FUNDAMENTALS OF

ACCOUNTANCY,
BUSINESS, AND
MANAGEMENT
 CHAPTER 3
Statement of Changes
in Equity
 Learning Objectives
• To understand the purpose of the Statement of
Changes in Equity
• To appreciate that the presentation of the
Statement of Changes in Equity is dependent on
the form of business organization
• To identify the elements of the Statement of
Changes in Equity
• To determine the nature of the different equity
accounts used by corporations
• To prepare a Statement of Changes in Equity
What Is the Statement of Changes in
Equity (SoCE)?

 The SoCE is prepared to meet the requirements of the

readers to understand the transactions that cause the
movements in equity accounts.

 The SoCE is a statement dated “for the year-ended”.

 The report shows a reconciliation of the beginning
and ending balances of the equity accounts.
 It summarizes the equity transactions with the
owners of the business that occurred during the year.
Objective of the SoCE
 Forms of Business Organizations
• It is the most complex form of
• It is
is athe
business owned
simplest formbyoftwo a
1. Sole proprietorship business organization.
or
businessmore owners
organization. called
• It is owned by many owners
• partners,
There is who pool owner
only one their
called stockholders or
resources
referred to together such as
as sole proprietor,
shareholders.
money, property, also
who oftentimes and industry,
acts as
• Ownership is divided into
2. Partnership to operate a business and
the manager.
common stocks or shares of
• divide
The businessthe profit
has noamong legal
stocks. One shareholder can
themselves.
personality separate from its
own many stocks.
• Partners are generally
owner, meaning involved
the business
• One of its characteristics is the
in
and the management
the owner of the
is one entity in
separation of ownership and
3. Corporation business.
the eyes of the law.
management. Shareholders
• The agreement of the partners
invest their funds but are not
is stated in the contract of
normally involved in the day-to
partnership. Most importantly,
day-operations. Rather, the
it emphasizes the partners’
corporation is managed by
profit and loss sharing.
professional managers.
 Preparation of SoCE
1. Sole proprietorship Juan Dela Cruz
Consider these:
The• owner’s
The net income
Capital generated
account
tracks from the operations
the following of the
transactions
business is owned by the
of the owner:
• owner;
Capital and
contributions;
•• The capital
Withdrawals; and account
• represents
Net incometheorpart netof loss
the
business
generated that
by thebelongs
business.to
the owners.
Owner’s Capital Account
Therefore, the net income that
belongs to the owner should be
included in his capital account.
 Preparation of SoCE
1. Sole proprietorship

SoCE ‒ Sole Proprietorship

 Preparation of SoCE
1. Sole proprietorship
 Preparation of SoCE
2. Partnership
QUESTION: How do we determine the amount of net income
Each
that partner’s Capitalto each partner’s capital account when
will be closed
account
there arewill track his/her:
several capital accounts in the partnership
• contributions
accounting to the
records?
business;
• share inAccountants
ANSWER: the net call this process “allocation of net
income;
income.” Netandincome is allocated based on the profit and
• drawings.
loss sharing agreement stipulated in the partnership
contract. Allocation of net income is unique only to
partnership.

SoCE ‒ Partnership
 Preparation of SoCE
2. Partnership
 Preparation of SoCE
3. Corporation

Paid in Capital

Retained Earnings
 Preparation of SoCE
3. Corporation

SoCE ‒ Corporation
 Preparation of SoCE
3. Corporation
 Preparation of SoCE
3. Corporation