August 2015
Michael Langemeier, Associate Director, Center for Commercial Agriculture
This article is one of a series of financial management articles that examine financial statements and financial analysis. In this article, the components of a statement of owner’s equity are illustrated and described. This statement is used to reconcile beginning and ending owner’s equity. It is also helpful in determining whether increases in owner’s equity are due to increases in retained earnings and/or increases in asset values.
Table 1 contains an example of a market value balance sheet for a case farm in west central
Indiana in 2014. Beginning owner equity was $8,397,114. Owner equity increased to
$8,945,540 by the end of the year, an increase of $548,426. The statement of owner’s equity in table 2 reconciles the change in owner equity during 2014, and illustrates the relative importance of retained earnings and increases in land values to the increase in owner equity.
Ending owner equity in table 2 is derived using three sub-totals: beginning owner equity, the change in contributed capital and retained earnings, and the change in valuation equity. The change in contributed capital and retained earnings was $52,677, and was derived by subtracting family living withdrawals and income and self-employment taxes from net farm income. In years when net farm income is relatively low, this change if often negative. In other words, in these years, net farm income is not large enough to cover family living withdrawals and taxes.
The change in valuation equity was $495,750. This change was the result of increasing land values during 2014. Note that the ending owner equity figure of $8,945,541 in table 2 is equal to the corresponding balance sheet figure. If ending owner equity is not equal to the balance sheet figure, we would need to make sure that we have accurately recorded net farm income, owner withdrawals, asset valuation, and capital contributions.
Most businesses have a goal of increasing owner equity over time. As indicated above, the increase in owner equity can be separated into two categories: increases in retained earnings and increases in asset values. Most of the increase in owner equity for the case farm during 2014 was due to the increase in land values. Specifically, only 9.6 percent of the increase in owner equity was the result of an increase in retained earnings.
This article illustrated and described a statement of owner’s equity for a case farm in west central
Indiana. Other articles in the financial management series discuss the balance sheet, the income statement, the sources and uses of fund statements, and benchmarking.
© 2015 Purdue University Center for Commercial Agriculture | 1

Statement of Owner’s Equity
Table 1. Balance Sheet for White County Farms, 2014
August 2015
ASSETS:
Cash
Marketable   Securities
Accounts   Receivable
Fertilizer   and   Supplies
Investment   in   Growing   Crops
Crops   Held   for   Sale   and   Feed
Market   Livestock
TOTAL   CURRENT   ASSETS
(Add   Lines   1   through   7)
Breeding   Livestock
Machinery   and   Equipment
Buildings
Investments   in   Cooperatives
Land
TOTAL   NONCURRENT   ASSETS
(Add   Lines   9   through   13)
TOTAL   ASSETS
(Add   Lines   8   and   14)
LIABILITIES AND OWNER EQUITY:
Accounts   Payable
Taxes   Payable
Accrued   Expenses
Current   Portion:   Deferred   Taxes
Notes   Due   Within   One   Year
Current   Portion   of   Term   Debt
Accrued   Interest
TOTAL   CURRENT   LIABILITIES
(Add   Lines   16   through   22)
Noncurrent   Portion:   Deferred   Taxes
Noncurrent   Portion:   Notes   Payable
Noncurrent   Portion:   Real   Estate   Debt
TOTAL   NONCURRENT   LIABILITIES
(Add   Lines   24   through   26)
TOTAL   LIABILITIES
(Add   Lines   23   and   27)
OWNER   EQUITY
(Subtract   Line   28   from   Line   15)
TOTAL   LIABILITIES   AND   OWNER   EQUITY
(Add   Lines   28   and   29)
© 2015 Purdue University
(24)
(25)
(26)
(27)
(28)
(16)
(17)
(18)
(19)
(20)
(21)
(22)
(23)
(29)
(30)
(9)
(10)
(11)
(12)
(13)
(14)
(15)
(1)
(2)
(3)
(4)
(5)
(6)
(7)
(8)
500,000
27,653
22,734
0
0
0
0
550,387
0
210,687
541,517
752,204
1,302,591
8,397,114
9,699,705
Beginning Ending
1,189,121
0
0
65,072
0
804,075
0
2,058,268
0
812,374
112,813
0
6,716,250
7,641,437
9,699,705
1,356,008
0
0
63,231
0
719,499
0
2,138,738
0
761,188
107,172
0
7,212,000
8,080,360
10,219,098
Average
1,272,565
0
0
64,152
0
761,787
0
2,098,503
0
786,781
109,993
0
6,964,125
7,860,899
9,959,402
500,000
26,939
22,068
0
0
0
0
549,007
0
193,858
530,694
724,552
1,273,559
8,945,540
10,219,098
500,000
27,296
22,401
0
0
0
0
549,697
0
202,273
536,106
738,378
1,288,075
8,671,327
9,959,402
Center for Commercial Agriculture | 2

Statement of Owner’s Equity
Table 2. Statement of Owner's Equity for White County Farms, 2014.
Owner   Equity,   January   1
Change   in   Contributed   Capital   and   Retained   Earnings:
Net   Farm   Income
Family   Living   Withdrawals
Income   and   Self ‐ Employment   Taxes
Additions   of   Capital
Distributions   of   Capital
Total   Change   in   Contributed   Capital   and   Retained   Earnings
Change   in   the   Valuation   Equity
Machinery   and   Equipment
Buildings
Land
Total   Change   in   Valuation   Equity
Owner   Equity,   December   31
176,123
‐ 86,663
‐ 36,783
0
0
0
0
495,750
August 2015
8,397,114
52,677
495,750
8,945,541
© 2015 Purdue University Center for Commercial Agriculture | 3