Question

Which of the following statements best describes the statement of changes in equity?

	a.	It shows how much of net income is retained within the business.
	b.	It shows how much of net income flows to the balance sheet equity account.
	c.	For investor-owned businesses, it shows how much of net income is paid out as dividends.
	d.	Statements a and c are both correct.
	e.	Statements a, b, and c are all correct.

Answer 1

Answer:

Option e is Correct i.e. Statements a, b and c are correct.

Statement of Equity indicates change in equity due to Net Income earned and Dividend declared. Statement of change in equity could be due to the following reason which these effects:

1. Increases due to Net Income earned during the year which flows to Balance Sheet Equity account;
2. Decreases due to Dividend declared during the year;
3. Increases by the amount which has been retained in the business i.e. excess of Net Income over Dividend declared.