In this article
You might like
No items found.
Spending made smarter
Easy-to-use cards, spend limits, approval flows, vendor payments —plus an average savings of 5%.1
4.8 Rating 4.8 rating
Error Message
No personal credit checks or founder guarantee.
Thank you! Your submission has been received!
Oops! Something went wrong while submitting the form.
Get fresh finance insights, monthly
Time and money-saving tips,
straight to your inbox
4.8 Rating 4.8 rating
Thanks for signing up
Oops! Something went wrong while submitting the form.
Table of contents

If you’re a small business or startup trying to attract investors, you will likely need to prepare and submit a retained earnings report, often referred to as a statement of owner’s equity. In this article, we’ll take a closer look at what a statement of owner’s equity includes, why it’s important, and how the report should be prepared. 

What is a statement of owner’s equity?

A statement of owner’s equity is a financial report that details changes in company equity over a specific accounting period and the total value of assets held by the company after deducting all liabilities. 

Generally speaking, owner’s equity is calculated by subtracting net loss and withdrawals from net income and capital contributions. When profits outweigh losses, the owner’s equity will be positive; when losses outweigh profits, the owner’s equity will be negative.

Owner’s equity statements are primarily used by privately held businesses, most commonly sole proprietorships or LLCs. Publicly traded corporations, on the other hand, will typically need to prepare a stockholder’s equity or shareholder’s equity statement, which reflects contributed capital and is a more complex financial statement that factors in components such as stock distributions and dividend payments.

Why would a business need a statement of owner’s equity?

Naturally, having insight into a business’s performance will be important to existing and potential lenders and investors. When a company takes a loss, the statement of owner’s equity serves to illustrate the cause of the loss, and helps investors determine if they can expect more losses in the future; when a company turns a profit, the statement reveals the cause of the profit and helps investors determine if that growth will be sustainable in the long term. 

For business owners, an owner’s equity statement can be an effective tool to understand changes in a company’s net worth and inform future decision-making. For example, if a business experiences a net loss, understanding when, where, and how those losses occurred can help to reveal what adjustments need to be made to reduce liabilities over the next accounting period. 

Four key components to a statement of owner’s equity 

For most small businesses and startups, a statement of owner's equity will be calculated using four key components:

Opening balance 

The opening or beginning equity balance is the total value of assets at the beginning of an accounting period, before adding income and subtracting liabilities. 

Net income/owner contributions 

Once the opening balance has been established, business owners must add net income, or the total profit after taxes and business expenses, in addition to owner contributions, or capital invested into the company during the accounting period. The result of this calculation represents the company’s total assets before subtracting liabilities.

Net loss/withdrawals 

After adding net income and owner contributions to the opening balance, business owners must then subtract all losses incurred for the accounting period, including owner withdrawals to cover business expenses. The result of this calculation represents the company’s total liabilities. 

Ending balance 

Once the above calculations have been made, the company’s total liabilities are subtracted from the total assets to reveal the ending equity balance or total retained earnings for the accounting period.

How to format an owner’s equity statement 

A statement of owner’s equity is most commonly prepared as a one-page report utilizing a fairly straightforward format. The first step will be to create the heading of the statement, which includes three components and should be presented as follows:

Following the statement heading will be a clear presentation of all relevant financial information in spreadsheet format, beginning with the opening balance, followed by the addition of assets, the subtraction of liabilities, and concluding with the ending equity balance. Here is an example of how these values might be presented in a statement of owner’s equity in which the ending balance is positive:

Importantly, to produce an accurate retained earnings report, you will need to be able to develop, analyze, and refer to other key financial statements, such as an income or profit and loss (P&L) statement

Financial statement checklist for startups

If you’re just getting started as a small business or startup, you will need to develop a team and processes around financial planning and analysis (FP&A), which will help to streamline the production of at least four key financial reporting statements. Here’s a brief look at three other statements you will need to prepare as your company gets off the ground: 

Income statement

An income statement, or profit and loss (P&L) statement, is a report detailing how much revenue your company earned (or lost) over a reporting period. In order to land on an accurate read of P&L, you will need to calculate based on a variety of other factors, including recurring costs and operating expenses. Income statements are critical because they get down to the bottom line of how well your business is currently performing in terms of revenue generation. Learn how to prepare an income statement here.

Statement of cash flows

Whereas an income statement reveals how much profit your company made over a period of time, a cash flow statement details changes to inflows and outflows of cash, revealing how cash is both generated and used across your organization. Typically, cash flow statements are broken down to address cash flow related to operating activities, investing activities, and financing activities, and can be useful for informing investors and lenders of how effective your company is at managing its budget.

Balance sheet

Prepared on a monthly or quarterly basis, a balance sheet is essentially a snapshot of the overall financial health of your business, as represented by total assets, liabilities, and the value of owner’s equity as represented in the equity accounts. In order for your finances to be truly “balanced,” the total assets should be equal to the combined value of liabilities and equity invested into the business. Beyond being important to investors, a balance sheet is an effective tool for business owners to evaluate their financial condition and determine how funds should (or shouldn’t) be allocated. 

Gain visibility into cash flow and spend with Ramp 

Preparing a statement of owner's equity requires optimal visibility into the movement of cash flow and how funds are being spent within your company. This can be challenging for businesses that still rely on outdated processes to track and manage their finances, and often results in an unnecessary strain on valuable resources.

To simplify this process, Ramp has created a single platform that brings cohesion to the full spectrum of accounting activities across an organization. Through the use of modernized, automated accounting and spend control tools, Ramp helps businesses obtain unparalleled visibility into cash flow and spend, dramatically reducing the time and effort it takes to produce key financial statements and reports. 

Businesses that previously spent weeks closing their books now do so in just over an hour using the Ramp platform. And beyond merely speeding up the process, our accounting automation software is designed to significantly reduce the possibility of human error, producing hyper-accurate calculations based on verified transactions and receipts, and updating balances in real-time. 

If you want to learn more about how Ramp can help you prepare key financial statements like a retained earnings report, click here to explore our accounting solutions and get started on the platform for free. 

Get started today.
Error Message
No personal credit checks or founder guarantee.
Thank you! Your submission has been received!
Oops! Something went wrong while submitting the form.
The Ramp team is comprised of subject matter experts who are dedicated to helping businesses of all sizes work smarter and faster.
Ramp is dedicated to helping businesses of all sizes make informed decisions. We adhere to strict editorial guidelines to ensure that our content meets and maintains our high standards.


How does the statement of owner’s equity help investors?

A statement of owner's equity helps investors understand the changes in equity value over an accounting period. Whether equity has increased or decreased during the given timeframe, the owner’s equity statement serves to illustrate the reason why the valuation has changed. 

What is the difference between owner’s equity and liabilities?

Liabilities are active debts that a business must ultimately pay off, and the owner’s equity is calculated by subtracting liabilities from the total value of assets owned by the company. In other words, liabilities are what a company owes, and owner’s equity is what the company owns after subtracting liabilities. 

What is the formula for the statement of owner’s equity?

While the actual calculations may be more or less complex depending on your business, the overall accounting equation can be expressed as Opening equity balance + net income/capital contributions - net loss/withdrawals = ending equity balance.

How Ramp helped Viking Well Service institute a more efficient expense management process

“Having the purchase order and bills all in one place just makes a whole lot more sense for the type of business that Viking’s doing, because you can simplify it down to a one-line-item type deal. That’s really important for control purposes, for visibility."
Chris Lowdermilk, Senior Controller, Viking Well Service

How Ramp Procurement helped NPHY simplify, save time, and improve transparency

“Before Ramp Procurement, requests could take up to a month. Now the process is complete in a matter of days, meaning we can get much needed supplies and focus on delivering care to our clients (teenagers in crisis) faster.”
Michelle LaBonney, Director of Finance & Operations, Nevada Partnership for Homeless Youth

How Alexandra Lozano Immigration Law prepared for scale with Ramp

"I used to have to call our card provider and sit on the phone for a couple hours a week, I don’t have to do that with Ramp.”
Wayne Robinson, CFO, Alexandra Lozano Immigration Law

How Ramp helped Smart City Apartment Locating save time, expedite month close, and grow sustainably

"Five to 15 hours each month of non-value-add activities are off my plate. I’m able to be a strategic advisor versus just a tactical manager when it comes to spend management.”
Dustin Walsted, VP Finance, Smart City Apartment Locating

How TaskHuman built their runway with Ramp

“I’ve pretty much seen or used everything that’s out there, everything does something Ramp does, but nothing does everything Ramp does.”
Matthew Ferguson, Controller, TaskHuman

How First Tee transformed its bookkeeping and saved time with PwC and Ramp

"The efficiency of using PwC Bookkeeping Connect, coupled with the Ramp platform, has probably been about 75% time savings. Instead of every hour I would have had to spend on bookkeeping, I’m probably having to spend maybe 10 or 15 minutes.”
Dan Burke, CEO, First Tee San Francisco

How Mix Talent cut costs, gained transparency, and improved efficiency with Ramp

"I use Ramp’s functionality to examine the contracts and understand whether we’re getting the best terms, as opposed to just trying to get the bill paid. Ramp has allowed us to project cash flow so much better."
Paul Streitenberger, Accounting & Finance Lead, Mix Talent

Time is money. Save both.

Powerful cards with unlimited 1.5% cashback
Error Message
No personal credit checks or founder guarantee.
Thank you! Your submission has been received!
Oops! Something went wrong while submitting the form.
No, thank you