The Statement of Changes in Equity (also called the Statement of Retained Earnings or Statement of Shareholders’ Equity) shows how the components of owners’ equity change during a reporting period.
It bridges the Balance Sheet’s equity section between the beginning and end of the period, explaining movements caused by net income, dividends, share issues, and other adjustments.
Purpose
- Transparency: Explains why equity changed, not just the final balance.
- Accountability: Shows how management decisions (profits retained, dividends paid, shares issued or repurchased) affect owners’ value.
- Integration: Connects Net Income (from the Income Statement) and ending Equity (on the Balance Sheet).
Structure
- Opening Equity Balance
- The starting point from the previous Balance Sheet.
- Additions
- Net Income for the period (increases retained earnings).
- New share capital issued.
- Other comprehensive income (OCI) items like revaluation gains, foreign exchange differences.
- Deductions
- Dividends paid.
- Share buybacks.
- Losses or write-downs.
- Closing Equity Balance
- Equals opening balance + additions – deductions.
- Ties directly to the Balance Sheet.