Income Statements » What Do I See on Statements of Changes in Owners’ Equity? » Learning Objectives and Key Take-aways
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What Do I See on Statements of
Changes in Owners’ Equity?
L E A R N I N G
O B J E C T I V E S
After completing this module you will be able to:
• Identify the purpose and structure of statements of changes in owners’
equity and some of the ways managers, investors, and others use them.
• Connect changes in balance sheets to statements of changes in owners’
equity, and apply these concepts to real companies’ reports.
• Apply a hierarchical approach to assessing changes in owners’ equity
using information on statements of changes in owners’ equity.
Key take-aways:
• As suggested by its name, and illustrated in figure 1, the statement of
changes in owners’ equity explains the changes in owners’ equity during
reporting periods.
• The beginning and ending balances for line items reported in the owners’
equity section of the balance sheet are reported in the statement of changes
in owners’ equity. Typically, balance-sheet line items or rows correspond to
columns in the statement of changes in owners’ equity.
• In figure 2, the owners’ equity change map demonstrates the hierarchical
nature of concepts reported in the statement of changes in owners’ equity.
At the highest level of this hierarchy, the change in owners’ equity has two
components: the net changes associated with transactions with owners and
other events that changed owners’ equity.
• The net change due to transactions with owners is further divided into two
components: contributions from owners, usually in exchange for stock,
and distributions to owners, usually in the form of cash dividends or stock
repurchases.
• Two balance sheet concepts were introduced in this module: Retained earnings is the net profits the company has accumulated since it started less the
accumulated distributions of earnings to owners in the form of dividends
or share repurchases. Thus, retained refers to earnings that have not been
distributed to owners. Reserves, also called surplus or accumulated other
comprehensive income, is other comprehensive income the company has
accumulated since it started.
You may customize this work, as long as you credit G. Peter & Carolyn R. Wilson and respect the Creative Commons
Attribution-Noncommercial-Share Alike United States license. © 1991–2011 NavAcc LLC.
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2
NAVIGATING ACCOUNTING®
Key terms:
• Owners’ equity - Owners’ claims on entity’s assets. Total owners’ equity is
the accounting or book value of the owners’ claims, which generally differs
from fair values. Also called stockholders’ equity or shareholders’ equity.
• Retained earnings - Net profits and losses (earnings) the company has
accumulated since it started less the accumulated distributions of earnings to owners in the form of dividends or share repurchases. Also called
Retained losses.
• Reserves - Other comprehensive income the company has accumulated
since it started. Also called surplus, accumulated other comprehensive
income, and other comprehensive income.
© 1991–2011 NavAcc LLC, G. Peter & Carolyn R. Wilson
3
KEY TAKE-AWAYS
Figure 1 Connecting Balance Sheets to Statements of Changes in Owners’ Equity
This figure demonstrates how balance sheets’ rows and statements of changes in owners’ equity’s columns are connected.
Connecting Bischoff’s Balance Sheet to its Statement of Change in Owners’ Equity
BISCHOFF GLOBAL SPORTSWEAR
STATEMENTS OF FINANCIAL POSITION
December 31, 2013 and December 31, 2012
(In Millions)
Assets
Current
Cash and cash equivalents
Accounts receivable, net
Inventories
Other current assets
Total current assets
Non-current
Property, plant, and equipment, net
Other non-current assets
Total non-current assets
Total assets
2013
2012
$31
84
158
229
502
$13
66
109
178
366
194
233
427
$929
175
199
374
$740
25
84
109
35
88
123
105
102
207
316
60
71
131
254
253
360
613
$929
214
272
486
$740
Liabilities and Stockholders' Equity
Liabilities
Current
Accounts payable
Other current liabilities
Total current liabilities
Non-current
Long-term borrowings
Other non-current liabilities
Total non-current liabilities
Total liabilities
Stockholders' equity
Share capital
Other stockholders' equity
Total stockholders' equity
Total liabilities and stockholders' equity
December 31, 2013 and December 31, 2012
2013
(In Millions)
Stockholders' equity
Share capital
Retained earnings
Reserves
Total stockholders' equity
Total liabilities and stockholders' equity
253
310
50
613
$940
2012
214
239
33
486
$746
Δ
39
71
17
127
$194
BISCHOFF GLOBAL SPORTSWEAR
STATEMENT OF CHANGES IN EQUITY
(In Millions)
December 31, 2011
Share
Capital
Retained
Earnings
Reserves
$180
$179
$16
Comprehensive income
Profit (loss)
Other comprehensive income
76
Common stock issued
Dividends declared
Other
December 31, 2012
Comprehensive income
Profit (loss)
Other comprehensive
v income
Total
Common stock issued
Dividends declared
Other
December 31, 2013
© 1991–2011 NavAcc LLC, G. Peter & Carolyn R. Wilson
76
24
7
(23)
27
$214
7
$239
(7)
$33
24
24
89
24
113
(7)
$50
10
(25)
36
$613
10
29
$253
(25)
7
$310
24
100
7
(23)
34
$486
89
89
$375
76
24
Total
Total
4
NAVIGATING ACCOUNTING®
Figure 2 Connecting Owners’ Equity Change (OEC) Map to Statement of Changes in Owners’ Equity
This figure
illustrates the hierarchical
nature of concepts
in the Map
statement
Connecting
the Owners’
Equityreported
Change
to of changes in owners’ equity.
the Statement of Changes in Owners’ Equity
Fiscal 2013 balance sheet change
A
Change
in
Assets
-
$189
L
Change
in
Liabilities
=
$62
OE
Change in
Owners'
Equity
$127
Transactions with owners during
the period that changed the
value of the net assets
Other events or circumstances
during the period that changed
the value of net assets
+
$14
Contributions
from owners
$39
-
$113
Distributions
to owners
Comprehensive
Income
$25
Change in
accounting policy
and restatements
+
$113
Net Profit
(Loss)
+
$89
$0
Other
Comprehensive
Income
$24
BISCHOFF GLOBAL SPORTSWEAR
STATEMENT OF CHANGES IN EQUITY
(In Millions)
December 31, 2011
Share
Capital
Retained
Earnings
Reserves
$180
$179
$16
Comprehensive income
Profit (loss)
Other comprehensive income
76
Common stock issued
Dividends declared
Other
December 31, 2012
Comprehensive income
Profit (loss)
Other comprehensive income
Total
Common stock issued
Dividends declared
Other
December 31, 2013
76
24
7
(23)
27
$214
7
$239
(7)
34
$486
24
24
89
24
113
(7)
$50
10
(25)
36
$613
10
29
$253
(25)
7
$310
24
100
7
(23)
$33
89
89
$375
76
24
Total
Total
© 1991–2011 NavAcc LLC, G. Peter & Carolyn R. Wilson
5
KEY TAKE-AWAYS
Figure 3 Connecting Owners’ Equity Change (OEC) Map to Statements
This demonstrates how balance sheets, income statements, and statements of changes in owners’ equity are connected.
Connecting Owners’ Equity Change Map to
Balance Sheets, Income Statements, and Statements of Changes in Owners’ Equity
OWNERS' EQUITY CHANGE MAP
A
-
Assets
$740
L
Liabilities
OE
A
Owners'
Equity
=
$254
$486
OE
L
-
Assets
=
Liabilities
$929
BISCHOFF GLOBAL SPORTSWEAR
STATEMENTS OF FINANCIAL POSITION
Owners'
Equity
$316
$613
December 31, 2013 and December 31, 2012
2013
fiscal year end
2012
fiscal year end
(In Millions)
One-year performance period
Fiscal 2013 balance sheet change
A
Change
in
Assets
-
$189
L
Change
in
Liabilities
$62
=
OE
Change in
Owners'
Equity
$127
Transactions with owners during
the period that changed the
value of the net assets
Other events or circumstances
during the period that changed
the value of net assets
+
$14
$113
Assets
Current
Cash and cash equivalents
Accounts receivable, net
Inventories
Other current assets
Total current assets
Non-current
Property, plant, and equipment, net
Other non-current assets
Total non-current assets
Total assets
2013
2012
$31
84
158
229
502
$13
66
109
178
366
194
233
427
$929
175
199
374
$740
25
84
109
35
88
123
105
102
207
316
60
71
131
254
253
360
613
$929
214
272
486
$740
Liabilities and Stockholders' Equity
Contributions
from owners
$39
-
Distributions
to owners
Comprehensive
Income
$25
$113
Net Profit
(Loss)
$0
Other
Comprehensive
Income
+
$89
Revenues
+
$24
-
Income
Gains
+
Change in
accounting policy
and restatements
-
Expenses
Ordinary
Expenses
-
Losses
Liabilities
Current
Accounts payable
Other current liabilities
Total current liabilities
Non-current
Long-term borrowings
Other non-current liabilities
Total non-current liabilities
Total liabilities
Stockholders' equity
Share capital
Other stockholders' equity
Total stockholders' equity
Total liabilities and stockholders' equity
BISCHOFF GLOBAL SPORTSWEAR
STATEMENT OF CHANGES IN EQUITY
BISCHOFF GLOBAL SPORTSWEAR
INCOME STATEMENT
For years ended December 31, 2012 and 2013
(In Millions)
Net revenues
Cost of goods sold
Gross profit
Selling, general, and administrative expenses
Other operating income and (expenses)
Operating profit
Other income and (expenses)
Profit before taxes
Income tax expense
Net profit (loss)
Other comprehensive income
Comprehensive income (loss)
2013
2012
$505
(253)
252
(124)
0
128
1
129
(40)
$89
24
$113
$440
(220)
220
(111)
0
109
1
110
(34)
$76
24
$100
(In Millions)
December 31, 2011
Retained
Earnings
Reserves
$180
$179
$16
Comprehensive income
Profit (loss)
Other comprehensive income
76
Comprehensive income
Profit (loss)
Other comprehensive
v income
Total
Common stock issued
76
24
7
(23)
27
$214
7
$239
(7)
$33
89
89
24
24
10
29
$253
(25)
7
$310
Total
$375
76
24
Total
Common stock issued
Dividends declared
Other
December 31, 2012
Dividends declared
Other
December 31, 2013
© 1991–2011 NavAcc LLC, G. Peter & Carolyn R. Wilson
Share
Capital
(7)
$50
24
100
7
(23)
34
$486
89
24
113
10
(25)
36
$613
6
NAVIGATING ACCOUNTING®
Figure 4 Accounting is not a spectator sport — it’s game time
This figure lists Scenic route menus for additional information.
Accounting is not a spectator sport – it’s game time
Tackle the
exercises
Check the
solutions
Identify
things you
don’t know
Take
corrective
actions
Seek additional
information
as needed
Scenic route menu
Scenic 1: Statement of changes in owners’ equity (SCOE)
• Goal
• Connect BS to SCOE
• Connect OEC map to SCOE
• Company disclosures
• Vodafone
• América Móvil
• AT&T
• Take-aways
© 1991–2011 NavAcc LLC, G. Peter & Carolyn R. Wilson