Statement of Changes in

Equity (SCE)
OBJECTIVES:
IDENTIFY THE DIFFERENT FORMS OF BUSINESS
ORGANIZATION
DIFFERENTIATE THE FORMS OF BUSINESS
ORGANIZATION IN TERMS OF THEIR SCE
APPRECIATE THE IMPORTANCE OF PREPARING THE SCE
 Present terms:
1. Statement of Changes in Equity
2. Initial Investment
3. Additional Investment
4. Withdrawal or Distribution of Income
5. Capital
6. Drawing
REVIEW:
Information Advantage or Business
Disadvantage Organization
In the event of
bankruptcy,
business
creditors can
run after the
personal assets
of the owner(s)
 REVIEW:
Information Advantage or Business
Disadvantage Organization
Involvement of more
persons in the business:
hence, more sources of
expertise as compared
to the most simple
business organization
REVIEW:
Information Advantage or Business
Disadvantage Organization
Transferability
of ownership
Unlimited life
REVIEW:
Information Advantage or Business
Disadvantage Organization
Business
organization as
a juridical or
separate
person
REVIEW:
Information Advantage or Business
Disadvantage Organization
Corporate
existence of 50
years, renewable
Most limited
source of funding
REVIEW:
Information Advantage or Business
Disadvantage Organization
Most regulated
business
organization
Double
taxation
REVIEW:
Information Advantage or Business
Disadvantage Organization
Limited liability
Unlimited
Liability
REVIEW:
Information Advantage or Business
Disadvantage Organization
Limited liability
Unlimited
Liability
MOTIVATION:

“ The only permanent

thing in this world is
change”.
 STATEMENT OF CHANGES IN
EQUITY
► Allchanges, whether increases or
decreases to the owner’s interest on the
company during the period are reported
here.
► This statement is prepared to be able to
obtain the ending balance of the equity
to be used in the SFP.
 STATEMENT OF CHANGES IN
EQUITY
► Capital – is an account bearing the name
of the owner representing the original and
additional investment of the owner of the
business
► increased by the amount of net income
earned during the year
 STATEMENT OF CHANGES IN
EQUITY
► Capital –it is decreased by the cash or
other assets withdrawn by the owner as
well as the net loss incurred during the
year
 STATEMENT OF CHANGES IN
EQUITY
► Drawing – represents the withdrawals
made by the owner of the business either
in cash or other assets
 STATEMENT OF CHANGES IN
EQUITY
► Business Entity Concept
states that the transactions of the
business (as a separate entity) must
be distinguished and differentiated
from the transactions of the owners.
 Forms of Business Organization
► SINGLE/SOLE PROPRIETORSHIP
An entity whose assets,
liabilities, income and
expenses are centered or
owned by only one person
 SINGLE/SOLE PROPRIETORSHIP
ADVANTAGES DISADVANTAGES
• Relatively easy to • Limited source of
organize capital
• Proprietor’s unlimited
liability
• Business entity’s
limited existence
STATEMENT OF CHANGES IN
EQUITY
 STATEMENT OF CHANGES IN
EQUITY

Equity beginning
is the opening balance of the
owner’s equity account
is the ending balance of the
equity account in the previous year
 STATEMENT OF CHANGES IN
EQUITY

Initial Investment
the very first investment of the
owner to the company.
 STATEMENT OF CHANGES IN
EQUITY
Additional Investment
► Pertains to any capital infusion
made by the owner for the year.
► Increases to owner’s equity by
adding investments by the owner
 STATEMENT OF CHANGES IN
EQUITY
Net Income
► pertains to the amount earned by
the sole proprietorship for the year
► the amount is taken from the SCI
 STATEMENT OF CHANGES IN
EQUITY
Withdrawals
► Represents the owner’s return of
investment
► Decreases to owner’s equity by
withdrawing assets by the owner
 STATEMENT OF CHANGES IN
EQUITY
Equity ending
► Represents the balance of the
owner’s equity at the end of the year
► Decreases to owner’s equity by
withdrawing assets by the owner
STATEMENT OF CHANGES IN
EQUITY
 STATEMENT OF CHANGES IN
EQUITY
Florence Services is owned by Mr. Flo
Rence. The balance of Mr. Flo Rence’s
capital as of January 1, 2018 is P800,000.
During the year, he invested additional
P200,000 in the business. Also, Florence
Services earned P75,000 of net income.
Finally, he withdrew P50,000.
 Forms of Business Organization
► PARTNERSHIP
An entity whose assets,
liabilities, income and
expenses are centered or
owned by two or more persons
 Forms of Business Organization
► PARTNERSHIP
- owners are called “partners”
- Articles of
partnership-agreement
-goal is to divide the profit
among themselves
 PARTNERSHIP
ADVANTAGES DISADVANTAGES
• Ease of organization • Unlimited liability
(contract may be oral • Limited existence
or in writing) • Mutual agency
• Larger source of
capital and
expertise
 Difference between Statement of Changes in
Partner’s Equity and Statement of Changes in
Owner’s Equity
1. Title
2. There are two or more owners in a
partnership thus, the changes in the capital
account of each partner is presented
3. The net income is divided between partners
(not always equal. Based on the
agreement.)
 Forms of Business Organization
► CORPORATION
An entity whose assets, liabilities,
income and expenses are centered
or owned by itself being a legally
separate entity from its owners.
 Forms of Business Organization
► CORPORATION
Artificial being created by operation
of law, having the right word of succession
and the powers, attributes and properties
expressly authorized by law or incident to
its existence.- Corporation Code of the
Philippines (1980)
 Forms of Business Organization
► CORPORATION
❑Articles of Incorporation
❑has a name and birth date
(incorporation date)
❑Chapter of ownership – stock
❑Represented by a stock certificate
❑Stockholders – owners of stocks
 Forms of Business Organization
► Stock Certificate
- is a piece of paper representing
the ownership of one stock of the
corporation.
- it has an amount on its face
called a par value
 Forms of Business Organization
► ParValue
- synonymous to the amount of the
money printed in Philippine bills.
- it signifies the amount of stock at
face value.
 Forms of Business Organization
► Authorized Capital
- is the maximum amount of stock
that a corporation can issue
► Subscribed Capital
- the amount of money for which
certain individuals have promised to pay
to the corporation for their ownership
 Forms of Business Organization
► Subscribed capital – the buyer usually makes a
down payment on purchasing a certain number of
shares and agrees to pay the remaining amount at
a later date
► Ex.If XYZ Company sells 10,000 common shares for
P10 each on a subscription basis that requires the
buyer to pay P3 per share when the contract is
signed and the remaining balance 2 months later.
 Forms of Business Organization
Corporation Code of the Philippines
- required that 25% of the authorized
capital must be subscribed
 Forms of Business Organization
Paid up capital
- refers to the portion of capital for which
the corresponding sum of money has been
received.
- 25% of the subscribed capital must be
paid up (Corp Code(1980))
 Forms of Business Organization
Paid up capital
- refers to the portion of capital for which
the corresponding sum of money has been
received.
- 25% of the subscribed capital must be
paid up (Corp Code(1980))
 Difference between Statement of Changes in
Owner’s Equity and Statement of Changes in
Shareholder’s Equity
Anna, Bea, Cathy, Delia, and Edith
want to put up a corporation. They
decide to have 100,000 shares as the
maximum shares to be issued by their
corporation. Furthermore, they include
a P10 par value for each share.
 CORPORATION
ADVANTAGES DISADVANTAGES
• Centralization of • Stringent requirements
management for registration
through the BOD • Subject to double
• Long existence taxation
(50 years subject • Subject to heavy
to renewal) government regulations
through the SEC
 CORPORATION

► AdditionalPaid-In Capital
shows the amount of money
received by the company from the
issuance of shares, in excess of par
value.
 CORPORATION

► Duringthe current year,

Basil Corporation issues
10,000 shares (P10 par) for
P11 pesos;
 CORPORATION

► Retained earnings
contains all the net income and
net loss incurred by the corporation
for the current and previous years.
 CORPORATION
Stockholders – owners of a
corporation
- Have the rights to vote, dividends,
and new stock issues
- Voting is proportional to the number
of shares held by the stockholder
 CORPORATION
Pre-emptive rights-right to new stock
issues
-refers to the preference given to
existing shareholders when it comes
to new issues of stocks.
 STATEMENT OF CHANGES IN
EQUITY
Point out the different parts of the SCE
 Activity Case I – Denmark Trading

► In2015, Den Mark, the owner of Denmark

Trading, has a beginning balance of
P504,000. During the year, Denmark
Trading earned a net income of P50,400.
Furthermore, Den Mark withdrew P37,800
from Denmark Trading for his personal
use.
 Activity Case 2 – Denmark Trading

► England Services is owned by Mr. R.A.L

Land. The beginning capital of Mr. Land
is P856,800. In 2015, he invested an
additional P63,750. During the year,
England Services incurred a net loss of
P85,680.
 Difference between Statement of Changes in
Partner’s Equity and Statement of Changes in
Shareholder’s Equity
1. Title
2. 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.
 Difference between Statement of Changes in
Owner’s Equity and Statement of Changes in
Shareholder’s Equity
3. The capital account is called share
capital (just like owner’s being
shareholders)
4. Instead of additional investment,
share issuances (happens when shares are
sold to shareholders) increases the share
capital of a corporation
 Difference between Statement of Changes in
Owner’s Equity and Statement of Changes in
Shareholder’s Equity
5. Instead of withdrawals,
distribution of net income to
shareholders decreases the
Capital of the corporation
 PRACTICE:
Which form of business
organization puts the least
risk on its owners?
 PRACTICE:
Which form of business
organization is owned by
only one person?
 PRACTICE:
Increases in owner’s
equity without additional
investment
 PRACTICE:
Decreases to owner’s
equity apart from net effect
of revenues and expenses.
 PRACTICE:
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.
 PRACTICE:
Holland Law Firm is owned by Atty. Hol
Land. The balance of his capital as of
Jan.1, 2018 is P1,800,000. During the year,
he invested additional cash of P450,000 in
the business. Also, Holland Law Firm
earned P168,750 of net income. Finally, he
withdrew P112,500.
 PRACTICE:
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.
 EVALUATION:
1-2 Decreases in equity aside from
withdrawals of the owners
 EVALUATION:
3-10 Differences of the 3
forms of business
organization in terms of SCE.
 EVALUATION:
Geneva Medical Clinic is owned by Dr. Gen
Eva. The balance of Dr. Gen Eva’s capital is
P400,000 as of Jan. 1, 2017. During the year, she
invested additional P100,000 in the business. Also,
Geneva Medical Clinic earned P37,500 of net
income. Finally, she withdrew P25,000.
 EVALUATION:
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.
 EVALUATION:
Owner, Juan invested an initial capital amounting
P60,000 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
P55,000 in 2017. In the second year (2017), the
company had a net income of P105,000 and Juan
withdrew P15,000 for personal use.
 EVALUATION:
Owner Juana invested P110,000 to
start her laundry business. During the first year of
operations (2016), the company had a net
income of P20,000. Juana invested additional
P90,000 to grow the business. In 2017, the business
earned P55,000. As of December 31, 2017,
Juana’s capital balance is P205,000. How much is
Juana’s withdrawal?
 EVALUATION:
Capital, January 1, 2016 P 400,000
Withdrawals 50,000
Additional Investments 60,000
Net Loss 55,000
 ASSIGNMENT
1 whole sheet of paper

Give one sample of a Statement of

Cash Flows.