Lesson 4 - Statement of Changes in Equity

Statement of
Changes in Equity
Leynette Joy A. Lepaopao, CPA
Objectives 1. Discuss the different forms of business

organizations
2. Prepare a Statement of Changes in Equity for single/sole
proprietorship
01
Forms of Business Organizations
02
Introduction to the SCE
03
Formats of SCE based on the form of business
organization
Forms of
01
Business
Organizations
Forms of Business
Organizations
Sole
Proprietorship Partnership Corporation

Sole
Proprietorship
An entity whose assets, liabilities, income and expenses
are centered or owned by only one person.
Partnership
are centered or owned by two or more persons.
Corporation
are centered or owned by itself being a legally
separate entity from its owners.
Introduction to the
Statement
of
Changes in Equity
02
Statement of
Changes
in Equity
• Contains the changes to the owner’s interest on the
company during the period
• Prepared prior to preparation of the SFP to be able

to obtain the ending balance of the equity
Increases in the Company’s Equity
Additional
Initial
Investment positive result of the
very first investment of Investments company’s operations
the owner investments made after during the period
the initial investments
Net Income
Decreases in the Company’s Equity
Withdrawals Net Loss

owner takes money negative result of the
out of the company for company’s operations
personal use during the period
Parts of the SCE
Heading
• Name of the Company • Name of the Statement • Date of preparation
– “for the”
Increases to Equity
• Initial investment • Additional investments • Net Income for the period
Decreases to Equity
• Withdrawals
• Net Loss for the period
Formats
03 of the SCE
based on the forms of
business organization
Sole Proprietorship
LEARNING IS FUN COMPANY

STATEMENT OF CHANGES IN OWNER’S EQUITY
FOR THE YEAR ENDED DECEMBER 31, 2021
Owner, Capital, January 1, 2021 PhP 100,000

Add:
Net income for the year 2021 PhP 50,000
Additional investment 25,000 75,000
Sub-total PhP 175,000 Less: Withdrawals 30,000
Owner, Capital, December 31, 2021 PhP 145,000
Heading
Increases to
Equity
Decreases to
Equity
Partnership
title
instead of “owners’”, “partners”
is used to denote that the SCE
is for a partnership
the changes in the capital

two or more owners account of each partner
are separately presented.
in a partnership
net income is divided
between partners based on the agreement
between the partners.
division is not always equal;
Partnership LEARNING IS FUN

COMPANY
50,000 Additional investment 50,000 20,000 70,000
Heading
STATEMENT OF CHANGES IN PARTNERS’ EQUITY
Partner A Partner B Total

Owner, Capital, January 1, 2021 PhP 100,000 PhP Increases to Equity
150,000 PhP 250,000 Add:
Net income for the year 2021 PhP 25,000 PhP 25,000 PhP
Sub-total PhP 175,000 PhP 195,000 PhP 370,000 Less: 95,000 PhP 170,000
Withdrawals 100,000 100,000 200,000
Decreases to Equity
Owner, Capital, December 31, 2021 PhP 75,000 PhP
Corporation
title
unlimited number of shareholders not

instead of “owners”, indicated in the SCE;
“shareholders” is used to denote with the corporate secretary

that the SCE is for a corporation
corporation keeps an official list
account additional investment
“distribution of income”
“share issuances ”
“share capital” capital Decreases the share capital of
Increases the share capital of the corporation; similar to
the corporation; similar to withdrawals
Corporation LEARNING IS
FUN COMPANY
STATEMENT OF CHANGES IN SHAREHOLDERS’ EQUITY

Share Capital, January 1, 2021 PhP 1,000,000
Add:
Share Issuance 500,000 Net income for the year 2021 150,000 PhP 1,650,000
Sub-total
Less: Distribution of Income 100,000 Share Capital, December 31, 2021 PhP 1,550,000
Heading
Increases to
Equity
Decreases to
Equity
Exercises
Exercise 1
The statement of changes in equity would not show:

a. Revenues and expenses
b. The owner’s ending capital balance
c. The owner’s initial capital balance
d. The owner’s withdrawals for the period
A
Revenues and Expenses

- only the net income is shown in the SCE
Exercise 2
If the amount of profit for the current period is less than

the
amount of the owner’s withdrawals, there will be a(n)
a. Decrease in the Cash account

b. Decrease in the owner’s Capital account
c. Increase in liabilities on the balance sheet
d. Increase in the Cash account
e. Increase in the owner’s Capital account
B
Net effect would be a decrease in the

company’s equity
Exercise 3
Profit for the Jisoo’s Treasures is PhP 250,000 for the
current year.
The owner withdrew PhP 30,000 per month for personal
living
expenses. The owner’s capital account will show a
a. Net decrease of PhP 110,000

b. Net decrease of PhP 610,000
c. Net decrease of PhP 360,000
d. Net increase of PhP 110,000
e. Net
increase of PhP 610,000

A
Profit PhP 250,000

Withdrawals (360,000)
(110,000)
Exercise 4
Chief Hong invested an initial capital amounting to PhP
500,000 in order to put up his construction services
company. During the first
year of operations (2020), the company had a loss of PhP
150,000. In the same year, Chief Hong withdrew PhP
50,000 from the
company.
In the second year (2021), he made an additional investment

amounting to PhP 250,000. The company had a net income of PhP
75,000 and Chief Hong withdrew PhP 30,000 for personal use.
Compute for the ending capital balance of Chief Hong for the year
2021.
2020 (first year of

operations) solution
2021
Beginning capital PhP 300,000 Additional
Beginning capital PhP 0 Initial investment investment 250,000 Net income 75,000
500,000 Net loss (150,000)
Withdrawals (50,000) Ending capital PhP 300,000

Withdrawals (30,000) Ending capital PhP 595,000
Exercise 5
Ending owner’s equity amounted to PhP 85,000.

Additional investments
during the year amounted to PhP 50,000. Withdrawals totaled PhP 20,000.
Compute for the total company’s net income/loss for the year assuming
beginning equity is PhP 125,000.
solution
Beginning capital PhP 125,000
Additional investment 50,000
Net loss (squeeze) (70,000)
Withdrawals (20,000)
Ending capital PhP 85,000

Thanks!
Do you have any

questions?
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Statement of

Objectives 1. Discuss the different forms of business

Proprietorship Partnership Corporation

• Prepared prior to preparation of the SFP to be able

Withdrawals Net Loss

LEARNING IS FUN COMPANY

Owner, Capital, January 1, 2021 PhP 100,000

Sub-total PhP 175,000 Less: Withdrawals 30,000

Owner, Capital, December 31, 2021 PhP 145,000

the changes in the capital

Partnership LEARNING IS FUN

Partner A Partner B Total

unlimited number of shareholders not

“shareholders” is used to denote with the corporate secretary

STATEMENT OF CHANGES IN SHAREHOLDERS’ EQUITY

Share Capital, January 1, 2021 PhP 1,000,000

The statement of changes in equity would not show:

Revenues and Expenses

If the amount of profit for the current period is less than

a. Decrease in the Cash account

Net effect would be a decrease in the

a. Net decrease of PhP 110,000

increase of PhP 610,000

Profit PhP 250,000

In the second year (2021), he made an additional investment

2020 (first year of

Withdrawals (50,000) Ending capital PhP 300,000

Ending owner’s equity amounted to PhP 85,000.

Ending capital PhP 85,000

Do you have any

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