Now that we've got our income statement complete for our GBD Fits company, it's time to create our second financial statement: the statement of stockholders' equity!
Statement of stockholders' equity explained
In essence...
The statement of stockholders' equity shows the changes to common stock and retained earnings (which make up equity).
Remember, common stock and retained earnings are the only two accounts that make up Equity..
Assets = Liabilities + Equity
...therefore showing the changes to those two accounts will give us a gauge on how much equity has changed over the month of March for our GBD Fits business.
How to create a statement of stockholders' equity
We're going to start by defining the beginning balances of the Common Stock and Retained Earnings accounts at the beginning of March.
Insert beginning balances
STATEMENT OF STOCKHOLDERS' EQUITY
| Common Stock | Retained Earnings | Total | |
|---|---|---|---|
| Beginning Balance (March 1, 2022) | ??? | ??? |
This step is the easiest to mess up...
Pull the beginning balances of Common Stock and Retained Earnings from the general ledger, not the pre-closing trial balance!
Based on our general ledger, we can see that these accounts had the following beginning balances...
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