Which document records changes in owners' equity from the end of one period to the end of the next?

Which document records changes in owners' equity from the end of one period to the end of the next?

• A. Statement of Owner's Equity
• B. Equity
• C. Liability
• D. Income Statement

Answer: (A)

When you want to see how owners’ equity changes from one period to the next, you use a statement that pulls together all items that affect that equity. The Statement of Owner’s Equity tracks exactly those changes: beginning equity, additional investments by the owner, net income (from the income statement), and withdrawals or drawings by the owner. Net income increases equity, while withdrawals decrease it. Beginning equity plus investments plus net income minus withdrawals equals ending equity, which then appears on the balance sheet. Other documents either show a snapshot of equity at a single date (the balance sheet) or report performance over the period (the income statement) but don’t consolidate the changes in owners’ equity over the period. That’s why this document is the best fit.

When you want to see how owners’ equity changes from one period to the next, you use a statement that pulls together all items that affect that equity. The Statement of Owner’s Equity tracks exactly those changes: beginning equity, additional investments by the owner, net income (from the income statement), and withdrawals or drawings by the owner. Net income increases equity, while withdrawals decrease it. Beginning equity plus investments plus net income minus withdrawals equals ending equity, which then appears on the balance sheet. Other documents either show a snapshot of equity at a single date (the balance sheet) or report performance over the period (the income statement) but don’t consolidate the changes in owners’ equity over the period. That’s why this document is the best fit.