GRADE

12

ACCOUNTING 2
Work Sheet (Q1, Wk3)

Statement of Changes in
Equity (SCE)

Most Essential Learning Competency:

1. Discuss the different forms of business organization

2. Prepare an SCE for a single proprietorship
 Activities

Activity 1.1
Title of Activity: Preparation of a Statement of
Changes in Equity (SCE)

Objectives:
1. Recognize the different forms of business organization.
2. Identify the basic elements of SCE.
3. Develop a keen analysis in preparing a SCE.
4. Reflect the importance of SCE in a business.

Procedure:
A. Click the following link and watch the video:
https://www.youtube.com/watch?v=nzRi-I1MYHw
B. Write the different forms of Business Organization and its
characteristics in a yellow pad paper.
C. The following balances were reported in the records of Harry’s
Computer Shop for the year ended December 31, 2019.
Prepare the Statement of Changes in Equity (SCE) in its correct
format presentation.

Capital, January 1, 2019 - P500,000

Withdrawals - 100,000
Additional investments - 50,000
Net Loss - 45,000

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Critical Thinking Questions
1. How do the different business organization differ based on their
characteristics?

________________________________________________________

2. How do the net income/loss affect the equity?

3. How do withdrawals affect the equity?

________________________________________________________________

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 Remember
• There are three (3) major forms of business organization – single
or sole proprietorship, partnership and corporation.
o Single/sole proprietorship is a business set up and managed
by one person. Most small business enterprises like sari-sari
store, beauty parlors, water refilling stations, bakeries,
barbershop, etc. are in this form of business organization
o Partnership is a business owned by two or more persons
called partners who contribute money, property and talent
into a common fund for profit sharing. Business partners are
usually the managers. Professionals like lawyers,
accountants, engineers and doctors usually put up
partnership or consultancy firm.
o Corporation is a business organized by a separate legal
entity from the owners. Owners are called stockholders or
shareholders. It is managed by a Board of Directors elected
by the stockholders from among themselves.

• Statement of Changes in Equity is a financial statement in w/c all

changes, whether increases or decreases to the owner’s equity
on the company are reported
o it is prepared prior to the preparation of the SFP to be able to
obtain the ending balance of the equity to be used in the SFP

• 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

• Withdrawals – decreases to owner’s equity by withdrawing assets

by the owner

• Distribution of Income – when a company is organized as a

corporation, owners (shareholders) do not decrease equity by

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 way of withdrawal, instead, the corporation distributes the
income to the shareholders based on the shares that they have
(%ge of ownership of the company).

• Different Parts of the Statement of Changes in Equity for Single

Proprietorship
o Heading – Company Name, Name of the Statement, Date of
Preparation
o Increases to Equity – Net Income for the Year, Additional
Investment
o Decreases to Equity – Net Loss for the Year, Withdrawals by
the owner

• Different Parts of the Statement of Changes in Equity for

Partnership – same different parts provided that for each partner
there is a separate column of the given accounts for increase or
decrease in equity

• Changes in Shareholder’s Equity is used by a Corporation instead

of the Changes in Owner’s Equity. The following are the
difference between the two:
o Title – instead of owner’s, shareholders is used to denote that
this is a corporation
o 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.
o The capital account is called share capital (just like owner’s
being shareholders)
o Instead of additional investment, share issuances (happens
when share are sold to shareholders) increases the share
capital of a corporation.
o Instead of withdrawals, distribution of net income to
shareholders decreases the capital of the corporation.

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 Checking your Understanding
Critical Thinking Questions: Write your answers in a yellow
pad paper.
1. What form of business organization is the most difficult to
establish? Why? Give your reasons.
___________________________________________________________
___________________________________________

2. Why is it that single proprietorship has unlimited liabilities??

___________________________________________________
___________________________________________________

3. What are the causes of increase or decrease in owner’s

equity? Explain.
___________________________________________________________
___________________________________________________________

4. How does the Changes in Shareholders’ Equity differ from

Changes in Owner’s Equity?

5. How important is Statement of Changes in Owner’s Equity

(SCE) as a Financial Statement?

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 Evaluation
Directions: Write the letter of the correct answer in a separate
paper.
A. Matching Type:
1. This a business organized by a separate A. By-Laws
legal entity from the owners. B. Stockholders
2. Kind of partner with unlimited liability. C. Corporation
3. Legal document needed for a corporation. D. Industrial Partner
4. Owner has unlimited liability. E. Sole Proprietorship
5. They are the owners of a corporation F. General Partner
G. Dividend
B. Multiple Choice:
1. Instead of withdrawals, this is the account name used to
decreases the capital of the corporation.
A. Investment pull-out
B. Distribution of Net Income
C. Capital Outlay
D. Shareholders’ Loss
2. It is the very first investment of the owner to the company
A. Capital C. Initial Investment
B. Drawings D. Stocks
3. It contains the Company Name, Name of the Statement and
Date of Preparation
A. Heading C. Increase in Asset
B. Increases to Equity D. Decreases to Equity

4. It is also called share capital

A. Beginning Capital C. Ending Capital
B. Investment D. Capital Account

5. This occurs when there is net loss for the year or withdrawals by
the owner
A. Bankruptcy C. Increase in Asset
B. Increases to Equity D. Decreases to Equity

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 Answer Card
D 5.
D 4.
A 3.
C 2.
B 1.
M.C. B.
B 5.
E 4.
A 3.
F 2.
C 1.
M.T. A.

Evaluation

References
Books:
Fundamentals of Accountancy, Business & Management 2 (Teachers Guide)
Zenaida Vera Cruz-Manuel, 21st Century Accounting Process (22nd Ed.),
Raintree Trading & Publishing, Inc.
Nelson S. Abeleda, Simplified Accounting for Single Proprietorship (2009),
Nelson Publications
Internet:
https://www.youtube.com/watch?v=nzRi-I1MYHw

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 Written by:
EVELYN S. PLAZA, San Juan City Academic Senior High School

For questions or comments, write or call:

Department of Education
Schools Division Office – San Juan City
Pinaglabanan St., San Juan City, Philippines 1500
Telefax: (632) 8451-2699; (632) 8251-2383
Email Address: depedsanjuanrecords@gmail.com