The financial statements are prepared directly from the adjusted trial balance.
After preparing the income statement we prepare the statement of owner's equity.
This follows the income statement because net income is also included on this statement as net income increases owner's equity.
So let's use the adjusted trial balance to complete this financial statement.
We use owner's capital and owner's withdrawal from the trial balance and put that in the statement of owner's equity.
Additionally, we will use net income from the income statement.
The statement of owner's equity has the company name, the name of a financial statement, and the date(s) of the period covered.
This date is done exactly like the income statement.
So the statement of owner's equity details the change in the owner's capital account for a period or range a time.
Owner's capital from the adjusted trial balance is listed first.
Then we list net income to increase owner's capital or net loss to decrease owner's capital.
Finally, we subtract owner's withdrawal which decreases owner's capital.
This gives us the ending owner's capital balance that will go on the balance sheet.