Statement of changes in equity


The statement of changes in equity (ECPN) is one of the accounting financial statements and reflects the movements that affect such equity (PN) during a fiscal year.

The statement of changes in equity is made up of a series of accounting entries that appear in a table and it shows the changes that occur in the company and that affect its equity. It has two parts, the statement of recognized income and expenses (EIyGR) and the total statement of changes in equity (ECPN).

How changes in equity are accounted for

The initial step is the annotations through the accounting entries. Thus, when an operation that affects your PN is carried out, it must be accounted for through a journal entry. At the end of the year this will be reflected first in the EIyGR and then in the ECPN.

The following images show the basic structure of both in a summarized way:

Example of statement of changes in equity

We are going to carry out a simple example, with little data. Let's imagine that the company has the following balances as of December 31, 2018:

  • Capital: € 10,000
  • Reservations: € 2,000
  • Profit for the 2018 financial year: € 5,000
  • Result for the year 2019: € ​​2,000
  • Subsidy in 2018 for a machine with a useful life of 10 years: € 10,000

In this way, as can be seen in figure 1, as of 12/31/2018 the collection of the subsidy is accounted for. As of 12/31/2018 this income is transferred to account 130. In turn, it is transferred to the profit and loss account based on the useful life of the machine (example 10 years). In this way, each year 1,000 euros are transferred to the company's results. Therefore, the balance of the 130, the first year, would be 10,000-1,000 = € 9,000.

Without going into details about the tax effect, once the movements have been accounted for, they are taken first to the EIyGR and then to the ECPN. In the EIyGR, in section A), we start from the results of each year (€ 5,000 in 2018 and € 2,000 in 2019).

Section B) is where the subsidy is recorded and section C), the part that is transferred each year to profit and loss as income. Finally, in the ECPN table we see that our PN was 27,000 in 2018 and, as we had a lower profit and transferring part of the subsidy to results, its balance in 2019 became 23,000 euros.

Figure 1: Example of ECPN

We can verify that this financial statement is useful to know the different movements that affect the net worth. Taking into account that this reflects the overall value of the company, that is, its assets minus its debts, it offers vital information to many users, for example investors.

Characteristics of the financial statements

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