TOPIC: STATEMENT OF CHANGES IN EQUITY (SCE)

STATEMENT OF CHANGES IN EQUITY

– All changes, whether increases or decreases to the owner’s interest on the company during the period are
reported here. This statement is prepared prior to preparation of the Statement of Financial Position to be
able to obtain the ending balance of the equity to be used in the SFP.

SINGLE/SOLE PROPRIETORSHIP
–An entity whose assets, liabilities, income and expenses are centered or owned by only one person
PARTNERSHIP – An entity whose assets, liabilities, income and expenses are centered or owned by two or
more persons.

CORPORATION
– An entity whose assets, liabilities, income and expenses are centered or owned by itself being a legally
separate entity from its owners. Owners are called shareholders or stockholders of the company.

Sample of SCE:

TERMS UNDER SCE:

Initial Investment – The very first investment of the owner to the company.

Additional Investment – Increases to owner’s equity by adding investments by the owner.

Withdrawals –Decreases to owner’s equity by withdrawing assets by the owner.

*Distribution of Income– When a company is organized as a corporation, owners (called

shareholders) do not decrease equity by way of withdrawal. Instead, the corporation distributes
the income to the shareholders based on the shares that they have (percentage of ownership of
the company)
Different parts of the Statement of Changes in Equity
 a. Heading
i. Name of the Company
ii. Name of the Statement
iii. Date of preparation (emphasis on the wording – “for the”)

b. Increases to Equity
i. Net income for the year
ii. Additional investment

c. Decreases to Equity
i. Net loss for the year
ii. Withdrawals by the owner

Statement of Changes in Equity of a Partnership and a Corporation

The Statement of Changes in Partners’ Equity is used by a partnerships instead of the Statement of Changes in
Owner’s Equity. The differences between the two are as follows:
a. Title – instead of owner’s, partners’ is used to denote that this is a partnership
b. There are two or more owners in a partnership thus, the changes in the capital account of each partner is
presented
c. The net income is divided between partners (not always equal. Based on the agreement. Example: 60:40,
40:60, etc.)

The Statement of Changes in Shareholders’ Equity is used by a corporation instead of the Statement of
Changes in Owner’s Equity. The differences between the two are as follows:
a. Title – instead of owner’s, shareholders’ is used to denote that this is a corporation
b. There are an unlimited number of shareholders but unlike the partnership, the names of the shareholders
are not indicated here. Instead, the corporation keeps an official list with the corporate secretary
c. The capital account is called share capital (just like owner’s being shareholders)
d. Instead of additional investment, share issuances (happens when shares are sold to shareholders) increases
the share capital of a corporation
e. Instead of withdrawals, distribution of net income to shareholders decreases the Capital of the corporation.
EXERCISE 5: Answer the following questions.
1. Which form of business organization puts the least risk on its owners?

2. Which form of business organization is owned by only one person?

3. Increases in owner’s equity without additional investment

4. Decreases to owner’s equity apart from net effect of revenues and expenses.

5. Beginning owner’s equity amounted to P 300,000. Net loss for the year totaled P 45,000. No additional
investments and withdrawals for the period. Compute for total increase in equity for the year.

6. Ending owner’s equity amounted to P70,000. Additional investments during the year amounted to P30,000.
Withdrawals totaled P50,000. Compute for the company’s net income for the year assuming beginning
equity is P10,000.

EXCERCISE6: Answer what is asked in the following questions:

1. Decreases in equity aside from withdrawals of the owners

2. A type of business that is owned by at least 2 persons.

3. Owner, Juan invested an initial capital amounting P50,000 in order to put up his janitorial services company.
During the first year of operations (2016), the company had a loss of P25,000. Because of this, Juan
invested additional capital amounting to P50,000 in 2017. In the second year (2017), the company had a
net income of P100,000 and Juan withdrew P10,000 for personal use. Compute for the ending capital
balance of Juan for the year 2017.

4. Owner Juana invested P100,000 to start her laundry business. During the first year of operations (2016), the
company had a net income of P15,000. Juana invested additional P100,000 to grow the business. In 2017,
the business earned P50,000. As of December 31, 2017, Juana’s capital balance is P200,000. How much is
Juana’s withdrawal?

5. In the Statement of Changes in Equity, the company had decreases in capital wherein income is distributed
to owners. Identify the kind of business.

6. The following balances were retrieved from the records of Juan’s Janitorial Services for the year ended
December 31, 2016:

Capital, January 1, 2016 P 500,000

Withdrawals 100,000
Additional Investments 50,000
Net Loss 45,000
Prepare the Statement of Changes in Equity