Statement of Changes in Equity

(SCE)
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.
Single/Sole Proprietorship
 An entity whose assets, liabilities,
income, and expenses are centered
or owned by only one person 
Partnership
An entity whose assets, liabilities,
income and expenses are centered
or owned by two or more persons
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.
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
Withdrawal
Decreases to owner’s equity by
withdrawing assets by the owner
Three major types of business organizations
in the Philippines
(based on classification of ownership.) :
Single/Sole Proprietorship
 This is a business organization owned by one
person
 The owner of the sole proprietorship is the
proprietor
 In most cases the proprietor is also the
general manager of a sole proprietorship
Single/Sole Proprietorship
 Major disadvantages of sole proprietorship include
limited source of capital, proprietor’s unlimited
liability, and business entity’s limited existence.
 Common examples of sole proprietors are stores
and individuals rendering professional services like
lawyers, physicians, dentists, and accountants.
Partnership
Title lX, Chapter 1 of the Philippine Civil Code
defines partnership as a contract where 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. These persons are called
partners
Partnership
 Their agreement is contained in a
document called articles of partnership.
The ultimate goal of the partner is
to divide the profits among
themselves
Partnership
 A key advantage of a partnership is the
ease of organization
Another advantage of a partnership
is the entity’s larger source of capital
and expertise
Partnership
 Major disadvantages of partnership
include unlimited liability, limited
existence, and mutual agency of the
partners
 Common examples of partnerships are
legal (law) firms and accounting firms.
Corporation
 The Corporation Code of the Philippines (1980)
defines the word corporation as an “artificial
being created by operation of law, having
the right word of succession and the
powers, attributes and properties
expressly authorized by law or incident to
its existence.”
Corporation as Artificial Being
 In the eyes of the law, a corporation is an
artificial being independent of its owners.
 As an artificial being, a corporation has rights,
powers, and attributes.
 It can acquire its own property.
Corporation as Artificial Being
 The names, powers, objectives, and
registered address of a corporation are
included in a document called the articles of
incorporation.
 Owners of a corporation are called
stockholders (also called shareholders).
Corporation as Artificial Being
 Generally, stockholders have rights to vote,
dividends, and new stock issues.
 Right to vote pertains to the stockholders
ability to participate in the significant
decision making agenda of the corporation
through voting.
Corporation
 The major advantage of a corporation is the
centralization of management through the
board of directors.
 Another advantage of corporate
organizations is its long existence.
Corporation
 The major disadvantage of a corporation is its
stringent requirements for registration.
 Also, corporations are subjected to heavy
government regulation through the
Securities and Exchange Commission (SEC).
 Corporations are also subjected to double
taxation.
Review Activity
Presented on the next slide are the possible
advantages and disadvantages of a sole
proprietorship, partnership, and corporation.
Determine on the column the item pertains
to an advantage or disadvantage. In the
second column, determine the related
business organization. Item 1 is an example.
Preparation of 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 income,
net income, and withdrawals.
Sample Statement of Changes in Equity
 Problem Solving: Case #1
Sacro Law Firm is owned by Atty. Elaijah D. Sacro. The balance
of her capital as of January 1, 2021 is P1,800,000.00. During
the year, she invested an additional cash of
P450,000.00 in the business. Also, Sacro Law Firm earned
P168,750.00 of net income. Finally, she withdraws P112,500.00.

1. How much is the balance of Atty. Sacro’s capital as of

December 31, 2021?
2. Prepare a Statement of Changes in Owner’s Equity for
Sacro Law Firm.