What is equity?
Equity is the value of the business after deducting its liabilities from its assets.
Equity represents the total value the owner of the business would receive should the owner liquidate all its assets and pay off all its debts.
A statement of changes in equity is one of the four basic financial statements an entity prepares. This statement explains the changes in the entity’s share capital, accumulated earnings, and other reserves during a financial reporting period.
Changes in share capital could arise from the entity issuing more/ a new class of shares as per the amendment of the entity’s Memorandum of Incorporation.
Accumulated earnings, also known as retained profits, is the total amounts of profits that the entity has retained in the business.
Changes to this equity account often relate to the net profit or loss made during the reporting period and dividends paid out if any.
Other reserves are usually not available to be distributed as dividends to the owners.
Examples include share premium and revaluation reserves.