Statement of Changes in Equity

Statement of Changes in Equity (SCE) – is the financial statement that presents the movements
of the owner’s equity (capital) account during the reporting period. It reflects the ending balance of
the owner’s equity.
The Owner’s Equity pertains to the residual amount after subtracting liabilities from assets.
Breakdown of
Owner’s Equity consists of Capital (capital only for sole proprietorship) & withdrawals of cash,
merchandise or any forms of asset by the owner.
Owner’s Equity is augmented by capital distributions of the owner & net income of the business.
On the contrary, it is reduced by the individuals of the owner & net losses of the business.

Importance of the SCE in Accounting

The Statement of Changes in Equity (SCE)is so important because it allows analysts
and reviewers of financial statements to see what factors caused a change in owner’s equity during
the accounting period. You can find the movements of shareholder reserves on the balance sheet.
However, information detailing equity reserves is not recorded separately in the other financial
statements. Statement of changes in equity helps users of financial statement to identify the factors
that cause a change in the owners' equity over the accounting periods.

A Statement of Changes in Equity& similarly the Statement of Changes in Owner’s Equity for a
sole trader, statement of changes in partner’s equity for partnership & statement of changes in
Shareholders’ equity for a company.
Owner’s Drawing
Debit Credit
(Increases) (Decreases)
1. Temporary withdrawals 1. Periodic owner’s salaries
2. Owner’s personal debts paid or assumed by 2. Business debts assumed or paid by the
the business owner
3. Funds or claims of the business collected & 3. Personal funds or claims of owner collected &
retained by the owner retained by the business
4. Share in the business losses 4. Share in business profits

Owner’s Capital
Debit Credit
(Increases) (Decreases)
1. Permanent withdrawals of capital 1. Original investment
2. Closing of the net debit balance of the drawing
2. Additional investment
account
3. Closing of the net debit balance of the income 3. Closing of the net credit balance of the income
summary account summary account
 The statement of changes in owner’s equity, also known as capital statement or statement of
changes in equity, is a basic statement that shows the movement in the elements or contents of the capital.
It shows how the Income Statement and the Statement of Financial Position or Balance Sheet are related.
Although the details of the statement may vary according to the organizational form of the company,
the basic format of this financial statement for sole proprietorship is presented below.

ABC Grocery Store

Statement of Changes in Owner's Equity
For the Month Ended August 31, 2021

A.Bonifacio, Capital, January 1, 2018 P200,000.00

Additional Investment 10,000.00

Net Income 71,250.00

Withdrawals (20,000.00)

PhaYo, capital, January 31, 2018 P261,250.00