Statement of owner’s equity: Format, formula, and examples for startups
Understand the statement of owner’s equity for startups, with the formula, examples, and how it ties to the income statement, balance sheet, and cash flow.
Rho Editorial Team
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Key takeaways
The statement of owner’s equity shows how ownership value changes over a period and connects directly to your income statement, balance sheet, and cash flow statement.
Key parts include beginning equity, owner or capital contributions, net income or loss, withdrawals or distributions, retained earnings, and ending equity.
The basic formula is: beginning equity + contributions + net income − withdrawals/distributions = ending equity. Retained earnings carry profits forward into the next period.
Founders use this statement to track financial performance, plan reinvestment, and prepare for valuation, fundraising, or lending discussions.
Rho helps you automate equity tracking, keep retained earnings and contributions mapped to the right accounts, and export clean statements for any reporting period.
If you’re running a startup, you need a clear view of ownership value from one accounting period to the next, whether you’re the founder, CFO, or the person wrangling the books.
A statement of owner’s equity provides that view by starting with beginning equity, adding net income and owner contributions, subtracting withdrawals or distributions, and arriving at ending equity. The result ties directly to the income statement, balance sheet, and statement of cash flows, so financial statements speak the same language.
In this guide, we’ll explain the statement of owner’s equity, why it’s worth preparing regularly, how to build a clean schedule using a simple table or Excel template, and more.
We’ll also show where Rho fits, so equity accounts stay accurate and visible alongside the rest of your financial reporting.
What is the statement of owner’s equity?
A statement of owner’s equity is a short financial statement that shows how ownership value changes over an accounting period. The schedule starts with beginning equity, adds net income and owner contributions, subtracts withdrawals or distributions, and arrives at ending equity. Small businesses and sole proprietorships use this report to see how profit flows into retained earnings and how period activity affects equity accounts.
How the statement links to other financial statements:
Net income comes from the income statement.
The updated equity balance appears on the balance sheet as total equity.
Capital contributions, distributions, and withdrawals align with the statement of cash flows.
Why does this reporting tool matter for startup financial health?
A statement of owner’s equity gives you a clear snapshot of ownership value for the period. It shows what changed and why by tying movements to net income, owner contributions, and withdrawals or distributions, then landing on ending equity. You see progress in one place instead of piecing it together across reports.
Make faster calls with better data
When the current equity balance is easy to see, decisions come into focus. You can weigh reinvestment against distributions, plan hires, and capital purchases with confidence, and evaluate external funding using numbers you trust.
Trends in retained earnings and other equity accounts show up early, which helps day-to-day execution and longer-range planning.
Give investors and lenders a clear read
Stakeholders want a clean view of financial health, net worth, and valuation. A reconciled rollforward from beginning equity to ending equity supports board materials and lender packages with numbers that tie out. That lowers the back-and-forth and keeps conversations focused on the plan, not the math.
Keep financial statements aligned
This statement connects directly to the income statement, balance sheet, and statement of cash flows, so the story matches across your financial statements.
Preparing your owner’s equity statement monthly or quarterly keeps equity changes current, supports valuation work, and surfaces issues before close. The result is a smoother close and better alignment with investors and lenders.
How this connects to other financial statements
The statement of owner’s equity sits between your core financial statements and keeps the numbers in sync each accounting period.
Net income from the income statement flows into the statement of owner’s equity and updates retained earnings for the period.
The ending equity balance rolls to the balance sheet under total equity and ties to total assets and total liabilities so the equation stays in balance.
Capital contributions, owner contributions, distributions, and withdrawals appear in the statement of cash flows as financing activity, showing cash movement behind equity changes.
Working capital items such as accounts payable affect cash from operations, while equity financing drives cash outflows in financing activities that change shareholders’ equity.
See our 3-statement financial model guide for a simple walkthrough of how the income statement, balance sheet, and statement of cash flows relate.
Statement of owner’s equity formula
At its core, the statement is a rollforward that explains how ownership value changed during the accounting period.
Formula
Beginning equity + owner contributions + net income − withdrawals or distributions = ending equity
What each line means
Beginning equity carries over from the prior period’s ending balance.
Owner contributions and capital contributions add new funding to equity accounts.
Net income (or net loss) from the income statement increases or decreases retained earnings.
Withdrawals or distributions reduce the owner’s equity for the period.
Ending equity becomes the equity balance on the balance sheet and the starting point for the next period.
Retained earnings note
For corporations, retained earnings often drive most of the movement in shareholders’ equity (stockholders’ equity).
The rollforward for that line typically reads as beginning retained earnings + net income − dividends = ending retained earnings.
This retained earnings ending balance then feeds total equity alongside common stock, additional paid in capital, preferred stock, and treasury stock.
Quick orientation example
A small business starts the quarter with beginning equity of $250,000. Owner contributions total $20,000. Net income is $35,000. Withdrawals are $15,000. Ending equity equals $290,000. That ending balance appears under total equity on the balance sheet and ties to the broader set of financial statements.
Line items and equity accounts to include
A clear statement of owner’s equity shows what changed during the accounting period and ends with a reconciled equity balance that rolls to the balance sheet.
Small business or partnership schedule
Line item | What to include |
Beginning equity | Ending balance from the prior period |
Owner contributions (capital contributions) | Cash or assets invested by owners. |
Net income or net loss | Amount from the income statement for the period; increases or reduces retained earnings |
Withdrawals or distributions | Cash or assets taken out by owners; reduce owner’s equity |
Ending equity | Reconciled equity balance that appears on the balance sheet and becomes next period’s beginning equity |
Corporate equity accounts
Account | What it represents |
Common stock (par value) | Par value of issued common shares |
Additional paid in capital | Amounts received above par value; part of contributed capital |
Preferred stock | Par value of issued preferred shares, if any |
Retained earnings | Cumulative net income kept in the business after dividends; part of shareholders’ equity (stockholders’ equity) |
Treasury stock | Repurchased shares recorded as a reduction to total equity |
Total equity | Contributed capital plus retained earnings minus treasury stock; ties to the balance sheet ending balance |
For a quick look at how net income flows into retained earnings and lands in the ending equity balance, see our statement of retained earnings guide.
Simple statement of owner’s equity table
You can present the rollforward in a simple table or mirror the same columns in Excel. For a clear walkthrough of headings and layout, see Understanding the Statement of Owner Equity from the University of Wisconsin Extension.
Keep the reconciliation in one view for each accounting period by starting with beginning equity, adding owner contributions and net income, and subtracting withdrawals or distributions. The result is an ending equity balance that ties to total equity on the balance sheet and aligns with the income statement and the statement of cash flows.
Owner’s equity rollforward, example period
Summary
Beginning balance | Additions | Subtractions | Ending equity |
$250,000 | $55,000 | $15,000 | $290,000 |
Line item detail
Line item | Amount |
Beginning equity | $250,000 |
Owner contributions | $20,000 |
Net income | $35,000 |
Withdrawals or distributions | ($15,000) |
Ending equity | $290,000 |
How to use this table
Link net income from the income statement to the rollforward.
Show withdrawals or distributions as subtractions and map the cash flow to financing activity.
Post the ending equity balance to total equity on the balance sheet and carry it forward as the next period’s beginning equity.
Keep sign conventions consistent so the reconciliation reads cleanly across your financial statements and in Excel.
Examples of a statement of owner’s equity
Use the same columns from your template, then apply the rollforward steps below. These examples make the format tangible and show how equity accounts move from beginning equity to ending equity over the accounting period.
Small business or startup example
For a small business or sole proprietorship, focus on owner activity and retained earnings. Use a simple rollforward.
Begin with the opening owner’s equity balance.
Add net income for the period, or subtract a net loss.
Add owner contributions and other capital contributions.
Subtract owner withdrawals or distributions.
Arrive at the ending owner’s equity, which rolls to total equity on the balance sheet.
Profit that stays in the business accumulates in retained earnings and increases the equity balance, while withdrawals reduce owners’ equity. For a quick refresher on how profit is carried forward from net income to ending equity, see our Statement of Retained Earnings guide.
Corporate equity example
Corporations present a multi-line shareholder’s equity section, which gives stakeholders a clearer read on sources and uses of capital. If you need a primer on the accounts and how they fit together, start with our shareholders’ equity guide.
What to include
Common stock and, if applicable, preferred stock.
Additional paid in capital for amounts received above par value.
Retained earnings as cumulative profit kept in the business after dividends.
Treasury stock for repurchased shares is recorded as a reduction to equity.
How the balance changes during the period
Issuances increase common stock and additional paid in capital.
Buybacks increase treasury stock, which reduces total equity.
Net income increases retained earnings, while dividends reduce retained earnings.
Reconcile beginning balances to ending total equity so the balance sheet ties to total assets and total liabilities.
This layout aligns with the accounting equation and helps readers connect equity movements to assets and liabilities. For context, review this expanded accounting equation overview.
Manage equity reporting with Rho
Ready to simplify how you manage equity and keep your financials aligned?
With Rho, you get more than just owner’s equity templates—you get a full financial operating system built for startups and growing businesses:
One platform for banking, corporate cards, AP automation, and cash management—so you can track equity changes alongside every transaction.
Built‑in tools like advanced mapping rules and seamless integrations (e.g., Xero, Campfire) to automate accuracy and close the books faster.
Enterprise‑grade controls, real‑time dashboards, and dedicated support so you can focus on strategy—not spreadsheets.
Take control of your equity reporting, automate the busywork, and show investors and stakeholders clean, trustworthy results—without the manual headache.
FAQs
What is the difference between owner’s equity and net worth?
Owner’s equity equals total assets minus total liabilities on the balance sheet. Net worth is the same as owner’s equity for a small business, while corporations present shareholders’ equity (stockholders’ equity) made up of common stock, additional paid in capital, retained earnings, and treasury stock. The equity balance reflects book value, not market value.
When should a team prepare the statement of owner’s equity?
Prepare the statement monthly or quarterly for each accounting period and for the year ended. The rollforward from beginning equity to ending equity should tie to net income on the income statement and to financing activity on the statement of cash flows.
How are distributions and withdrawals treated in retained earnings?
For sole proprietorships and partnerships, withdrawals reduce owners’ equity directly. For corporations, dividends reduce retained earnings. The cash movement appears as financing activity on the statement of cash flows.
Is this required for sole proprietorships, LLCs, or only corporations?
Sole proprietorships and partnerships use a statement of owner’s equity, LLCs use members’ equity, and corporations use a statement of shareholders’ equity. Even when not required, investors and lenders expect a reconciled ending balance.