdrawal (50,000)
Ahmad, capital, Dec 31, 2022 1,350,000