Statement of stockholders’ equity

Definition

The statement of stockholders' equity is a financial report that summarizes the changes in equity for a corporation over a specific period. It includes details on common stock, retained earnings, dividends, and other components of equity.

5 Must Know Facts For Your Next Test

1. The statement of stockholders' equity shows changes in equity accounts such as common stock, additional paid-in capital, retained earnings, and treasury stock.
2. Retained earnings are part of the statement and represent the cumulative net income minus any dividends paid to shareholders.
3. Dividends declared and paid are subtracted from the retained earnings section of the statement.
4. It provides insight into how profits are being reinvested in the company or distributed to shareholders.
5. This financial statement is essential for understanding how a company's activities affect its overall financial position.

Review Questions

• What major components are included in the statement of stockholders' equity?
• How do dividends impact the retained earnings portion of the statement?
• Why is the statement of stockholders' equity important for investors?

Related terms

Common Stock: Represents ownership shares in a corporation that provide voting rights and dividends.

Retained Earnings: Accumulated net income kept by a corporation for reinvestment rather than being paid out as dividends.

Dividends: Payments made to shareholders from a corporation's profits, reducing retained earnings.