[Q.21] Does the income statement explain the change in the equity section of a balance sheet?

The income statement could explain the change in the equity section of a balance sheet. However, there are likely to be some other explanations as well.

Here is a list of the items that would cause an increase in the total amount of a corporation’s stockholders’ equity:

1. Positive net earnings or net income reported on the corporation’s income statement.

2. Some positive Other Comprehensive income items occurred but they are not to be reported on the income statement.

3. Additional shares of stock were issued in exchange for cash or other assets.

4. Donated capital was received.

Here is a list of items that could cause a decrease in the total amount of a corporation’s stockholders’ equity:

1. Negative net earnings or a net loss reported on the corporation’s income statement.

2. Some negative Other Comprehensive Income items occurred but they are not to be reported the income statement.

3. The corporation declared cash dividends.

To see all of the explanations for the change in the equity section of a balance sheet, you should review the statement of stockholders’ equity. This financial statement should be issued along with a corporation’s balance sheet, income statement, and statement of cash flows.

Posted in: accounting,Q.21-30