Accounting: The Language of Business - Vol. 2 (Intermediate: Part 59)

Today brands are everything, and all kinds of products and services - from accounting firms to sneaker makers to restaurants - are figuring out how to transcend the narrow boundaries of their categories and become a brand surrounded by a Tommy Hilfiger-like buzz.

Tom Peters

Statements of Net Income and Comprehensive Income (Part N)

by

Charles Lamson

The Statement of Stockholders' Equity

The statement of stockholders' equity is a financial statement that summarizes the changes in stockholders' equity during a period and includes the following accounts:

1. Contributed capital account (e.g., common stock, preferred stock, and paid-in capital in excess of par) related to investments by owners

2. Retained earnings, including net income (loss) and distributions to owners

3. Accumulated other comprehensive income, also called reserves under IFRS (A later post discusses these accounts in detail.)

4. Treasury stock

5. Noncontrolling interests

Although the balance sheet reports the final balances in each of these accounts, the statement of stockholders' equity provides an analysis of the changes in these accounts for the year.

Stockholders' Equity Requirements

Although U.S. GAAP does not require a statement of stockholders equity, it is required by the SEC. Thus, U.S. non-public companies are not required to provide the statement of stockholders' equity with their financial statements. However, most non-public companies do include a statement of stockholders' equity on a voluntary basis.

 Statement of Stockholders' Equity Accounts

In general, changes in contributed capital accounts are related to additional investments by equity investors and purchases and disposals of treasury stock by the entity. the net income (or loss) of the entity along with dividend declarations result in changes to the entity's retained earnings. Items included in other comprehensive income close into accumulated other comprehensive income.

Exhibit 5.18 illustrates the equity components changed by net income, comprehensive income, and transactions with owners. Net income increases retained earnings whereas net losses and dividends decrease retained earnings. also, positive other comprehensive income will increase accumulated other comprehensive income, and negative other comprehensive income (loss) will decrease accumulated other comprehensive income.

Finally, share issuances and the sale of treasury shares increase contributed capital, while share repurchases decrease it. 

EXHIBIT 5.18 Income Transactions with Owners in the Statement of Stockholders' Equity

*GORDON, RAEDY, SANNELLA, 2019, INTERMEDIATE ACCOUNTING, 2ND ED., PP. 198,200*

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