THE STATEMENT OF OWNER EQUITY
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EXAMINES CHANGES IN OWNER EQUITY IN
THREE CATEGORIES:
1) RETAINED EARNINGS AND
CONTRIBUTED CAPITAL
2) PERSONAL NET WORTH
3) CHANGE IN VALUATION EQUITY
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AN IMPORTANT ASPECT OF UNDERSTANDING
THE FINANCIAL PROGRESS OF A BUSINESS IS
TO SEPARATE THE CHANGE IN EQUITY FROM
RETAINED EARNINGS FROM THE CHANGE IN
EQUITY FROM CHANGES IN THE MARKET
VALUE OF ASSETS.
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WITHDRAWALS OF NET INCOME OR RETAINED
EARNINGS FOR FAMILY LIVING AND PERSONAL
INVESTING ARE CRITICAL ITEMS IN
RECONCILING OWNER EQUITY.
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CHANGES IN OWNER EQUITY =
NET INCOME
MINUS WITHDRAWALS
PLUS (MINUS) CAPITAL ADDITIONS
(DISTRIBUTIONS)
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WITHDRAWALS REPRESENT ANY USE
OF NET INCOME OR BUSINESS CAPITAL
WHICH MAKES THAT INCOME OR
CAPITAL NO LONGER AVAILABLE FOR
BUSINESS USE.
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CHANGE IN PERSONAL NET WORTH IS A
SIMPLE COMPARISON OF BEGINNING
AND ENDING PERSONAL NET WORTH
FIGURES. ONLY EFFECTS THE MARKET
VALUE MEASURE OF OWNERS EQUITY.
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CHANGE IN VALUATION EQUITY
AFFECTS ONLY THE MARKET VALUE
OWNER EQUITY. VALUATION EQUITY IS
THE DIFFERENCE BETWEEN THE CASH
VALUATION NET WORTH AND THE
MARKET VALUATION NET WORTH.
STATEMENT OF CASH FLOWS
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THE STATEMENT OF CASH FLOWS FOCUSES ON
CASH FLOWS AND SEGREGATES THEM INTO
CASH FLOWS FROM OPERATING, INVESTING,
AND FINANCING ACTIVITIES.
OPERATING ACTIVITIES GENERALLY INVOLVE
PRODUCING AND DELIVERING GOODS AND
PROVIDING SERVICES.
INVESTING ACTIVITIES FOCUS ON CASH FLOWS
FROM THE PURCHASE AND SALE OF CAPITAL
ASSETS AND NON-FARM ASSETS.
FINANCING ACTIVITIES INCLUDE BORROWING
AND REPAYMENT OF LOANS.
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THE STATEMENT OF CASH FLOWS LINKS
TOGETHER CASH , ACCRUAL INCOME AND
BALANCE SHEET INFORMATION.