Future Business Leaders of America (FBLA) Agribusiness Practice Test

What is the primary purpose of the statement of owner equity?

1. To reflect the company's market value

2. To show changes in owner's equity over a period

3. To summarize revenue and expenses

4. To document loan repayments

The correct answer is: To show changes in owner's equity over a period

The primary purpose of the statement of owner equity is to show changes in owner's equity over a given period. This statement tracks how the owner's interest in the business has changed due to various factors such as investments made by the owner, withdrawals taken by the owner, and the company's profits or losses during the period. This is a crucial financial statement because it provides insight into how the business is being funded and whether the owner's stake is increasing or decreasing. An increase in owner's equity indicates that the business is performing well and that the owner's value is growing, while a decrease might suggest losses or withdrawals that impact the owner's equity negatively. The other options focus on different areas of financial reporting: market value is represented in other financial statements rather than the statement of owner equity; summarizing revenue and expenses pertains to the income statement; and loan repayments are typically documented in cash flow statements or liabilities sections, not within the context of owner equity. Thus, showing the changes in owner's equity is the primary focus and purpose of this specific financial statement.