Final answer:
To prepare a statement of owner's equity, begin with the starting capital, adjust for any owner investments and withdrawals, and incorporate the net income or loss from the income statement.
Step-by-step explanation:
The question is asking for assistance with preparing a statement of owner's equity, which is a financial document that shows the changes in the owner's equity over a specific period, typically derived from the adjusted trial balance. To write a statement of owner's equity, you start with the owner's capital at the beginning of the period, add net income (or subtract a net loss) as reported on the income statement, and then add or subtract any owner's contributions or withdrawals to come up with the ending capital balance. The adjusted trial balance is essential because it contains the up-to-date balances of all accounts that will be used to prepare the financial statements, including the equity accounts needed to report the starting capital and any additional investments or withdrawals.
Here's a step-by-step explanation:
- Determine the owner's capital at the beginning of the period, which is usually reported on the previous period's statement of owner's equity.
- Add any additional investments made by the owner during the period.
- Add net income or subtract net loss as reported on the income statement. This figure is taken from the revenue and expenses accounts on the adjusted trial balance.
- Subtract any withdrawals made by the owner during the period.
- The result is the owner's ending capital for the period which is reported on the statement of owner's equity.