What is the Statement of Changes in Equity?

The Statement of Changes in Equity explains changes in a company's equity over a period, showing effects of net income, other comprehensive income, owner contributions/distributions, and other changes.

What is the Statement of Changes in Equity?

The Statement of Changes in Equity (also called Statement of Changes in Owners' Equity or Equity Reconciliation Statement) is a financial statement that shows how a company's equity changed during an accounting period.

Purpose:

Explains changes in all equity accounts between balance sheet dates
Links the income statement with the balance sheet
Shows the impact of owner transactions and comprehensive income
Required under both IFRS and US GAAP for complete financial statements

Main Components Shown:

Beginning equity balance
Net income or loss for the period
Other comprehensive income items
Owner contributions (issuance of shares)
Owner distributions (dividends)
Ending equity balance

Key Elements and Structure

Standard Format:

Component	Description	Effect on Equity
Beginning Balance	Equity at start of period	Starting point
Net Income/Loss	From income statement	Increases/Decreases equity
Other Comprehensive Income	Items not in net income	Increases/Decreases equity
Issuance of Shares	New shares issued	Increases equity
Dividends	Distributions to owners	Decreases equity
Ending Balance	Equity at end of period	Final result

Example Statement:

Statement of Changes in Equity for Year Ended Dec 31, 2025
Common Stock, Beginning	$500,000
Add: New shares issued	$100,000
Common Stock, Ending	$600,000

Retained Earnings, Beginning	$1,000,000
Add: Net income	$300,000
Less: Dividends	($100,000)
Retained Earnings, Ending	$1,200,000

Total Equity, Ending	$1,800,000

How It Connects with Other Financial Statements

Relationship with Income Statement:

Net income from income statement flows into this statement
This statement shows what happened to the net income (retained or distributed)

Relationship with Balance Sheet:

Ending equity from this statement becomes equity on next balance sheet
Explains why equity changed between two balance sheets

Relationship with Cash Flow Statement:

Dividends paid shown in both statements
Share issuance affects both statements

Other Comprehensive Income Items:

Foreign currency translation adjustments
Unrealized gains/losses on available-for-sale investments
Pension liability adjustments
Cash flow hedge gains/losses
These bypass the income statement and go directly to equity

Important Notes:

This statement is required for complete financial reporting
Explains all equity changes not obvious from other statements
Helps users understand company's financing and distribution policies
Shows the difference between comprehensive income and net income
Must reconcile beginning and ending equity balances