The Capital Statement
The capital statement serves as the bridge between the income statement and balance sheet.
It uses the net income/loss from the income statement in addition to the owner’s investments and withdrawal to determine the Owner’s Ending Capital balance shown on the balance sheet.
Let’s illustrate this statement with a simple equation.
Ending Owner’s Equity = Beginning Equity + Additional Capital Contributed + Profit or – Loss – Draws
|For The Period Ending December 31, xxxx|
|Beginning of Period Capital||$7,500|
|Decrease In Capital||280|
|End of Period Capital||$7,220|
How The Balance Sheet, Income Statement, and Capital Statement Are Related.
If you compare the owner’s equity (owner’s claim to assets) for two year end balance sheets, the difference (increase or decrease) is explained by the Income Statement and Capital Statement. Remember, revenues increase equity; capital contributed to the business increases equity; expenses decrease equity; and owner’s draws decrease equity.
Onward to the Balance Sheet- a picture of the financial condition
of a businees at a specific date.