The income statement could explain the change in the equity section of a balance sheet. However, there are likely to be some other explanations as well.
Here is a list of the items that would cause an increase in the total amount of a corporation’s stockholders’ equity:
- Positive net earnings or net income reported on the corporation’s income statement.
- Some positive Other Comprehensive Income items occurred but they are not to be reported on the income statement.
- Additional shares of stock were issued in exchange for cash or other assets.
- Donated capital was received.
Here is a list of items that could cause a decrease in the total amount of a corporation’s stockholders’ equity:
- Negative net earnings or a net loss reported on the corporation’s income statement.
- Some negative Other Comprehensive Income items occurred but they are not to be reported the income statement.
- The corporation declared cash dividends.
To see all of the explanations for the change in the equity section of a balance sheet, you should review the statement of stockholders’ equity. This financial statement should be issued along with a corporation’s balance sheet, income statement, and statement of cash flows.
