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Accounting

1) The document discusses key aspects of statements of changes in equity for sole proprietorships, partnerships, and corporations. 2) For sole proprietorships, the statement of changes in equity includes beginning capital, additional investments, net income, and withdrawals to show the capital account balance of the owner. 3) For partnerships, the statement is similar but the ending capital is reserved for each partner's interest. 4) For corporations, the statement includes common stock, additional paid-in capital, and retained earnings accounts.

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Roma Medina Paraginog
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589 views21 pages

Accounting

1) The document discusses key aspects of statements of changes in equity for sole proprietorships, partnerships, and corporations. 2) For sole proprietorships, the statement of changes in equity includes beginning capital, additional investments, net income, and withdrawals to show the capital account balance of the owner. 3) For partnerships, the statement is similar but the ending capital is reserved for each partner's interest. 4) For corporations, the statement includes common stock, additional paid-in capital, and retained earnings accounts.

Uploaded by

Roma Medina Paraginog
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
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Download as PPTX, PDF, TXT or read online on Scribd
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Chapter 4: Statement of Changes in

Equity
Learning Objectives:
1. Recall key features of a Statement of Changes in
Equity(SCE)

2. Discuss different forms of organizations

3. Prepare an SCE for a Single


Proprietorship,Partnership and a Corporation
Business Entity Concept
• Prevailing assumption in Accounting. States that the transactions of the
business must be distinguished and differenciated from the transactions of the
owners.
• Business transactions must be captured in the financial statements of the
reporting entity. Personal transactions, on the other hand must be kept in the
records of the owners.
Forms of Business
Organizations
• Sole Proprietorship
• Partnership
• Corporations
Sole Proprietorship
• Business owned by one person and also called as
“single proprietorship”
• Sole proprietor is also the General Manager, who
sees the day to day operations, they are more
involved than any other business owners.
Sole Proprietorship

Advantages Disadvantages
• Easy to organize • Limited sources
• One major source of Finances • Banks charges high interest
rates or lend.
• Unlimited liabilities of the sole
proprietor
• Bankrupcy occurs
Statement of Changes in Equity
For Sole Proprietorship

Preparing a statement changes in equity (SCE)


for a sole proprietor is quite straightforward.
The elements of an (SCE) for a sole
proprietorship includes the beginning capital,
additional investment, net income and
withdrawals. This shows the capital account of
the owner.
Steps:
1. Draft the heading
2. Determine the balance of capital (equity)
3. Determine the amount of investment
4. Determine the amount of the net income
5. Determine the balance of the drawing(withdrawal)
account
6. Determine the balance of the capital or owner’s equity
accounts
Partnerships
Two or more persons bind themselves to contribute
money, property on industry to a common fund, with
the intention of dividing the profits among
themselves (Philippine Civil Code,1949)
Partnership

Advantages Disadvantages
• Ease of organization • Limited existence
• Subject to specific exceptions • Consultation of partners
• Entity’s larger source of capital
and expertise
Statement of Changes in
Partners’ Equity
This statement is prepared for partnerships after
preparing the statement of comprehensive income. It
has an identical line items with the SCE of sole
proprietorships. These includes the beginning
equity, net income, additional investments and the
ending capital. The difference between partnership
and sole proprietor is the heading is reserved for
each partners ‘ interest.
Corporation
Artificial being created by operation of law, having
the right of succession and the powers, attributes,
and properties expressly authorized by law or
incident ot its existence.
Corporation as an Artificial
Being
• In the eyes of law, a corporation is being independent of its
owners.
• A corporation will have a “name” and “birth”(incorporation
date) just like a normal person.
• As an artificial being, a corporation has rights, powers and
attributes.
• the name, power, objectives and registered address of a
corporation are included in a document called the articles or
incorporation.
Stocks and Stock Certificates
A corporation’s unit is called a stock. Every corporation is
authorized to issue a certain number of stock. The stock or
unit of corporateis represented by stock certificate.
A stock certificate is a piece of paper representing the
ownership of one ot the stock of corporation.
~Par Value- synonymous to the amount of money printed in
Philippine Bills.
SAMPLE CERTIFICATE
Stockholders: Types and Rights
OWNERS OF CORPORATION ARE CALLED STOCKHOLDERS
1. Right to vote -pertains to the ability of a stockholder to participate in the
significant decision making.
2. Right to dividends –pertain to the ability of a stockholder to receive the
distribution of excess profits from current and previous years.
3. Right to new stock issues – called pre empremtive rights
this refers to the reference given to existing stakeholders in terms of new
stocks.
Advantages and Disadvantages
• Centralization of • Stringent requirements for
management registration.
• Protect the interest of • Double taxation
stockholders • Heavy government regulations
• Given separate
personality from
shareholders
• Liabilities are not
extended to stockholders
Corporate Statement of Changes in
Equity
Common Stock
Shows shared issues of the company. Furthermore, this contains the
number of shares issued by the company multiplied by the par value.
Additional Paid- in Capital
• This column shows the amount of money received by the company from the
issuance of shares, in excess of the par.
Retained Earnings
• This account contains all the net income and net loss incurred by the
corporation for the current and previous years.

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