Table Of Contents
1 What is a Change in Capital Report?
2 Main Elements of a Capital Change Report
2.1 Understanding the report of changes in capital
3 Examples and Cases of a Change of Capital Report
3.1 Explanation and instructions for the above report
4 Why Is This Report So Important?
What is a Change in Capital Report?
A statement of changes in equity or a statement of changes in equity is a report that shows changes in owner’s or shareholder’s equity during an accounting period. Also called a statement of retained earnings, or a statement of owner’s equity, it details the movement of reserves that make up shareholder equity.
Equity or capital is the value of an asset minus the value of all liabilities on that asset. When you have equity in a home, for example, your equity is the difference between the market value of the home and the balance on your mortgage loan.
The statement of changes in the capital is important because it offers key information about the size of equity that cannot be found elsewhere in financial statements.
The general calculation structure of the report is to use the formula below:
Starting capital + Net income – Dividends +/- Other changes = Ending capital
Key Elements of a Capital Change Report
There are several elements to the statement of retained earnings or the statement of changes in equity. Since you are tracking equity movements, you should look at:
- Net profit or loss attributable to shareholders.
- Decrease or increase in share capital proposals.
- Dividend payments are made to shareholders.
- Any changes in accounting policies.
- Correction of previous period errors.
- Proceeds from the sale of shares
- Purchase of treasury shares
- Gains and losses are recognized directly in equity
- Effect of changes in fair value for certain assets
Understand capital change reports
To start creating this report, you first need to know the opening balance of the account as this represents the amount of stockholders’ equity reserves at the beginning of the reporting period.
It is important to understand that the opening balance is taken from the previous period’s statement of financial position, which means it is not adjusted. Any necessary or suggested adjustments will be presented separately in the statement of changes in equity; changes in accounting policies and correction of prior period errors.
Next, it is important to check and see if there has been a change in accounting policies. The effect of each change will be reported in the classification.
Any prior period errors that have affected equity should be recorded as an adjustment to the opening reserve, not the opening balance. This will allow the current period amounts to be reconciled, and traced to the previous period’s financial statements.
You will now see a restated balance, which is the amount of shareholder equity after any adjustments made due to the types of changes and corrections listed above.
Why is this Report So Important?
The statement of changes in capital is an important financial report because it allows analysts and internal and external stakeholders to see what factors caused changes in owner’s equity during the accounting period.
You can also find movements in shareholder reserves on the balance sheet. However, information detailing the equity reserves will be recorded separately in other financial statements.