STATEMENT OF

CHANGES IN EQUITY

FUNDAMENTALS OF ACCOUNTANCY, BUSINESS AND

MANAGEMENT 2
 1 2 3
Discuss the different Differentiate the Prepare a Statement of
forms of business Statement of Changes Changes in Equity for a
organization in Equity for each form Single Proprietorship.
of business
organization; and

LEARNING OBJECTIVES
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Define the Identify the Prepare a Prepare a Prepare a Prepare a Solve
Statement of elements of single-step multi-step function of nature of accounting
Comprehensiv Statements of service income merchandising expense expense problems.
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e income and statement. statement. statement.
describe each
of them.
FINANCIAL STATEMENTS
Financial statements are a structured
representation of the financial position, and
financial performance of an entity. The objective
of financial statements is to provide information
about the financial position, financial
performance and cash flows of an entity that is
useful to a wide range of users in making
economic decisions.
FINANCIAL STATEMENTS
Also show the results of the management’s stewardship of the resources entrusted to it. To meet this objective, financial
statements provide information about an entity’s:
1. Assets
2. Liabilities
3. Equity
4. Income and Expense; including gains and losses
5. Contributions by and Distributions to owners in their capacity as owners; and
6. Cash flows

This information, along with other information in the notes to financial statements, assists users in predicting the entity’s
future cash flows and, in particular, their timing and certainty.
Forms of Business Organization
• Sole Proprietorship (Owner)

• Partnership (Partner)

• Corporation (Shareholder)
Statement of Changes in Equity
For sole proprietorship type of business, the Statement of Changes in Equity
includes the following items:
1. Capital balance at the start of accounting period.
2. Additional investments and contributions by the owner.
3. Net income generated or net loss suffered by the company.
4. Withdrawals by the owner.
5. Capital balance at the end of accounting period (Adjusted Capital Balance)
Statement of Changes in Equity
Beginning Capital

Additional Investments

Net Income

Net Loss

Withdrawals

Ending Capital
Statement of Changes in Equity
Tearenteapitea, a sole proprietorship milk tea business owned by Bunny Quintana, has been
operating successfully 2 years now. The capital of the owner at the start of the accounting
period, January 1, 2019, amounted to P250,000. During the year, the owner decided to raise
the capital balance by P150,000 worth of additional investment in the form of assets
Furniture and Fixtures. The shop enjoyed tremendous sales and reported net income
amounting to 220,000. Bunny, however, withdrew P80,000 cash for a personal use. No
other equity activities have been noted during the year.
Required: Prepare the entity’s Statement of Changes in Equity for the year ended December 31, 2019.
Statement of Changes in Equity
Tearenteapitea
Statement of Changes in Equity
For the year ended December 31, 2019

Capital, December 31, 2018 P 250,000

Add: Additional investment 150,000
Add: Net Income 220,000
Less: Drawings by the owner (80,000)
Capital, December 31, 2019 P 540,000
Problem 1
Enola Company started the accounting period with a capital balance of P233,980
and ended the period with a capital balance of P321,950. During the year, Enola
made an additional investment of P25,000 and personal withdrawals of P41,000.
How much is the net income/loss by Enola Company during the period?
a. P112,108 net income
b. P112,108 net loss
c. P103,970 net income
d. P103,970 net loss
Problem 2
Zalopee Company has a capital balance of P189,720 on December 31, 2017. During 2018, net
income amounted to P23,900 and personal drawings amounted to P9,400. 2019 has been a difficult
year for the company. To sustain the operation, the owner made an additional investment of P61,300
during the year. However, the company still ended the year with a net loss amounting to P36,210 and
a withdrawal of P7,500 for personal use. How much shall be reported as capital balance on December
31, 2019 Statement of Changes in Equity?
a. P204,220
b. P209,220
c. P228,210
d. P221,810