GROUP 3

STATEMENT OF CHANGES
IN EQUITY
Presentation

Fundamentals of Accountancy, Business, and Management

 After going through this module,you are expected to:

•. Identify the structure of SCE for a single proprietorship;

• Prepare an SCE for a single proprietorship;

• Appreciate the value of the Statement of Changes in Equity determining

the status of the invested capital of the owner in a business
LIATINI METNVESNIT
SLAWARDHTIW
QEUITY
OSSSEL
NALTIOADDI METNVESNIT
STATEMENT OF CHANGES IN
EQUITY
The statement of changes in equity summarizes the changes that
occurred in the owner’s equity. The Statement of Changes in Equity is first
prepared before a Statement of Financial Position is prepared.
In the case of sole proprietorship, increase in owner’s equity arise from
additional investments by the owner and profit during the period.
Decreases result from withdrawals by the owner and from the loss during
the period.
 Important Terms of (SCE)
• Initial Investment - is the very first investment of the owner to the company.

• Additional Investment - increases the owner’s equity by adding some more

investment by the owner (Haddock, Price, & Farina, 2012.)

• Withdrawal - occurs when funds are removed from an account. A

withdrawal can also refer to the drawdown of an owner's account in a sole
proprietorship or partnership. In this situation, the funds are intended for
personal use. The withdrawal is not an expense for the business, but rather a
reduction of equity.
 Important Terms of (SCE)
• Equity - It is the residual interest of the owner after
deducting the claim of the creditor from the total assets of
the business.
• losses - It is considered as n expense which is deducted from
owner’s equity.
FORMAT OF STATEMENT
OF CHANGES IN EQUITY
 Items of the Statement of Changes in Equity
1.)A Statement of Changes in Equity (SCE) shows the owner’s capital at the start of the period, the
changes that affect the capital, and the resulting capital at the end of the period.

2.) A typical SCE starts with a heading which consists of three lines. The first line shows the name of
the company; second, the title of the report, and third, the period covered.

3.) The title of the report is Statement of Owner’s Equity. This is used for sole or single proprietorship.
For partnership, the title used is “Statement of Partners’ Equity and for corporations "Statement of
Stockholders' Equity".

4.) Notice that the third line is worded "For the Year Ended..." This means that the SCE presents
information for a specific span of time. In the above example, the period covers 1 year that ends on
December 31, 2020. Hence, the amounts presented pertain to changes to owner's equity from
January 1, 2020 to December 31, 2020.

5.) The capital account used in the illustration is Owner’s Capital or Bayani’s Capital. The capital
account used would vary from company to company.
 Items of the Statement of Changes in Equity
6.) Observe that income increases capital and expenses decrease it. Net income is equal to income minus
expenses. Hence, net income would increase the capital account. If expenses exceed income, there is a net
loss. In such case, net loss will decrease the capital account.

7.)Notice that the net income above is P75,000.

8.) Owner’s withdrawal represents the total withdrawals made by the owner during the period. The owner
made P 30,000 total drawings. This amount is deducted from the capital to get the capital balance at the
end.

9.) The Statement of Owner's Equity example above shows that the company has P 275,000 in capital as
a result of the following: P 210,000 balance at the beginning of the year, plus P 20,000 additional
investment during the year, plus P 75,000 net income, and minus P 30,000 withdrawals.

10.) Good accounting form suggests that a single line is drawn every time an amount is computed (it
signifies that a mathematical operation has been completed). The bottom-line amount is double-ruled.
Format of Statement of Changes in Equity for Partnership
 Format of Statement of Changes in Equity for Partnership
A. Title- instead of writing the word “Owner’s”, it is replaced with the word “Partners” to
denote that the business is a “partnership”

B. There can be two or more owners in the partnership thus, the changes in the capital
amount of each partner must be indicated. There are partnership where partners do not
share same amount of investments.

C. The capital account is called shared capital

D. Instead of Additional investment, share issuance in used (this happens when share are
sold to shareholders)

E. Instead of withdrawals, distribution of net income to shareholders decreases the Capital

of the corporation.
Quiz time!
Write the letter of the correct answer. Write your answer in a separate sheet of
paper.
1.) This occurs when there is a removal of cash in the accounts; it refers to the
drawdown of an owner's account in a sole proprietorship or partnership, which is
intended for personal use.

A . Withdrawals B. Additional investment C. Initial Investment D. Losses

2.) Which of the following accounts is NOT included in preparing an SCE?

A. Withdrawals B. Equipment C. Losses D. Capital

3.) It shows the changes in the capital account due to contributions,
withdrawals, and net income or net loss.
A. Cash flow statement C. Statement of Comprehensive Income
B. Statement of Financial Position D. Statement of Changes in Equity

4.) Losses and withdrawals of the business result in a/an ___________________.

A. Increase in owner’s income C. Decrease in owner’s capital.
B. Increase in owner’s capital D. Decrease in losses

5.) The investment of additional cash into the business results in a/an
_________.
Increase in owner’s income C. Decrease in owner’s capital
Increase in owner’s capital D. Decrease in losses
6.) Which of the following parts of the heading of the Statement of Changes
in Equity comes first?
A. date C. title of the statement
B. name of the company D. none of these

7- 10 , prepare a Statement of Changes in Owner’s Equity using the format discussed. Use separate sheet of
paper for your answers.

7-8.) Carolina’s Bake shop 9-10.) Justine’s Car Parts and Repair
• Capital: P 65, 000 • Initial investment: P 378, 000
• Withdrawal: P 12, 500 • Net Income: 220,000
• Additional Investment: P 25, 000 • Additional investment: 75,000
• Losses: P 1, 200 • Withdrawal: 46,000
THANK YOU
Group 3:
Randy Repil
Suzhane Ann alpuerto
Manelyn Jaranilla
Ivan Pranada