Senior High School

Fundamentals of Accountancy,
Business and Management 2
Module 3:
Statement of Changes in Equity (SCE)

LU_FABM 2_Module3 AIRs - LM

ABM – FUNDAMENTALS OF ACCOUNTANCY, BUSINESS AND MANAGEMENT 2
Module 3: Statement of Changes in Equity (SCE)
Second Edition, 2021

Copyright © 2021
La Union Schools Division
Region I

All rights reserved. No part of this module may be reproduced in any form without written
permission from the copyright owners.

Development Team of the Module

Author: Rudyna M. Minasalvas, TII

Editor: SDO La Union, Learning Resource Quality Assurance Team
Content Reviewer: Rudyna Minasalvas
Language Reviewer: Liza Antolin
Illustrator: Ernesto F. Ramos Jr.
Design and Layout: Angela Pauline C. Ganuelas

Management Team:

Atty. Donato D. Balderas Jr.

Schools Division Superintendent
Vivian Luz S. Pagatpatan, PhD
Assistant Schools Division Superintendent
German E. Flora, PhD, CID Chief
Virgilio C. Boado, PhD, EPS in Charge of LRMS
Lorna O. Gaspar, EPS in Charge of ABM
Michael Jason D. Morales, PDO II
Claire P. Toluyen, Librarian II

Printed in the Philippines by: _________________________

Department of Education – SDO La Union

Office Address: Flores St. Catbangen, San Fernando City, La Union
Telefax: 072 – 205 – 0046
Email Address: [email protected]

LU_FABM 2_Module3
 Senior High School

Fundamentals of Accountancy,
Business and Management 2
Module 3:
Statement of Changes in Equity

LU_FABM 2_Module3
Introductory Message
This Self-Learning Module (SLM) is prepared so that you, our dear
learners, can continue your studies and learn while at home. Activities,
questions, directions, exercises, and discussions are carefully stated for you
to understand each lesson.

Each SLM is composed of different parts. Each part shall guide you
step-by-step as you discover and understand the lesson prepared for you.

Pre-tests are provided to measure your prior knowledge of lessons in

each SLM. This will tell you if you need to proceed with completing this module
or if you need to ask your facilitator or your teacher’s assistance for better
understanding of the lesson. At the end of each module, you need to answer
the post-test to self-check your learning. Answer keys are provided for each
activity and test. We trust that you will be honest in using these.

In addition to the material in the main text, Notes to the Teacher are
also provided to our facilitators and parents for strategies and reminders on
how they can best help you on your home-based learning.

Please use this module with care. Do not put unnecessary marks on
any part of this SLM. Use a separate sheet of paper in answering the exercises
and tests. And read the instructions carefully before performing each task.

If you have any questions in using this SLM or any difficulty in

answering the tasks in this module, do not hesitate to consult your teacher
or facilitator.

Thank you.

LU_FABM 2_Module3
 Target

This learning material will provide you with information and activities that will
help you understand the statement of changes in equity and provide you knowledge
on how to prepare this kind of statement for a sole proprietorship business.

MELC: Prepare a Statement of Changes in Equity for a single proprietorship.

(ABM_FABM12-lc-9)

After going through this module, you are expected to:

1. Define Statement of Changes in Equity;
2. Identify the components of Statement of Changes in Equity;
3. Recognize the steps in preparing Statement of Changes in Equity; and
4. Prepare a Statement of Changes in Equity for a single proprietorship.

Jumpstart

Activity 1: INCREASE, DECREASE, OR NO EFFECT?

Directions: For each transaction, tell whether the owner’s equity account will
increase, decrease or have no effect. Write I for increase, D for decrease, and NE for
no effect. Use a separate sheet of paper for your answers.

1. The owner invests personal cash in the business. ____________

2. Owner withdraws cash for personal use. ____________

3. Owner contributes her personal computer equipment to the business. ____________

4. Cash purchase of new table & chairs for business use. ____________

5. Business owner withdraws business assets for personal use. ____________

6. Owner gives additional cash investment in the business. ____________

7. Purchased computer equipment on credit. ____________

8. Paid rent in advance for 2 months. ____________

9. Purchased office supplies on credit. ____________

10. Additional cash investment in the business. ____________

1
LU_FABM 2_Module3
 Discover

What is equity and Changes in Equity?

EQUITY or Capital is the remaining value of an owner’s interest in the assets
of the business after considering all liabilities. The formula for SCE is total assets
minus total liabilities. This account is used to track the owner’s first and subsequent
investments in the company entity.

Statement of Changes in Equity

The Statement of Changes in Equity or Statement of Owner’s Equity (SCE)
records and summarizes the movement which occurred in owner’s equity. It reflects
the increase and decrease in the owner’s net assets during the accounting period.
The capital account/owner’s equity changes due to contributions, withdrawals, and
net income or a net loss.

Increased of owner’s equity are: Decreased Owner’s Equity are:

Additional Investment Drawing/ Withdrawals
Profit/Net Income Net Loss

The Statement of Changes in equity (SCE) is prepared prior to the 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).

Different Parts of Statement of Owner’s Equity

1. Heading

i. Name of the Company

ii. Name of the Statement
iii. Date of preparation (emphasis on the wording – “for the”)

2. Increases to Equity

i. Net income for the year

ii. Additional investment
3. Decreases to Equity
i. Net loss for the year
ii. Withdrawals by the owner

2
LU_FABM 2_Module3
 The following are the steps in preparing a statement of Changes in Owner’s
Equity for sole proprietorship using the adjusted trial balance:

STEP 1: Gather the needed information.

The Statement of Changes in Owner’s Equity is prepared next to the Income
Statement. Again, the most appropriate source of information in preparing financial
statements would be the adjusted trial balance or any report with a complete list of
updated accounts may be used.

STEP 2: Prepare the heading

Like any financial statement, the heading is made up of three lines. The first
line is the name of the company. The second line shows the title of the report. In this
case, the title is Statement of Changes in Owner’s Equity, Statement of Owner’s
Equity, or simply Statement of Changes in Equity. Any of the three titles would be all
right. The third line shows the period covered. The report covers a span of time; hence
we can use phrases, “For the Year Ended”, “For the Quarter Ended”, “For the Month
Ended”, etc. Some annual financial statements omit the “For the Year Ended” phrase.

Note: The use of the words “for the” in the SCE changes during the period. This means
that what happened in the previous years are not included in the Statement.

3
LU_FABM 2_Module3
STEP 3. Report Capital at the beginning of the period.
Report the capital balance at the beginning of the period – or the amount at
the end of the previous period.

STEP 4. Add additional contributions

Contributions from the owner increases capital, therefore, it must be added
to the capital balance. If the owner has an additional investment for this year, just
add it to the beginning capital. If none just put a dash (-).

Step 5: Add net income

Net income increases capital; hence it is added to the beginning capital
balance. Net income is equal to all revenues minus all expenses. Refer to the income
statement that was previously prepared for the amount.

STEP 6. Deduct owner’s withdrawals

Withdrawal made by the owner is recorded separately from contributions. It

can easily be found in the adjusted trial balance as “Owner’s Drawing”, “Owner’s
withdrawals”, or any other appropriate account. Withdrawal decreases capital;
therefore, it must be deducted from the capital balance.

4
LU_FABM 2_Module3
STEP 7. Compute for the ending capital balance
Compute for the balance of the capital account at the end of the period and
draw the lines. Take note, one horizontal line means that a mathematical operation
has been performed. Two horizontal lines (double-rule) are drawn below the final
amount.

5
LU_FABM 2_Module3
Source: De Guzman, Angeles A (2006). Fundamentals of Accountancy, Business and Management 2. LORIMAR
Publishing pages 26-30, Cubao, Quezon City

For more understanding in Statement Changes in Equity, you must also know the
following terms:

Sole Proprietorship - A Sole Proprietorship is a business structure owned by an

individual who generally has full control and authority over the business. The
business owner is referred to as the “sole proprietor” and exclusively owns all assets
and profits of the business. He or she is also personally liable for all the debts and
losses that the business might incur.

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, Prince, & Farina, 2012)

REMEMBER

A business can still earn, has a lot of assets but also has very small equity
because of a lot of liabilities. This means that the owner of the business has a
very small claim over the company’s assets and income.

6
LU_FABM 2_Module3
 Explore

Let’s check how much you have learned from the lesson.

Activity 1: TRUE or FALSE?

Directions: Write TRUE if the statement is correct and FALSE if the statement is
incorrect. Write your answer in your answer sheet.
_________ 1. Investment decreases owner’s equity.
_________ 2. Net loss is added to the drawing account before it is deducted to the
capital beginning and additional investment.
_________ 3. Statement of Changes in Owner’s Equity summarizes the items
affecting the expense account of a sole/single proprietorship business.
_________ 4. Contributions from the owner increases capital, therefore, it must be
deducted from the capital balance.
_________5. Preparation of the heading is the second step in the preparation of the
Statement of Changes in Equity.
Activity 2: IDENTIFY ME!
Directions: Identify what is being asked. Write the correct answer in your answer
sheet.
_________ 1. It is the very first investment of the owner to the business.
_________ 2. It is the first line in the heading of Statement of Changes in Equity.
_________ 3. This is the statement which shows the movement of the owner’s equity
account during the period
_________ 4. It is a kind of statement which shows the Net Income and Net Loss
amount.
_________5. This is the most appropriate source of information in preparing the
statement of changes in equity.
_________ 6. This increases the owner’s equity without additional investment by the
owner.
_________ 7. Aside from the withdrawals of owners, this also decreases owner’s
equity account.
_________ 8. These words/accounting terms in SCE specify the changes during the
accounting period.

7
LU_FABM 2_Module3
_________ 9. It is prepared prior to preparation of the Statement of Financial
Position
_________ 10. Aside from net loss, this also decreases owner's equity and should be
deducted to the capital balance.

8
LU_FABM 2_Module3
 Deepen

Activity 1: Answer Me!

Directions: Read and analyze the given problem below and answer what is being
asked. Show your computation. Write your answer on a separate sheet of paper.
(2 points each)
1. At the beginning, the owner’s equity amounted to Php 350,000. There was a net
loss of Php. 55,000 for the year. There were also no additional investments and
withdrawals for the period. Compute for the total increase and decrease in equity for
the year.

2. The ending owner’s equity amounted to Php. 80,000. During the year, there was
an additional Investment of Php. 40,000. The owner withdrew a total of Php. 65,000.
Compute for total owner’s equity for the year.

3. At the beginning, the owner’s equity was P350,000. The net income for the year
totaled Php. 60,000. Additional Investment of Php35,000 was also recorded during
the year. There were no withdrawals for the period. Compute for a total increase in
equity for the year.

4. Marco invested an initial capital amounting to P70,000 in order to put up his

Computer Services. During the first year of operations, the business had a loss of
Php30,000. Because of this, Marco invested additional capital amounting to
Php70,000 in 2018. In the second year, the company had a net income of
Php120,000 and Marco withdrew Php50,000 for his personal use. Compute for the
ending capital balance of Marco for the year 2019.

5. The following balances were retrieved from the records of ABM Trucking Services
for the year ended December 31, 2020. Prepare a Statement of Changes in Equity of
ABM Trucking Services.
Capital, January 01, 2020 Php. 700,000.00
Withdrawals 150,000.00
Additional Investments 77,000.00
Net loss 45,000.00

9
LU_FABM 2_Module3
 Gauge

Directions: Read carefully each item. Write only the letter of the best answer for each
test item. Use a separate sheet for your answers.
_____1. Which business structure is owned by an individual who generally has full
control and authority over the business?
A. Cooperative B. Corporation
C. Merchandising Business D.Sole Proprietorship

_____2. Which of the following increases the owner’s equity without additional
investment by the owner?
A. Additional Investment B. Drawings Net
C. Net Loss D. Net Income
_____3. Which of the following is NOT a component of the Statement of Changes in
Equity?

A. Total comprehensive income for the period.

B. The effect of changes in accounting policy.
C. Dividends paid to shareholders during the period.
D. The amount of cash that the company has on hand.

______4. What is the impact of an additional investment of the owner on the

Statement of Changes in Equity?
A. It increases the capital balance.
B. It decreases the capital balance
C. It has a negative effect on capital balance.
D. It has NO effect.

_____5. What is the most appropriate source of information in preparing the

statement of changes in equity?
A. Income Statement B. Trial Balance
C. Adjusted Trial Balance D. Unadjusted Trial Balance

II. Directions: Prepare a Statement of Changes in Equity. Use your family name as
the company name for the heading. (Two presentations of SCE showing net income
and net loss)

10
LU_FABM 2_Module3
Answer Key

11
LU_FABM 2_Module3
References
Printed Materials:
Department of Education. (2016). Fundamentals of Accountancy, Business and
Management 1, Teacher’s Guide for Senior High School. Quezon City,
Philippines.
Book:

De Guzman, Angeles A (2006). Fundamentals of Accountancy, Business and

Management 2. LORIMAR Publishing pages 26-30, Cubao, Quezon City

12
LU_FABM 2_Module3
 For inquiries or feedback, please write or call:

Department of Education – SDO La Union

CurricUlum Implementation Division
Learning Resource Management Section
Flores St. Catbangen, San Fernando City La Union 2500
Telephone: (072) 607 - 8127
Telefax: (072) 205 - 0046
Email Address:
[email protected]
[email protected]

13
LU_FABM 2_Module3