3 - ABM 2 - Statement of Changes in Equity

3.
Statement
of Changes
in Equity
FUNDAMENTALS OF
ACCOUNTANCTY,
BUSINESS AND
MANAGEMENT 2
Complete Set of Financial Statements
1. Statement of Financial Position

2. Statement of Comprehensive Income
3. Statement of Changes in Equity
4. Statement of Cash Flows
5. Notes to Financial Statement
Relationship between Financial Statements
2
Review
service business vs merchandising business
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,
Definition of Terms
1. Statement of Changes in Equity
2. Initial Investment
3. Additional Investment
4. Withdrawal or Distribution of Income
5. Capital
6. Drawing
Statement of Changes in Equity
The statement of changes in equity is a reconciliation of
the beginning and ending balances in a company’s
equity during a reporting period. It is not considered an
essential part of the monthly financial statements, and
so is the most likely of all the financial statements not to
be issued.
However, it is a common part of the annual financial

statements. The statement starts with the beginning
equity balance, and then adds or subtracts such items
as profits and dividend payments to arrive at the ending
balance.
Purpose of SoCE
This primary purpose of Statement of Changes in Equity is
to provide details about all the movements in
the equity account during an accounting period, which is
otherwise not available anywhere else in the financial
statements.
As such, it helps the shareholders and investors make

more informed decisions about their investments.
Further, it also allows the analysts and other readers of

the financial statements to understand what factors
resulted in the change in the equity capital.
Statement of Changes in Equity
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).
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 hareholders
based on the shares that they have (percentage of ownership of the company)
2
2
2
Elements of Equity
Sole
Partnership Corporation Effect in Equity
Proprietorship
Initial capital Initial Initial investment/ Initial Increase
contribution investment/ Capital investment/
Capital Paid up Capital
Additional Additional Additional Additional Increase
capital investment/ investment/ investment/
contribution Additional Capital Additional Capital Paid up Capital
Income Withdrawal or Profit sharing Dividends Decrease
distribution drawing
Net income Increase
Net loss Decrease
2
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.
2
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?
The following balances were retrieved from the records of Juan’s Janitorial Services for the year
ended December 31, 2016:
Capital, January 1, 2016 P500,000
Withdrawals 100,000
Additional Investments 50,000
Net Loss 45,000
The following balances were retrieved from the records of Juan’s Janitorial Services for the year
ended December 31, 2016:
Capital, January 1, 2016 P500,000
Withdrawals 100,000
Additional Investments 50,000
Net Loss 45,000
JUAN’S JANITORIAL SERVICES

STATEMENT OF CHANGES IN EQUITY
FOR THE YEAR ENDED DECEMBER 31, 2016
Juan Capital, January 1, 2016 P 500,000

Add:
Additional Investment 50,000
Sub‐total P 550,000
Less:
Net Loss 2016 P 45,000
Withdrawals for the year 30,000 75,000
Juan, Capital, December 31, 2016 P 475,000

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3.

1. Statement of Financial Position

service business vs merchandising business

a.Revenues – service income, sales

However, it is a common part of the annual financial

As such, it helps the shareholders and investors make

Further, it also allows the analysts and other readers of

Additional Investment – Increases to owner’s equity by adding investments by the

Withdrawals –Decreases to owner’s equity by withdrawing assets by the owner

JUAN’S JANITORIAL SERVICES

Juan Capital, January 1, 2016 P 500,000

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