Blog · Finance metrics and formulas
Reconcile beginning owner capital, contributions, net income, and distributions to ending equity. Follow a book-capital example for a US LLC, identify the export rows, and prove the result against the balance sheet.
The capital statement formula is beginning capital + owner contributions + net income - distributions = ending capital. It explains how the owner's book equity changed over a reporting period. Use a negative amount for a net loss, and add separate lines for other approved direct equity adjustments when they exist.
This article uses the book capital of a single-member US LLC. It is an owner-equity rollforward for management reporting, with no other direct equity adjustments in the worked period. It is not a computation of the member's tax basis or the market value of the business.
Ending book capital = Beginning book capital + Contributions + Net income - Distributions
Change in capital = Contributions + Net income - Distributions
The OpenStax financial accounting text presents this same owner-equity structure: beginning balance, investments, income or loss, and distributions. Net income comes from the income statement; ending capital carries into the balance sheet.
Capital here means the owner's residual book interest. It is different from working capital, which compares current assets and current liabilities, and from a capital budget, which organizes planned investment spending. Buying equipment with existing business cash generally changes the asset mix without being a new owner contribution.
Use one reporting entity, accounting basis, currency, and period. For the quarter ended September 30, 2026, begin with the capital balance at June 30, after the preceding period's close.
The export needs transaction date, account number, account name, debit, credit, journal reference, owner identifier, and a classification. Retain references for noncash contributions and distributions as well as bank payments.
| Input | Record to use | Check before including it |
|---|---|---|
| Beginning capital | Prior closing trial balance | Agrees to prior ending equity |
| Contributions | Capital-account journal detail | Separates owner investment from loans |
| Net income | Final period income statement | Uses the same entity and dates |
| Distributions | Owner-distribution journal detail | Excludes repayments of owner loans |
| Other direct equity adjustments | Approved equity journals | Shown separately, with explanations |
| Ending equity | Current balance-sheet accounts | Independent total for the final tie |
A transfer from the owner is not automatically capital. Use the recorded substance and supporting documentation: an owner loan increases a liability, whereas an equity contribution increases capital. Resolve ambiguous entries before calculating the statement.
The LLC provides industrial maintenance services. Its finalized quarterly P&L contains these amounts; the final row supplies the rollforward's earnings input.
| P&L line | Amount (USD) | Calculation |
|---|---|---|
| Revenue | 1,100,000 | Supplied ledger total |
| Cost of services | 600,000 | Supplied expense total |
| Operating expenses | 280,000 | Supplied expense total |
| Other expenses, net | 40,000 | Supplied expense total |
| Net income | 180,000 | 1,100,000 - 600,000 - 280,000 - 40,000 |
Use the final bottom line, including every expense the entity recognizes under its reporting basis. Do not substitute revenue, operating profit, or cash receipts. The profit and loss statement example covers that statement in more depth; the capital statement takes its completed result as an input.
The opening balance is $1,200,000. During the quarter, the owner contributes cash and equipment and receives two cash distributions. The equipment contribution uses the approved $30,000 amount already recorded in the books; the rollforward does not determine its valuation.
| Capital movement | Increase or decrease (USD) | Running capital (USD) |
|---|---|---|
| Beginning capital, July 1, 2026 | 1,200,000 | 1,200,000 |
| Cash contribution | 120,000 | 1,320,000 |
| Recorded equipment contribution | 30,000 | 1,350,000 |
| Quarterly net income | 180,000 | 1,530,000 |
| First cash distribution | -60,000 | 1,470,000 |
| Second cash distribution | -30,000 | 1,440,000 |
| Ending capital, September 30, 2026 | 1,440,000 |
Contributions total 120,000 + 30,000 = $150,000. Distributions total 60,000 + 30,000 = $90,000. Therefore:
Ending capital = 1,200,000 + 150,000 + 180,000 - 90,000 = $1,440,000
Capital increased by 1,440,000 - 1,200,000 = $240,000. The movement also equals 150,000 + 180,000 - 90,000, proving the change independently of the running-balance column. Dollar amounts are shown without rounding in this example.
For a compact spreadsheet, place beginning capital in B2, total contributions in B3, signed net income in B4, and distributions as a positive input in B5:
=B2+B3+B4-B5
If you instead import distributions as negative values, add those signed values. Choose one convention and label it; subtracting a negative distribution would increase capital incorrectly.
An independent balance-sheet export gives these closing balances:
| Balance-sheet line | Amount (USD) |
|---|---|
| Cash | 500,000 |
| Accounts receivable, net | 700,000 |
| Inventory | 400,000 |
| Equipment, net | 320,000 |
| Total assets | 1,920,000 |
| Accounts payable | 300,000 |
| Bank debt | 180,000 |
| Total liabilities | 480,000 |
| Assets minus liabilities | 1,440,000 |
The closing equity check is 1,920,000 - 480,000 = $1,440,000, matching the capital statement. The reconciliation difference must be zero. A nonzero difference is an investigation item, not an unnamed contribution added to make the statement balance.
For a corporation, preserve the individual equity accounts. OpenStax's discussion of stockholders' equity distinguishes contributed capital from earned capital and describes separate equity columns. Share issuances, dividends, treasury-stock transactions, and other applicable movements need their own treatment. For an LLC with multiple members, reconcile each member's supplied allocation and then the company total.
Bring your owner-capital schedule, income statement, and opening and closing ledger totals to Covirage. Covirage maps the columns; its tools compute and check the rollforward and balance-sheet tie, while the external AI model explains the result with every figure traced to its rows. Create a free Covirage account in about a minute, then set up your business and bring a sample of your own data.
See FP&A reporting for the wider reporting context.
No. Ending capital is the owner's book equity after liabilities are deducted from assets. It can be represented by cash, receivables, inventory, or equipment. A profitable business can increase capital without increasing its bank balance.
Owner distributions reduce equity rather than operating profit. Keep them out of the expense lines used to calculate net income. Separately classify any payment that is actually compensation, reimbursement, or loan repayment according to the approved accounting records.
Use the loss as a negative net-income amount in the rollforward. It reduces capital before distributions are considered. Do not add a negative loss and then subtract it again on a separate line.
The same beginning-to-ending logic applies, but corporate equity usually needs separate columns for share capital, additional paid-in capital, retained earnings, and other equity accounts. Include the relevant transactions rather than forcing everything into one owner-capital account.