Certified Fraud Examiner Practice 2025 - Free Practice Questions and Study Guide

The statement of changes in owner's equity is indeed a connective document between income statements and balance sheets. This report outlines how the equity section of the balance sheet changes over a specific period, taking into account factors such as net income (derived from the income statement), dividends paid, and any additional investments or owner withdrawals.

By providing a bridge between the financial performance of a company (reflected in the income statement) and its financial position at a specific point in time (reflected in the balance sheet), this statement allows stakeholders to understand how profits, losses, and other changes affect the owner's equity. This understanding is crucial for evaluating the overall health and stability of the business.

The other options focus on different financial aspects. A document showing only liabilities does not capture the essence of owner's equity. A summary of cash inflows and outflows typically pertains to the cash flow statement, rather than owner's equity. A report solely on company profits lacks the context of how those profits impact the equity, thus not encompassing the complete purpose of the statement of changes in owner's equity.