How to Adjust an Income Statement for an Equity Issuance
Original post by Lee Nichols of Demand Media
Although businesses typically report issuance of equity on the statement of owner's equity and the balance sheet, the owner may include the capital changes on his income statement if the issuance results in capital gains or losses to the company. An income statement is a snapshot of the business's net income for a given period. If the company sells stock or shares in itself to finance its operations, the company has a capital gain or loss. You can reflect this change using your income statement.
Inspect your company's current income statement to determine whether the equity issuance resulted in a net income gain or loss. If net income increased after the issuance, you gained income. If it decreased, you lost income.
Adjust the revenue or expense section of your income statement to reflect the issuance. For example, if you made money by selling stock, add a line to the revenue section. Title the line "Equity Issuance Income," and include the amount of revenue from the sale.
Increase or decrease your net income by the amount of change. For example, if the issuance resulted in revenue of $30,000, increase your net income by $30,000.
Include a statement on your income statement explaining the reason for the adjustment and its date.
Tips & Warnings
- If you adjust your income statement, you must also adjust your ledger and balance sheet to reflect the cause of the income change.
- University of Georgia Terry College of Business: How to Read a Financial Statement
- QuickMBA: The Four Financial Statements
About the Author
Lee Nichols began writing in 2002 and now contributes to various websites. Nichols holds a Bachelor of Arts in Web and graphic design and a Bachelor of Science in business administration from the University of Mississippi. She is currently working on becoming a Deaconess with the United Methodist Church.