Plain definition
A statement of changes in equity explains how each component of owners' equity moved during a period. It typically reconciles opening balances, profit or loss, other comprehensive income, owner contributions, dividends or distributions, and transfers between reserves. It turns the ending equity figure on the balance sheet into a traceable story of what came from business performance and what came from owners.
Illustrative example
Monetary examples use Saudi riyals (SAR). The same principles apply in other currencies.
A company starts the year with retained earnings and share capital. It earns , shareholders contribute , and the company declares dividends. Ending equity is : opening + profit + contribution − dividend . The statement distinguishes a stronger business result from fresh funding.
| Opening equity | |
|---|---|
| Profit | |
| Shareholder contribution | |
| Dividend | |
| Closing equity |
The illustration is simplified; legal restrictions, reserve classifications, transactions with owners, and other comprehensive income can require separate presentation.
Why it matters
A rising equity total can come from profit, owner cash, or accounting movements. Without the bridge, an investor or founder may mistake a capital injection for operating success or miss distributions that have reduced funds available to the business.
Practical consequence
Maintain a component-by-component roll-forward tied to board approvals, share records, profit statements, and dividend evidence. Reconcile opening balances to the prior year, check that owner transactions are not reported as income or expenses, and explain unusual reserve movements. Use the statement to ask who funded the company and how much of the change is retained performance.