SHS

S
Fundamentals of Accountancy,
Business and Management 2
Week 4: Module 4

1
Fundamentals of Accountancy, Business and Management 2
Grade 12: Week 4: Module 4
First Edition, 2020

Copyright © 2020
La Union Schools Division
Region I

All rights reserved. No part of this module may be reproduced in any form without
written permission from the copyright owners.

Development Team of the Module

Author: Rudyna M. Minasalvas, T-II

Editor: SDO La Union, Learning Resource Quality Assurance Team

Illustrator: Ernesto F. Ramos Jr., P II

Management Team:

Atty. Donato D. Balderas, Jr.

Schools Division Superintendent
Vivian Luz S. Pagatpatan, Ph.D
Assistant Schools Division Superintendent

German E. Flora, Ph.D, CID Chief

Virgilio C. Boado, Ph.D, EPS in Charge of LRMS
Lorna O. Gaspar, EPS in Charge of ABM
Michael Jason D. Morales, PDO II
Claire P. Toluyen, Librarian II

2
Fundamentals of Accountancy,
Business and Management II
Week 4: Module 4

3
 Target
This learning material will provide you with information and activities that will
help you to understand the statement of changes in equity and provide you knowledge
on how to prepare this kind of statement for a sole proprietorship business.
The module composed of one lesson:
 Lesson 1 – Prepare a Statement of Changes in Equity (SCE) for a single
proprietorship. (ABM_FABM12-lc-9)

After going through this module, you are expected to:

1. Define Statement of Changes in Equity;
2. Identify the components of SCE;
3. Recognize the steps in preparing SCE
4. Prepare a Statement of Changes in Equity for a single proprietorship;

Before going on, let’s check your knowledge about this topic. Answer the pretest below.
Write your answer on a separate sheet of paper.

Pre-test
Directions: Multiple Choice. Read and analyze each item and choose the best answer
and write it in a separate sheet of paper.

________1. What causes an increase in Statement of Changes in Equity?

I. Expenses is greater than income.
II. Net Income Increases.
III. Cash withdrawal of business owner
IV. Owner invest additional capital to the business

A. I & II B. II & III C. II & IV D. II & IV

_______2. What increases owner’s equity without additional investment?
A. Bank Loans B. Expenses C. Net Income D. Net loss

_______3. What is the first step in the preparation of the Statement of Changes in
Equity/Owner’s Equity?
A. Add additional investment C. Prepare the heading
B. Gather the needed information D. Report the Net Loss in a business

_______4. What is the impact of net loss in owner’s equity?

A. Decrease C. No effect
B. Increase D. Both A & B

4
_______5. Which of the following is the 3rd step in the preparation of the Statement of
Changes in Equity/Owner’s Equity?
A. Gather the needed information C. Add the beginning balance
B. Prepare the heading D. Add the additional contributions

_______6. What do you call the first investment of the owner to the company?
A. Additional Investment C. Initial Deposit
B. Additional Deposit D. Initial Investment

________7. Which item in the Statement of Changes in Equity decreases owner’s equity?
A. Additional Investment C. Net Income
B. Initial Investment D. Net Loss
________8. What statement is prepared prior to the preparation of Statement of Financial
Position?
A. Statement of Cash Flow (SCF)
B. Statement of Financial Position (SFP)
C. Statement of Comprehensive Income (SCI)
D. Statement of Changes in Equity/Owner’s Equity (SCE)

________9. Which of the following is NOT included as part of the heading of the Statement
of Changes in Equity/Owner’s Equity?
A. Date of Preparation C. Name of the Statement
B. Name of the owner D. Name of the Company

________10. Which of the following is the purpose of the double-rule that drawn in the
final amount?
A. Indicate the sub-total.
B. It indicates the completion of specific task.
C. It is used to indicate grand total of specific task.
D. None of the above.

5
 Jumpstart

Direction: For each transaction, tell whether the owner’s equity account will increase
(I); decrease (-); or NO effect (NE). Use a separate sheet of paper for your answer.

1. The owner invests personal cash in the business. __________________

2. Owner withdraws cash for personal use. __________________
3. Owner contribute her personal computer equipment
to the business. __________________
4. Cash purchase of new table & chairs for business use. __________________
5. Business owner withdraw business assets for personal use. __________________
6. Owner give additional cash investment in the business. __________________
7. Purchased computer equipment on credit __________________
8. Paid rent in advance for 2 months. ___________________
9. Purchased office supplies on credit. ___________________
10. Additional cash investment in the business ___________________

6
 Discover

What is equity and Changes in Equity?

Equity- Equity /capital- it is the remaining value of an owner’s interest in the
assets of the business after considering all liabilities. It is equal to total assets minus
total liabilities. This account is used to record the original and additional investment of
the owner in the business entity.

Statement of Changes in Equity

The Statement of Changes in Equity or Statement of Owner’s Equity (SCE)

recorded and summarizes the movement that is occurred in owner’s equity. It reflects
the increase and decrease in the owner’s net assets during the accounting period. The
capital account/owner’s equity changes due to contributions, withdrawals, and net
income or net loss.

Increased of owner’s equity are: Decreased Owner’s Equity are:

Additional Investment Drawing/ Withdrawals

Profit/Net Income Net Loss

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.
(Haddock, Price, & Farina, 2012).

Different Parts of Statement of Owner’s Equity

Different parts of the Statement of Change in Equity

1. Heading
i. Name of the Company
ii. Name of the Statement
iii. Date of preparation (emphasis on the wording – “for the”)
2. Increases to Equity
i. Net income for the year
ii. Additional investment
3. Decreases to Equity
i. Net loss for the year
ii. Withdrawals by the owner

7
Statement of Changes in Owner’s Equity for a Single/Sole Proprietorship
The “Statement of Owner’s Equity or Statement of Changes in Owner’s Equity”
summarizes the items affecting the capital account of a sole/single proprietorship
business.

A sole proprietorship’s capital is affected by four items: owner’s contributions,

owner’s withdrawals, income and expense.

The following are the steps in preparing a statement of Changes in Owner’s Equity
for sole proprietorship using the adjusted trial balance:

STEP 1: Gather the needed information.

The Statement of Changes in Owner’s Equity is prepared second to the income
Statement. Again, the most appropriate source of information in preparing financial
statements would be the adjusted trial balance or any report with a complete list of
updated accounts may be used.

ABM Professional Services

Adjusted Trial Balance
For the year ended, December 31, 2018
Debit Credit
Cash Php. 10,560.00
Accounts Receivable 25,480.00
Service Supplies 2,350.00
Furniture & Fixture 85,000.00
Office Equipment 550,000.00
Accumulated Depreciation Php. 93,000.00
Accounts Payable 43,520.00
Utilities Payable 12,480.00
Loans Payable 375,000.00
ABM, Capital 135,000.00
ABM, Drawing 5,000.00
Service Revenue 297,740.00
Rent Expense 14,500.00
salaries Expense 195,000.00
Taxes & Licenses 12,300.00
Utilities Expense 8,750.00
Service Supplies Expense 1,300.00
Depreciation Expense 46,500.00
TOTALS Php. 956,740.00 Php. 956,740.00

8
STEP 2: Prepare the heading.
Like any financial statement, the heading is made up of three lines. The first line
is the name of the company. The second line shows the title of the report. In this case,
the title is Statement of Changes in Owner’s, Statement of Owner’s Equity, or simply
Statement of Changes in Equity. Any of the three titles would be all right.
The third line shows the period covered. The report covers a span of time; hence we use
“For the Year Ended” For the Quarter Ended, For the Month Ended, etc. Some annual
financial statements omit the “For the Year Ended” phrase.

Note: The use of the word “for the” in the SCE are changes during the period.
This means that what happened in the previous years are not included in the
Statement.
Example:
ABM Professional Services
Statement of Changes in Equity
For the year Ended, December 31, 2019

STEP 3. Report Capital at the beginning of the period.

Report the capital balance at the beginning of the period reported – or the amount at
the end of the previous period.

Remember:
The ending balance of the last period will be the beginning balance of the current
period.

ABM Professional Services

Statement of Changes in Equity
For the year Ended, December 31, 2019

ABM Capital Beginning Php. 100,000.00

9
STEP 4. Add additional contributions.
Contributions from the owner increases capital, therefore, it must be added to
the capital balance. If the owner has additional investment for this year, just add it to
beginning capital. If none just put a dash (-).
Step 5: Add net income.
Net income increases capital hence it is added to the beginning capital balance.
Net income is equal to all revenues minus all expenses. Refer to the income
statement that previously prepared for the amount.

ABM Professional Services

Statement of Changes in Equity
For the year Ended, December 31, 2019

ABM Capital Beginning Php. 100,000.00

Add: Additional Investment Php. 30,000.00
Net Income 19,390.00 49,390.00

STEP 6. Deduct owner’s withdrawals.

Withdrawal made by the owner is recorded separately from contributions. It can
easily be found in the adjusted trial balance as “Owner, Drawings”, “Owner
withdrawals”, or any other appropriate account. Withdrawals decreases capital;
therefore, it must be deducted to the capital balance.

ABM Professional Services

Statement of Changes in Equity
For the year Ended, December 31, 2019

ABM Capital Beginning Php. 100,000.00

Add: Additional Investment Php. 30,000.00
Net Income 19,390.00 49,390.00
TOTAL Php.149, 390.00
Less: Withdrawal 5,000.00

10
 STEP 7. Compute for the ending capital balance.
Compute for the balance of the capital account at the end of the period and draw
the lines. Take note, one horizontal line means that a mathematical operation has been
performed. Two horizontal lines (double-rule) are drawn below the final amount.

Shown below is an example of SCE with a positive result of operation. The net
income is added to additional investment and the effect, it increases equity
account.

ABM Professional Services

Heading
Statement of Changes in Equity
For the year Ended, December 31, 2019

Increases ABM Capital Beginning Php. 100,000.00

Equity Add: Additional Investment Php. 30,000.00
Net Income 19,390.00 49,390.00
Decreases
TOTAL Php.149, 390.00
Equity Less: Withdrawal 5,000.00
ABM, Professional Services, Owners Capital Php. 144,390.00
Ending Balance as of Dec. 31, 2019 ===========

Shown below is an example of Statement of Changes in Equity with a

negative result of operation. The net loss is added to drawing account and the
effect, it decreases the owner’s equity account.

ABM Professional Services

Statement of Changes in Equity
For the year Ended, December 31, 2019

ABM Capital Beginning Php. 100,000.00

Add: Additional Investment Php. 30,000.00
Net Income 19,390.00 49,390.00
TOTAL Php.149, 390.00
Less: Withdrawal Php. 5,000.00
Net Loss 5,000.00 10,000.00
ABM, Professional Services, Owners Capital Php. 139,390.00
Ending Balance as of Dec. 31, 2019 ===========

Note: For NET INCOME and NET LOSS Amount refer to Statement of
Comprehensive Income

11
 For more understanding in Statement Changes in Equity, you must also
know the following terms:

Sole Proprietorship - A Sole Proprietorship is a business structure owned by an

individual who generally has full control and authority over the business. The business
owner is referred to as the “sole proprietor” and exclusively owns all assets and profits
of the business. He or she is also personally liable for all the debts and losses that the
business might incur.
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. (Haddock, Prince, & Farina, 2012)
Withdrawals - Decreases the owner’s equity by withdrawing assets by the owner
(Haddock, Price, & Farina, 2012).

A business can still earn, have a lot of assets but also have a very small
equity because of a lot of liabilities. This means that the owner of the
business has a very small claim over the company’s assets and income.

Explore

Let’s check if you learn. Be honest in answering the following activities

Activity 1:
Direction: Write TRUE if the statement is correct and FALSE if the statement is
incorrect. Write your answer in your answer sheet.
_________1. Investment decreases owner’s equity.
_________2. Net loss is added to drawing account before it is deducted to the capital
beginning and additional investment.
_________3. Statement of Changes in Owner’s Equity” summarizes the items affecting
the expense account of a sole/single proprietorship business.
_________4. Contributions from the owner increases capital, therefore, it must be
deducted to the capital balance.
_________5. Preparation of the heading is the 2nd step in preparation of Statement of
Changes in Equity.

12
Activity 2:
Identification: Write the correct answer in your answer sheet.
____________1. The very first investment of the owner to the business.
____________2. The first line seen in the Statement of Changes in Equity.
____________3. A statement that shows movement of owner’s equity account during the
period.
____________4. What kind of statement shows the Net Income and Net Loss amount?
____________5. The most appropriate source of information in preparing statement of
changes in equity.
____________6. It increases owner’s equity without additional investment by the owner.
____________7. Aside from the withdrawals of owner’s, what decreases owner’s equity
account?
____________8. The use of this word is to specify the changes during the period.
____________9. This statement is prepared prior to the preparation of the financial
Statement.
___________10. It decreases owner’s equity aside from net loss.

Deepen

Activity 1. Compute & Prepare

Direction: For 2-points each, compute the following problems. Write your answer and
solution on your answer sheet.
1. Beginning owner’s equity amounted to 350,000. Net loss for the year totaled Php.
55,000. No additional investments and withdrawals for the period. Compute for the total
increase and decrease in equity for the year.
2. Ending owner’s equity amounted to Php. 80,000. Additional Investments during the
year amounted to Php. 40,000. Owner withdraw totaled of Php. 65,000. Compute for
total owner’s equity for the year.
3. Beginning Owner’s equity amounted to P350,000. Net Income for the year
totaled Php. 60,000. Additional Investment during the year amounted to 35,000.
No withdrawals for the period. Compute for total increase in equity for the year.
4. Owner, Marco invested an initial capital amounting P70,000 in order to put
up his Computer Services. During the first year of operations, the business had
a loss of Php30,000 because of this Marco invested additional capital amounting
to Php70,000 in 2018. In the second year, the company had a net income of
Php120,000 and Marco withdrew Php50,000 for his personal use. Compute for
the ending capital balance of Marco for the year 2019.

13
5. The following balances were retrieved from the records of ABM Trucking
Services for the year ended December 31, 2020. Prepare a Statement of Changes
in Equity of ABM Trucking Services.
Capital, January 01, 2020 Php. 700,000.00
Withdrawals 150,000.00
Additional Investments 77,000.00
Net loss 45,000.00

Gauge

Directions: Prepare the Statement of changes in equity. Use your family name
as the company name for the heading.

Date: December 31, 2020 Date: March 31, 2020

Capital beginning Php. 125,000.00 Php. 175,000.00
Additional Investment Php. 25,000.00 Php. 100,000.00
Drawings Php. 78,000.00 Php. 75,000.00
Net Income/(Net loss) Php, 125,00.00 (Php. 50,000.00)

14
References:

De Guzman, Angeles A (2006). Fundamentals of Accountancy, Business and

Management 2. LORIMAR Publishing pages 26-30, Cubao, Quezon City

Department of Education - Teacher’s Guide (2016). Fundamentals of Accountancy,

Business and Management II. Teaching Guide for Senior High School – Academic
ABM. The Commission on Higher Education in collaboration with the Philippine
Normal University. Pp 41-45. EC-TEC Commercial. Quezon City.

15
 16
Deepen:
Activity I: Compute and Prepare
1. Increase is ZERO, but decrease in Php. 55,000
2. Php. 55,000
3. Php. 445,000
4. Php. 180,000
5.
ABM TRUCKING SERVICES
STATEMENT OF CHANGES IN EQUITY
For the year ended December 31, 2020
Beg. Bal. Jan. 01, 2020 Php. 700,000
Add: Add. Investment 77,000
Total Php. 777,000
Less: Withdrawals Php.150,000
Net Loss 45,000 195,000
ABM Capital, Ending Php. 582,000
Explore:
Activity 1: TRUE OR FALSE
1. FALSE
2. TRUE Jumpstart
3. FALSE
4. FALSE
5. TRUE
1. Increase Pretest
Activity II IDENTIFICATION 2. Decrease 1. C
1. INITIAL INVESTMENT 3. Increase
2. NAME OF THE COMPANY 2. C
3. STATEMENT OF CHANGES IN EQUITY 4. No effect 3. B
4. STATEMENT OF COMPREHENSIVE 5. Decrease
INCOME
4. A
5. ADJUSTED TRIAL BALANCE
6. Increase 5. C
6. NET INCOME 7. No Effect 6. D
7. WITHDRAWAL 8. No Effect
8. FOR THE YEAR ENDED 7. D
9. STATEMENT OF CHANGES IN EQUITY 9. No effect 8. D
10. Owner’s withdrawal 10. Increase 9. B
10. C
Answer Key
 17
COMPANY NAME
STATEMENT OF CHANGES IN OWNER’S EQUITY
For the year ended March 31, 2020
Capital, beginning, Jan. 31, 2019 Php. 175,000.00
Additional Investment Php. 100,000.00
Total Php. 275,000.00
Less: Drawings Php. 75,000.00
Net Loss 50,000.00 Php. 125,000.00
Ending Capital, as of March 31, 2020 Php. 150,000.00
===============
COMPANY NAME
STATEMENT OF CHANGES IN OWNER’S EQUITY
For the year ended December 31, 2020
Capital, beginning, Jan. 31, 2019 Php. 125,000.00
Additional Investment Php. 25,000.00
Add: Net Income 125,000.00 150,000.00
Total Php. 275,000.00
Less: Drawings 78,000.00
Capital, as of December 31, 2020 Php. 197,000.00
==============
Gauge