Statement of Changes in Equity

Statement of Changes in Equity (SCE)
a. Revenues – service income, sales

b. Expenses – salaries expense, depreciation expense
c. Income – revenues less expenses (amount found at the bottom of the SCI)
d. Assets – inventories, prepaid expenses, property, plant and equipment
e. Liabilities – accounts payable, unearned income, long-term debt
STATEMENT OF CHANGES IN EQUITY – All changes, whether increases or decreases to the owner’s
interest on the company during the period are reported here. 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)
SINGLE/SOLE PROPRIETORSHIP –An entity whose assets, liabilities, income and expenses are
centered or owned by only one person (Haddock, Price, & Farina, 2012).
PARTNERSHIP – An entity whose assets, liabilities, income and expenses are centered or owned by two
or more persons (Haddock, Price, & Farina, 2012).
CORPORATION – An entity whose assets, liabilities, income and expenses are centered or owned by
itself being a legally separate entity from its owners. Owners are called shareholders or stockholders of the
company(Haddock, Price, & Farina, 2012).
LEARNING IS FUN COMPANY

STATEMENT OF CHANGES IN EQUITY
FOR THE YEAR ENDED DECEMBER 31, 2016
Owner*, Capital, January 1, 2016 P100,000

Add:
Net income for the year 2016 P50,000
Additional investment P25,000 P75,000
________________________
Sub-total P175,000
Less: Withdrawals for the year P30,000
________________________
Owner*, Capital, December 31, 2016 P145,000
________________________
Different Parts of the Statement of Changes in Equity

a. Heading
i. Name of the Company
ii. Name of the Statement
iii. Date of preparation (emphasis on the wording – “for the”)
b. Increases to Equity
i. Net income for the year
ii. Additional investment
c. Decreases to Equity
i. Net loss for the year
ii. Withdrawals by the owner
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, Price,
& Farina, 2012).
Withdrawals –Decreases to owner’s equity by withdrawing assets by the owner (Haddock, Price, &
Farina, 2012).
*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)
Teacher Tips: The teacher can explain the use of “for the” by telling learners that amounts in the
SCE are changes during the period. This means that what happened in the previous years are not
included in the Statement.

STATEMENT OF CHANGES IN PARTNERS’ EQUITY
Partner A Partner B Total

Capital, January 1, 2016 P100,000 P150,000 P250,000
Add:
Net Income 2016 P25,000 P25,000 P50,000 Additional Investment
P50,000 P20,000 P70,000
__________________________________
Sub-total P175,000 P195,000 P370,000
Less: Withdrawals P100,000 P100,000 P200,000
__________________________________
Capital, December 31, 2016 P 75,000 P 95,000 P170,000
__________________________________
The Statement of Changes in Partners’ Equity is used by a partnerships instead of the Statement of Changes
in Owner’s Equity. The differences between the two are as follows:
a. Title – instead of owner’s, partners’ is used to denote that this is a partnership

b. There are two or more owners in a partnership thus, the changes in the capital account of each partner is
presented
c. The net income is divided between partners (not always equal. Based on the agreement. Example: 60:40,
40:60, etc.)
Capital, January 1, 2016 P1,000,000.00

Share Issuance P500,000
Net Income 2016 P150,000
Distribution of Income (P100,000)
_____________________________
Capital, December 31, 2016 P1,550,000
_____________________________
The Statement of Changes in Shareholders’ Equity is used by a corporation instead of the Statement of
Changes in Owner’s Equity. The differences between the two are as follows:
a. Title – instead of owner’s, shareholders’ is used to denote that this is a corporation

b. There are an unlimited number of shareholders but unlike the partnership, the names of the shareholders
are not indicated here. Instead, the corporation keeps an official list with the corporate secretary
c. The capital account is called share capital (just like owner’s being shareholders)
d. Instead of additional investment, share issuances (happens when shares are sold to shareholders)
increases the share capital of a corporation
e. Instead of withdrawals, distribution of net income to shareholders decreases the Capital of the
corporation
Easy:
1. Which form of business organization puts the least risk on its owners? Answer: Corporation
2. 2. Which form of business organization is owned by only one person? Answer: Single/Sole
Proprietorship
Average:
1. Increases in owner’s equity without additional investment Answer: Net income
2. Decreases to owner’s equity apart from net effect of revenues and expenses. Answer: Withdrawal or
Distribution of Income
Difficult 1
1. Beginning owner’s equity amounted to P 300,000. Net loss for the year totaled P 45,000. No additional
investments and withdrawals for the period. Compute for total increase in equity for the year. Answer:
Increase is zero but decrease is P 45,000.
2. Ending owner’s equity amounted to P70,000. Additional investments during the year amounted to
P30,000. Withdrawals totaled P50,000. Compute for the company’s net income for the year assuming
beginning equity is P10,000. Answer: P80,000
Sample Questions:
1. Decreases in equity aside from withdrawals of the owners Answer: Net loss (Topic: Items in the
Statement of Changes in Equity)
2. A type of business that is owned by at least 2 persons. Answer: Partnership (Topic: Kinds of Business
according to Ownership)
3. Owner, Juan invested an initial capital amounting P50,000 in order to put up his janitorial services
company. During the first year of operations (2016), the company had a loss of P25,000. Because of this,
Juan invested additional capital amounting to P50,000 in 2017. In the second year (2017), the company had
a net income of P100,000 and Juan withdrew P10,000 for personal use. Compute for the ending capital
balance of Juan for the year 2017. Answer: P165,000 (Topic: Ending Balance in the Statement of Changes
in Equity)
4. Owner Juana invested P100,000 to start her laundry business. During the first year of operations (2016),
the company had a net income of P15,000. Juana invested additional P100,000 to grow the business. In
2017, the business earned P50,000. As of December 31, 2017, Juana’s capital balance is P200,000. How
much is Juana’s withdrawal? Suggested Answer: P65,000 (Topic: Amounts in the Statement of Changes in
Equity)
5. In the Statement of Changes in Equity, the company had decreases in capital wherein income is
distributed to owners. Identify the kind of business. Suggested Answer: Corporation (Topic: Kinds of
Business according to Ownership)
6. The following balances were retrieved from the records of Juan’s Janitorial Services for the year ended
December 31, 2016:
Capital, January 1, 2016 P 500,000
Withdrawals P100,000
Additional Investments P50,000
Net Loss P45,000
Prepare the Statement of Changes in Equity

Suggested Answer: (Topic: Topic: Preparation of the Statement of Changes in Owner’s Equity)
JUAN’S JANITORIAL SERVICES

Juan Capital, January 1, 2016 P 500,000

Add:
Additional Investment P50,000
__________________________________
Sub-total P 550,000
Less:
Net Loss 2016 P 45,000
Withdrawals for the year P30,000 P75,000
___________________________________
Juan, Capital, December 31, 2016 P475,000
___________________________________

Statement of Changes in Equity

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Statement of Changes in Equity (SCE)

a. Revenues – service income, sales

LEARNING IS FUN COMPANY

Owner*, Capital, January 1, 2016 P100,000

Different Parts of the Statement of Changes in Equity

*Distribution of Income – When a company is organized as a corporation, owners (called

LEARNING IS FUN COMPANY

Partner A Partner B Total

a. Title – instead of owner’s, partners’ is used to denote that this is a partnership

Capital, January 1, 2016 P1,000,000.00

a. Title – instead of owner’s, shareholders’ is used to denote that this is a corporation

Prepare the Statement of Changes in Equity

JUAN’S JANITORIAL SERVICES

Juan Capital, January 1, 2016 P 500,000

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