FUNDAMENTALS ON ACCOUNTING, BUSINESS AND MANAGEMENT 2
Statement of Changes in Equity reports all the changes, whether
increases or decreases to the owner’s interest on the company during a period.
The form of business based on ownership determines the presentation
and the equity portion of the SFP. The three forms of business based on
ownership are: Single Proprietorship, Partnership, and Corporation. The
main difference between the three business forms is in terms of the number
of owners and ownership transferability which is the reason of different
presentation of the equity. A sole/ single proprietorship presents only one
capital account called Owner’s Equity. It is increased by the initial and
additional investment made by the owner and the net income derived from the
current year’s business operations. It is decreased by the withdrawals made
by the owner and the net loss from the business operations for the current
year.
The following illustrates an SCE of a Single/Sole Proprietorship
Business
ABM Store
Statement of Changes in Equity
For the Period Ended December 31, 20xx
Owner’s Capital, January 1, 20xx ₱ xxx
Add:
Additional Investment ₱ xxx
Net Income for the year xxx xxx
Subtotal xxx
Less: Withdrawals for the year xxx
Owner’s Capital, December 31, 20xx ₱ xxx
Figure 7 – Proforma SCE of a Single Proprietorship
Partnership maintains a capital account for each partner which is
called Partner’s Equity, therefore, there can be more than one capital account
presented in the SFP. This account is also increased by the initial and
additional investments made by the partners plus the net income distributed
to the partners by way of allocation which is based on the profit and loss
sharing agreement stipulated in the partnership contract. The Partner’s
Equity is decreased by the withdrawals made by the partners and the net loss
distributed to the partners by way of allocation which is also based on their
profit and loss agreement.
FUNDAMENTALS ON ACCOUNTING, BUSINESS AND MANAGEMENT 2
The following illustrates an SCE of a Partnership.
A, B, and M Company
Statement of Changes in Partner’s Equity
For the Period Ended December 31, 20xx
A, Capital B, Capital M, Capital Total
Balance, January 1, 20xx ₱ xxx ₱ xxx ₱ xxx ₱ xxx
Add:
Partner’s Contribution xxx xxx xxx xxx
Net Income for the year xxx xxx xxx xxx
Subtotal xxx xxx xxx xxx
Less: Drawings for the year xxx xxx xxx xxx
Balance, December 31, 20xx xxx xxx xxx ₱ xxx
Figure 8 – Proforma SCE of a Partnership
The Corporation does not maintain a capital account for each
shareholder and does not allocate net income to each because there might be
thousands of them. Capital account for shareholders/ stockholders is called
Stockholder’s Equity. This is composed of equity accounts namely: Capital
Stock, Additional Paid-In Capital, and Retained Earnings. The Capital stock
and the additional paid in capital is increased by issuance of new stocks.
Retained earnings is increased by the net income earned from the operations
of the company while it is decreased by the distribution of dividends.
ABM Corporation
Statement of Changes in Partner’s Equity
For the Period Ended December 31, 20xx
Capital Additional Retained Total
Stock Paid-in Earnings
Capital
Balance, January 1, 20xx ₱ xxx ₱ xxx ₱ xxx ₱ xxx
Add:
Net Income for the year xxx xxx
Issuance of new stocks xxx xxx xxx
Subtotal xxx xxx xxx xxx
Less: Dividends xxx xxx
Balance, December 31, 20xx ₱ xxx ₱ xxx ₱ xxx ₱ xxx
Figure 9 – Proforma SCE of a Corporation
FUNDAMENTALS ON ACCOUNTING, BUSINESS AND MANAGEMENT 2
The foregoing discussion presented the items found in the equity section of a
Single Proprietorship, Partnership and Corporation. However, this lesson will
only require you to prepare the SCE of a single/ sole proprietorship form of
business.
Single/ Sole Proprietorship is the simplest form of business
organization. It is owned by only one person called the sole proprietor. The
owner and the business are considered as one entity and the claims of the
creditors of the business extend to the personal assets of the owner. Since
there is only one owner in a single proprietorship, the SCE will present only
one capital account.
CRUZ STORE
Statement of Changes in Equity
For the Period Ended December 31, 2019
Mr. Cruz, Capital, January 1, 2019 ₱ 150,000
Add:
Additional Investment ₱ 50,000
Net Income for the year 25,000 75,000
Subtotal 225,000
Less: Drawings for the year 40,000
Mr. Cruz, Capital, December 31, 2019 ₱ 185,000
Figure 10 – SCE of a Single Proprietorship
The bottom line which is the ending capital obtained from the SCE is
the amount presented in the Equity section of the SFP.
Note that SCE uses “for the period” because the amounts presented
in the SCE are changes during the period. This means that changes that
happened in the previous years are not included in the current year’s
statement.
