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.
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.
The major sections of the capital statement are the heading, the beginning capital, capital contributed, net income or loss, withdrawals, the calculation of the increase or decrease to capital, and the resulting ending capital balance. The heading should contain the name of the company, the title of the statement, and the period covered by the statement.
Sample Capital Statement
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