STATEMENT OF

CHANGES IN EQUITY

OWNER: MS. JACEL D. GADON

Philippine Accounting Standard 1 requires an entity to present
a statement of changes in equity as a separate component of
the financial statements. The statement must show:

• 1. PROFIT OR LOSS FOR THE PERIOD;

• 2. EACH ITEM OF INCOME AND EXPENSE FOR THE PERIOD THAT IS
RECOGNISED DIRECTLY IN EQUITY, AND THE TOTAL OF THOSE ITEMS;
• 3. TOTAL INCOME AND EXPENSE FOR THE PERIOD CALCULATED AS THE SUM
OF (A) AND (B), SHOWING SEPARATELY THE TOTAL AMOUNTS
ATTRIBUTABLETO EQUITY HOLDERS OF THE PARENT AND MINORITY
INTEREST; AND
4. FOR EACH COMPONENT OF EQUITY, THE
EFFECTS OF CHANGES IN ACCOUNTING
POLICIES AND CORRETIONS OF ERRORS.
THE FOLLOWING AMOUNTS MAY ALSO BE PRESENTED ON THE FACE OF STATEMENT
OF CHANGES IN EQUITY, OR THEY MAY BE PRESENTED IN THE NOTES:

CAPITAL TRANSACTIONS WITH OWNERS;

THE BALANCE OF ACCUMULATED PROFITS AT THE BEGINNING AND AT THE

END OF THE PERIOD, AND THE MOVEMENTS FOR THE PERIOD; AND

A RECONCILIATION BETWEEN THE CARRYING AMOUNT OF EACH CLASS OF

EQUITY CAPITAL, SHARE PREMIUM AND EACH RESERVE AT THE BEGINNING
AND AT THE END OF THE PERIOD, DISCLOSING EACH MOVEMENT.
THREE TYPES OF
BUSINESS
ORGANIZATION
1. SOLE PROPRIETORSHIP
THE EQUITY IS SIMPLE CALLED AN OWNER’S EQUITY or
CAPITAL (COMPOSED OF OWNER’S CONTRIBUTIONS AND
DRAWINGS AND ACCUMULATED EARNINGS OR LOSSES)
A sole proprietorship is an unincorporated business
owned by one individual. The gains and losses of the sole
proprietorship are reported on the owner's personal
income tax return. The owner of a sole proprietorship is
responsible for all debts and liabilities.
2. PARTNERSHIP

THE EQUITY IS COMPOSED OF ALL THE PARTNERS’ EQUITY

(PARTNERS’ CAPITAL CONTRIBUTION AND DRAWINGS AND
ACCUMULATED AND UNDIVIDED EARNINGS AND LOSSES.
A partnership is a form of business which enables two or more
persons to co-own an organization, and they agree to share the
profits and losses of the company. Each member of such a
business is called a Partner, and collectively they are known as a
partnership firm. 
3. CORPORATION

THE EQUITY OF A STOCK-CORPORATION INCLUDE CAPITAL

STOCK (COMMON AND PREFFERED SHARES), TREASURY STOCK
AND RETAINED EARNINGS.
A corporation is a legal entity created by individuals, 
stockholders, or shareholders, with the purpose of operating for
profit. Corporations are allowed to enter into contracts, sue and
be sued, own assets, remit federal and state taxes, and borrow
money from financial institutions.
The three main types of business
incorporations are:

C Corporation
C Corporation is the most common form of
incorporation among businesses and contains almost
all of the attributes of a corporation. Owners receive
profits and are taxed at the individual level, while the
corporation itself is taxed as a business entity.
S Corporation
S Corporation is created in the same way as a C
Corporation but is different in owner limitation and tax
purposes. An S Corporation consists of up to 100
shareholders and is not taxed as separate – instead,
the profits/losses are shouldered by the shareholders
on their personal income tax returns.
Non-Profit Corporation
Commonly used by charitable, educational, and
religious organizations to operate without generating
profits. A non-profit is exempt from taxation. Any
contributions, donations, or revenue received are
retained in the entity to spend on operations,
expansion, or future plans.
PURPOSE OF STATEMENT OF CHANGES IN EQUITY

THE PURPOSE OF THE STATEMENT OF CHANGES IN EQUITY IS TO

PROVIDE READERS WITH THE USEFUL INFORMATION ON HOW THE
CAPITAL OR FUND OF AN ENTITY IS UTILIZED AND USED. SINCE IT
SHOWS THE MOVEMENTS OF EQUITY AND ACCUMULATED EARNINGS
AND LOSSES, THE READERS CAN DEPICT ON WHERE THE COMPANY’S
EQUITY CAME FROM AND WHERE DID IT GO.
ELEMENTS

▹ 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)
PARTS OF THE STATEMENT OF CHANGES
IN EQUITY
▹ HEADING
a) Name of the company b) Title of the Financial Statement c) Date
of the Report
▹ INCREASES TO EQUITY
b) Net Income of the year b) Additional Investment c) Share Issuance
▹ DECREASES TO EQUITY
a) Net loss for the year b) Withdrawals by the owner c) Distribution
of Income
The Accounting Equation
Preparation of a Statement of Changes in
Owner’s Equity for a Sole Proprietorship:
Preparing a Statement of Changes in Equity for a Sole
Proprietorship is quite simple. The elements of an SCE for a sole
proprietorship include the beginning capital, additional investment,
net income/net loss and withdrawals.
1. Draft the heading Name of the Company Name of the
Statement Date of preparation
2. Determine the beginning balance of the capital or equity - The
beginning balance of the owner’s equity account or the ending
balance of the equity account in the previous year.
3. Determine the amount of investment (initial or additional)
Initial Investment – The very first investment of the owner to the
company. Additional Investment – Increases to owner’s equity by
additional investments by the owner.
4. Determine the amount of net income or net loss Net Income –
the amount earned by the sole proprietor for the year. Net Loss –
happens when the expenses exceeds the revenue.
5. Determine the balance of the drawing (withdrawal) account.
Drawing – represent the owner ’s return of investment. - Reduces
the owner ’s equity as a result of the owner taking cash or other
assets out of the business for personal use.
6. Determine the ending balance of the capital or owner ’s equity
account
Statement of Changes in Equity of a
Partnership
▹ 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.)
 Statement of Changes in Equity a
Corporation
▹ 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.
GIVE ME 3 THINGS THAT YOU REMEMBER
IN THIS PARTICULAR LESSON.
DO YOU HAVE ANY QUESTION
REGARDING OUR TOPIC?
Resources

What is a Corporation? - Various Types and Reasons to Incorporate (corporat

efinanceinstitute.com)

ABM FABM2 Module 3 Lesson 1 Statement OF Changes IN Equity (studocu.c

om)

Statement of Changes in Equity (studocu.com)