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STATEMENT OF CHANGES IN EQUITY FOR SOLE PROPRIETORSHIP

⁃ Preparing a statement of changes in equity (SCE) for a sole proprietor is quite straightforward.

⁃ The elements of an SCE for a sole proprietorship include the beginning capital, additional
investment, net income, and withdrawals.

⁃ The heading of the SCE resembles that of a statement of comprehensive income.

⁃ This is because the SCE shows the movement in the capital account of the owner.

⁃ The equity beginning is the opening balance of the owner's equity account.

⁃ This is the ending balance of the equity account in the previous year.

⁃ Additional investment pertains to any capital infusion made by the owner for the year.

⁃ Net income, on the other hand, pertains to the amount earned by the sole proprietorship for the
year.

⁃ After net income, drawing is deducted from the balance.

⁃ Drawing represents the owner's return of investment.

⁃ Finally, equity ending represents the balance of the owner's equity at the end of the year.

STATEMENT OF CHANGES IN EQUITY FOR UY LAW OFFICE

1. Draft the heading

• As stated above, the heading of the SCE similar to the statement of comprehensive income.

2.Determine the beginning balance of capital (equity)

• There is no beginning balance of the capital (equity) .In the event of the subsequent year, the
bookkeeper or accountant will trace the beginning balance from the previous year's SCE

3. Determine the amount of investment (initial or additional)

• The SCE should bear line item "Initial Investment" instead of "Additional Investment." Additional
investment would be used for succeeding years of operations. The amount of the initial investment can be traced to
the general ledger account or T-account, as shown below.

4.Determine the amount of the net income

• Next, the bookkeeper or accountant determines the amount of the net income. This is usually done
by referencing to the statement of comprehensive income.
5. Determine the balance of the drawing (withdrawal) account

• After determining the balance of the net income, the accountant then determines the balance of the
owner's drawing account. This can be done by referring to the ledger balance or T-account of the withdrawal
account.

6.Determine the ending balance of the capital or owners equity account

• After determining the beginning balance, investments, net income (or ner loss), and withdrawal, the
accountant now determines the ending balance of the equity account.

• The ending balance of the equity or capital account coincides with the ledger balance of the said
account in the post-closing trial balance.

Partnerships

• Two or more persons bind themselves to contribute money, property, or industry to a common
fund, with the intention of dividing the profits among themselves. Based on the definition above, a partnership
involves two or more persons in agreement. These persons are called partners. Their agreement is contained in a
document called articles of partnership. Finally, the ultimate goal of the partners is to divide profit among
themselves.

• A key advantage of a partnership is the ease of organization, as compared to a corporation.

• Another advantage of the partnership is the entity's larger source of capital and expertise, as
compared to a sole proprietorship.

• Major disadvantages of partnership include unlimited liability, limited existence, and mutual agency
of the partners. Generally, a partner's liability in the partnership can extend to his or her personal properties, similar
to a sole proprietor. However, the unlimited liability of a partner is subject to exceptions (i.e., the concept of a
limited partner). Partnerships also have limited existence. Generally, any change in the partnership may dissolve the
entity.

• The most common reason for a partnership's dissolution is the death of one partner. If the
remaining (alive) partners decide to continue the partnership, the old partnership (with the deceased partner) is
dissolved and a new partnership (among the living partners) is then formed.

• Common examples of partnerships are legal (law) firms and accounting or auditing firms.

STATEMENT OF CHANGES IN PARTNERS' EQUITY (CAPITAL)

• A statement of changes in partners' equity (capital) is prepared for partnerships after preparing the
statement of comprehensive income. The said statement will have identical line items with the SCE of sole
proprietorships. These line items include beginning equity, net income, additional investments, withdrawals, and the
ending capital. However, the major difference of a partnership's SCE to a sole proprietor's SCE is the heading
reserved for each partner's interest.

CORPORATION

• The Corporation Code of the Philippines (1980) defines the word

corporation as:
"artificial being created by operation of law, having the right of succession and the powers, attributes, and properties
expressly authorized by law or incident to its existence."

Corporation as an Artificial Being

In the eyes of the law, a corporation is a being independent of its owners.

• A corporation will have a name and a "birth" date (incorporation date) just like a normal person.

• As an artificial being, a corporation has rights, powers, and attributes.

• The name, powers, objectives, and registered address of a corporation are included in a document
called the articles of incorporation.

Stocks and Stock Certificates

• A corporation's unit of ownership is called a stock. Every corporation is authorized to issue a certain
number of stock. This authorized stock is the maximum amount of stock that can be issued by a corporation. The
stock or unit of corporate ownership is represented by a stock certificate.

• A stock certificate is a piece of paper representing the ownership of one stock of the corporation. If
the authorized stock is the maximum amount of stock that corporation can issue, then subscribed capital is the
amount of money for which certain individuals have promised to pay to the corporation for their ownership.

Stockholders: Types and Rights

• Owners of a corporation are called stockholders (also called shareholders).

• Generally, stockholders will have rights to vote to dividends and to new stock issues.

• Voting in a corporation is generally proportional to the number of shares held by the stockholders.

• Right to dividends pertain to the stockholders ability to receive the distribution of excess profits
from current and previous years. Dividends are generally considered as returns on the amount invested in the
stocks.

• Generally, dividends are declared per unit of share held by the stockholders.

Advantages and Disadvantages

The major advantage of a corporation is the centralization of management through the board of directors. The board
of directors exercises oversight functions over the corporation. The directors composing the board will bring with
them the expertise they have gained throughout their respective careers, as they lead the corporation. Unlike
partnerships and sole proprietorships, corporations may withstand their original owners. Specifically, ownership of a
corporation may be inherited by respective heirs of the original owners.

A corporation is given a separate personality from their shareholders. By extension, it is distinct and different with
the stockholders. Furthermore, the liabilities of it may not extend to the stockholders, unlike in sole proprietorships
and partnerships.

The major disadvantage of a corporation is its stringent requirements for registration. Also, corporations are
subjected to heavy government regulations through the Securities and Exchange Commission.
Corporations are also subjected to "double taxation.Also, if the corporation decides to declare dividends to its
stockholders, then the dividends are again subjected to a withholding tax. It can be noted that a corporation's
income is doubly taxed as it passes from the corporation to the sto