What is the Importance of Changes in Equity in Financial Statements ?

owners have invested in the business to maximize their wealth and they are interested in knowing how the business’ financial position and financial performance has affected their vested interest in the business. And this is not particularly catered neither by Statement of Financial Position nor Income Statement.

Hence the statement of Changes in Equity is important to get all such important information.

They Can now:

• How much is current profit.
• Hoe much is accumulated profit reserve.
• How much total capital is invested by owners/partners/stockholders.
• How much profit withdrawn.
• How much is Legal reserve or other reserve.
• How much is Authorised/issued/paid up Capital.

 

As per IAS1, the statement of changes in equity is one of the five components of complete financial statements counting income statement, balance sheet, statement of changes in equity, notes to financial statements, and cash flow statements. According to IAS, the statement must include:

I. profit or loss for the specific period

II. every item of income and expenditure for the period which is specified directly in the equity, and the sum of those items

III. total income and expense for the period specified (evaluated as the sum of (I) & (II)), representing individually the total amounts attributable to equity holders of minority interest besides the parent holder

 IV. for every component of equity, the effects of changes occurring in the accounting policies and rectification of errors in accord with IAS

 In addition to the aforesaid components, the following amounts might also be included in the statement of changes in equity:

 I. capital transactions with owners

 II. the balance of accumulated profits at the commencing and end of a specific period, as well as the movements for the period

 III. a squaring off between the carrying amount of each class of equity capital, share premium, and each reserve at closing stages of each period, thus disclosing each period.

 

Additional information for understanding what changes occurred in the equity, very important especially for shareholders.

the change of owners equity is the one of the financial statements, it's showing change of owners equity, net profit, change in capital, change in partners account, how much reserve, how much distribute, how much add to retain earning. best & regards

The statement is expected under the generally accepted accounting principles and explain the owners' equity shown on the balance sheet, where:

owners' equity = assets − liabilities

Thanks for invitation 

I agree with the answers given

It shows the changes in owners equity and the sources of these changes