Statement of changes in equity
Also known as: statement of stockholders' equity, statement of owners' equity
A statement of changes in equity is a financial statement that reconciles the opening and closing balances of each component of owners' equity for a period, showing the effects of profit, dividends, share issuances, and other equity movements.
The statement of changes in equity is one of the primary financial statements. It explains how each component of owners' equity moved from the beginning of the period to the end — covering share capital, share premium (additional paid-in capital), retained earnings, and reserves such as accumulated other comprehensive income.
The statement is built as a reconciliation. For each equity component, it starts with the opening balance and adds or subtracts the period's activity: net income (or loss) flows into retained earnings, dividends declared reduce retained earnings, new share issuances increase share capital and share premium, treasury share repurchases reduce equity, and items of other comprehensive income — such as revaluation gains or foreign currency translation adjustments — move through their own reserves.
The statement matters because neither the balance sheet nor the income statement tells the full equity story on its own. The balance sheet shows only ending balances, and the income statement stops at net income. The statement of changes in equity bridges the two, letting readers see whether equity grew because the business was profitable or simply because owners contributed more capital — and how much of the profit was paid out rather than retained.
The CMA Part 1 exam tests the statement of changes in equity within its external financial reporting section, and the ACCA Financial Accounting (FA) exam requires candidates to prepare one from trial balance data. Know which transactions affect which equity component, and remember that dividends appear here — not on the income statement.
Key takeaways
- The statement reconciles opening and closing balances of every equity component for the period.
- Net income increases retained earnings, while dividends declared reduce them.
- Share issuances, buybacks, and other comprehensive income items also flow through the statement.
- Dividends are reported in the statement of changes in equity, not on the income statement.
- CMA Part 1 and ACCA FA both test preparing and interpreting this statement.