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Statement of Changes in Equity

Objective 5
Here you are introduced to the preparation of the Statement of Changes in Equity and its use in providing insight into the changes in value of the investment by the Owners during the trading activities of the firm.

The Statement of Changes in Equity shows the effect of transactions that generate a profit or loss on the value of the Owner's Equity. The capital of the Owner is reduced when payments are made for expenses, such as staff salaries, general costs and office maintenance.

Conversely, when the firm receives payments for goods or services sold at prices above their purchasing cost they will increase the capital of the owner.

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