FUNDAMENTALS OF
SENIOR
ACCOUNTANCY, BUSINESS HIGH
AND MANAGEMENT 2(FABM 2) SCHOOL
2
Self-
Statement of Changes in Equity Learning
Module
for Single Proprietorship 7
Quarter 1
Statement of Changes in Equity for Single Proprietorship
All changes, whether increases or decreases to the owner’s interest on the
company during the period are reported in the Statement of Changes in Equity. 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 Statement of
Financial Position. (Haddock, Price, & Farina, 2012 as cited by Monfero [Link], 2016,
38).
According to the International Accounting Standards, (2016) the statement of
changes in equity must show the following:
total comprehensive income for the period, showing separately amounts attributable
to owners of the parent and to non-controlling interests;
the effects of any retrospective application of accounting policies or restatements
made; and
reconciliations between the carrying amounts at the beginning and the end of the
period for each component of equity, separately disclosing: profit or loss, other
comprehensive incomes and transactions with owners, showing separately
contributions and distributions to owners and changes in ownership interests.
Furthermore, preparing a Statement of Changes in Equity for a single
proprietorship is quite direct. It also shows the movement in the capital account of
the owner. The Elements of an SCE for single proprietorship include the beginning
capital, additional investment, net income, and withdrawals. (Beticon [Link]. 2016,
55) A pro forma of an SCE for single proprietorship is shown below.
Name of the Company
Name of the Statement
For the Year Ended mm/dd/yyyy
Owner, Equity, Beginning Php XXX
Add:
Additional Investment XXX
Net Income XXX XXX
XXX
Less: Drawing (XXX)
Owner, Equity, Ending XXX
Figure 7.1 Pro forma of the Statement of Changes in Equity for Single Proprietorship
Preparation of Statement of Changes in Equity for Single Proprietorship
1. Prepare the statement heading
The statement heading includes the name of the company, the name of the
statement, and the date covered. The date of the Statement of Comprehensive
Income use “for the” because the amount in the SCI are temporary, meaning that
each period, amount go back to being zero to start all over.
ABC Company
Statement of Changes in Equity
For the Year Ended December 31, 2019
Figure 7.2. Heading
2. Determine the beginning balance of the capital (equity).
The equity beginning is the opening balance of the owner’s equity account. This is
the ending balance of the equity in the previous accounting period.
ABC, Equity, Beginning Php 1,000,000.00
Figure 7.3. Beginning Balance of Capital
3. Determine the amount of investment (additional)
Additional investment increases the owner’s equity by adding investments by the
owner.
Add:
Additional Investment 250,000.00
Net Income 500,000.00 750,000.00
1,750,000
Figure 7.4. Additional Investment and Net Income
4. Determine the amount of the net income.
Determining the amount of the net income is being done by looking at the statement
of comprehensive income. This is the reason why the statement of comprehensive
income is prepared first before the SCE.
In case of net loss, the corresponding amount is deducted to arrive at the ending
capital. This is because net loss decreases the equity of the owner to the business.
5. Determine the balance of the drawing account.
This can be done by referring to the ledger balance of the owner’s drawing account.
The bookkeeper or accountant use the owner’s drawing account to record withdrawals
of the owner. Entries to this account decrease equity. It is closed at the end of the
year to the capital account.
Less: Drawing (300,000)
Figure 7.4. Drawing
6. Determine the ending balance of the capital or owner’s equity account.
After determining the beginning balance, investment, net income (or net loss), and
drawing, the ending balance of the equity account will be determined. This is done by
footing the partially completed SCE. The completed SCE is shown below.
ABC Company
Statement of Changes in Equity
For the Year Ended December 31, 2019
ABC, Equity, Beginning Php 1,000,000.00
Add:
Additional Investment 250,000.00
Net Income 500,000.00 750,000.00
1,750,000.00
Less: Drawing (300,000)
ABC, Equity, Ending Php 1,450,000.00
Figure 7.5. Statement of Changes in Equity for Single Proprietorship