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Many business financial reports include a fourth financial statement — or at least it’s called a “statement.” It’s really a summary of the changes in the constituent elements of owners’ equity (stockholders’ equity of a corporation). The corporation is one basic type of legal structure that businesses use. In Chapter 5, we explain the alternative legal structures available for conducting business operations. We don’t show a statement of changes in owners’ equity here. We show an example in Chapter 9, in which we explain the preparation of a financial report for release.

When a business has a complex owner’s equity structure, a separate summary of changes in the components of owners’ equity during the period is useful for the owners, the board of directors, and the top-level managers. On the other hand, in some cases, the only changes in owners’ equity during the period were earning profit and distributing part of the cash flow from profit to owners. In this situation, there isn’t much need for a summary of changes in owners’ equity. The financial statement reader can easily find profit in the income statement and cash distributions from profit (if any) in the statement of cash flows. For details, see the later section “Why no (or limited) cash distribution from profit?”