Stockholders purchase individual shares of stock in a corporation. They expect the value of their shares to grow in value and increase the stockholders’ investment. Corporations issue financial statements at the end of each period to each stockholder. These include the balance sheet, the income statement, the cash flow statement and the statement of stockholders’ equity. The statement of stockholder’s equity communicates the activities that occur within the company’s equity accounts. Investors review this statement to see how the company manages the resources contributed from stockholders. This financial statement details the activities which occur during the period along with the accounts affected.
1. Create a heading on a sheet of paper listing the company name, the title of the statement and the dates which the statement represents. Create five columns and label each column at the top. These headings are: Description, Common Stock, Paid in Capital, Retained Earnings and Total Stockholder’s Equity.
2. Write the words “Beginning Balance” in the first column on first line. Review the prior period statement of stockholders’ equity and locate the ending balances. Write these balances on the first line under the corresponding column heading.
3. Review each equity account. Highlight each action recorded during the year. List each action in the Description column.
4. Identify which accounts changed with each action. Write the dollar amount of change for each action in the appropriate column.
5. Write the words “Ending Balance” in the Description column of the last row. Add the total for each column and then add the total for each row.
- Use a spreadsheet program to automate the process. Create the template by entering the heading, column labels and standard actions in the Description column. Leave blank rows to add additional actions in the future. Enter formulas to add the rows and columns. Each period, copy the template over with a new name. Enter the new period data into the template.
- Verify your math by comparing the total of the last row and the total of the last column. These numbers must match.
- Some activities involving stockholders’ equity use more than one equity account. For example, the sale of stock uses both the common stock account and paid in capital. Make sure you include both amounts on the same line when you report the sale of stock.