What Is the Statement of Changes in Owner’s Equity?
This report tracks how the owner’s interest in the business changes over a period of time. It
shows contributions, withdrawals, and retained earnings.
Think of it as the story of your stake in the business.
Why It Matters for Small Businesses
Equity isn’t just a number, it’s your investment, your returns, and your share of the profits. For small businesses, tracking owner’s equity:
● Highlights how much of the business you actually own.
● Shows whether profits are being reinvested or withdrawn.
● Keeps you aware of capital introduced or drawings made.
Breaking It Down
● Owner Contributions: Cash or assets introduced into the business.
● Withdrawals/Drawings: Money or assets taken out by the owner.
● Retained Earnings: Profits left in the business to fund growth.
● Equity Closing Balance: Your final ownership stake at period end.
Common Pitfalls
● Treating equity like a bank account.
● Withdrawing too much without tracking.
● Not separating business and personal funds.
No-Fluff Takeaway
Your equity is your skin in the game. Track it carefully to protect your investment.
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