Statement of Owner's Equity

This lesson presents the Statement of Owner's Equity (or Statement of Changes in Owner's Equity) along
with important points you need to know in preparing and understanding this report.
As we have learned in the previous lessons (if you have been following our tutorials), capital is affected
by four elements.
Capital is increased by owner contributions and income, and decreased by withdrawals and expenses.
The Statement of Owner's Equity, which is prepared for the sole proprietorship type of business, shows
the movement in capital as a result of those four elements.

Statement of Owner's Equity Example

Here is a sample Statement of Owner's Equity of a service type sole proprietorship business, Strauss
Printing Services. All amounts are assumed and simplified for illustration purposes.
Assume that the company started the year 2014 with $100,000 capital. During the year, the owner made
$10,000 additional contributions and $20,000 total withdrawals. The Statement of Owner's Equity would
look like this:

Strauss Printing Services

Statement of Owner's Equity
For the Year Ended December 31, 2014
Strauss, Capital
Add: Additional Contributions
Net Income
Total
Less: Strauss, Drawings
Strauss, Capital Dec. 31, 2014

$ 100,000
10,000
57,100
$ 167,100
20,000
$ 147,100

Explanation and Pointers

1. A Statement of Owner's Equity (SOE) shows the owner's capital at the start of the period, the changes
that affect capital, and the resulting capital at the end of the period. It is also known as "Statement of
Changes in Owner's Equity".
2. A typical SOE starts with a heading which consists of three lines. The first line shows the name of the
company; second the title of the report; and third the period covered.
3. The title of the report is Statement of Owner's Equity. This is used for sole proprietorships. For
partnerships, the title used is "Statement of Partners' Equity" and for corporations, "Statement of
Stockholders' Equity".

4. Notice that the third line is worded "For the Year Ended..." This means that the SOE presents information
for a specific span of time. In the above example, the period covers 1 year that ends on December 31,
2014. Hence, the amounts presented pertain to changes to owner's equity from January 1, 2014 to
December 31, 2014.
5. The capital account used in the illustration is Strauss, Capital.
6. Income increases capital. Expenses decrease it. Net income is equal to income minus expenses. Hence,
net income would increase the capital account. If expenses exceed income, there is a net loss. In such
case, net loss will decrease the capital account.
7. Notice that the net income above, $ 57,100, is the bottom-line amount in the company's Income
Statement.
8. Strauss, Drawings represents the total withdrawals made by the owner during the period. The owner
made $ 20,000 total drawings. This amount is deducted to get the capital balance.
9. The Statement of Owner's Equity example above shows that the company has$147,100 in capital as a
result of the following: $100,000 balance at the beginning of the year, plus $10,000 owner's contributions
during the year, plus $57,100 net income, and minus $20,000 withdrawals.
10. Good accounting form suggests that a single line is drawn every time an amount is computed (it signifies
that a mathematical operation has been completed). The bottom-line amount is double-ruled, i.e. $
147,100.