Statement of Changes in Equity (SCE) or Capital Statement presents a summary of the

changes that occurred in the owner's equity of the entity during a specific time period.

Increases in owner's equity arise from additional investments by the owner and net
income earned. Net Loss for the period and withdrawals cause the owner's equity to
decrease.

Net Income and Net Loss comes directly from the Income Statement. Investments and
withdrawals by the owner are capital transactions between the business and its owner,
so they do not affect the income statement.

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.

Definition of Terms

❖ 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/Drawing –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)

The actual format of the statement can vary among type of organizations, but the table
below shows a comparison between the 3 types:

SOLE PROPRIETORSHIP PARTNERSHIP CORPORATION

DEFINITION ❏ An entity whose assets,
liabilities, income and expense
are centered or owned by only
one person
OWNER ❏ Sole Proprietor
COMPARISON ❏ Parts of the SCE for Sole
OF THEIR SCE Proprietorship
1. Heading
a. Name of the Company
b. Name of Statement
c. Date of Preparation
2. Increase to Equity
a. Net Income for the
year
b. Additional
Investments
3. Decreases to Equity
❏ An entity whose assets,
liabilities, income and expenses
are centered or owned by two or
more persons
❏ Partners
❏ The differences from sole
proprietorship are as follows:
1. Title - instead of owner’s
partners’ is used to denote
that this is a partnership
2. These are two or more
owners in a partnership
thus, changes in the capital
account of each partner is
presented
3. The net income is divided
between partners (not
❏ An entity whose assets, liabilities,
income, and expenses are centered
or owned by itself being a legal
separate entity from its owners
❏ Shareholder/Stockholders
❏ Parts of SCE for Corporation
1. Title - instead of owner’s
shareholders’ is used to denote
that this is a corporation
2. Unlimited number of
shareholders but unlike the
partnership, the names of the
shareholders are not shown.
3. Instead of Additional
investment, share issuances
increases the share capital of a
corporation
 a. Net Loss for the year always equal. Based on the 4. Instead of withdrawals,
b. Withdrawals by the agreement. Example: distribution of net income to
owner 60:40, 40:60, etc.) shareholders decreases the
Capital of the corporation

Below is samples for each of the types of organization with the parts labeled:

1. SOLE PROPRIETORSHIP

2. PARTNERSHIP

3. CORPORATION