LEARNING STATION 2

STATEMENT OF OWNERS EQUITY

Steps in Preparing Statement of Owners
Equity

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 identified in
its long-tailed name: 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 this
example, the period covers 1 year
that ends on December 31, 2013.
Hence, the amounts presented in
the report are changes to owner's
equity / capital from January 1,
2013 to December 31, 2013.


5. The capital account used in the
illustration is Dela Cruz, 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, 571,000, is the bottom
line amount in the company's
Income Statement.

8. Dela Cruz, Drawing represents
the total withdrawals made by
the owner during the period. The
owner made $ 200,000 total
drawings. This decreases the
capital balance.

9. Good accounting form suggests
that a single line is drawn
everytime an amount is computed
(it signifies that a mathematical
operation has been completed).
The bottom-line amount is
double-ruled.