Owner’s equity represents the value of your business after all its obligations have been met.
Your owner’s equity generally reflects the amount of capital the owner(s) has invested plus any profits the business generates that is in turn reinvested into your business.
This reinvested income is called retained earnings.
The statement of owner’s equity reports the changes in the owner equity for a specified period of time. It is also called a Retained Earnings Statement.
It is used by mostly larger businesses. Most small businesses report their retained earnings on their balance sheet.
If you do need to prepare one, it is usually prepared after the income statement because the net income or net loss for the period must be reported on this statement.
Similarly, it is prepared before the balance sheet, since the owner’s equity at the end of the period must be reported on the balance sheet.
Because of this, the statement of owner’s equity is often viewed as the connecting link between the income statement and balance sheet.
Here is an example of an Owner's Equity Statement:
Your Business Name
Statement of Owner's Equity
For Month Ended October 31, 20xx
Jane Smith, capital, October 1, 20xx
|Investment during the month||1,000.00|
|Withdrawals during the month||2,000.00|
|Jane Smith, capital, October 31, 20xx||$6,000.00|