Statement of Changes in Equity PDF

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THE FINANCIAL STATEMENT: S STATEMENT OF CHANGES IN EQUITYThere are four factors affecting the equity. It includes the investment and withdrawal of the owner, income and expense. These factors are presented in the statement of changes in equity.THE STATEMENT OF CHANGES IN EQUITY The financial stateme...

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THE FINANCIAL STATEMENT: S STATEMENT OF CHANGES IN EQUITY

Learning Outcomes After reading this chapter, the learners should be able to 1. Explain the nature of statement of changes in equity 2. Explain the account name used to represent the factors affecting the equity 3. Differentiate permanent and temporary withdrawal

There are four factors affecting the equity. It includes the investment and withdrawal of the owner, income and expense. These factors are presented in the statement of changes in equity. THE STATEMENT OF CHANGES IN EQUITY The financial statement provides information about the movement of capital or interest of the owner in the entity. For sole proprietorship and partnership, we use the following account to present the changes in equity. Capital is an account representing the original investment or contribution of the owner/s of the business. It is increased by additional investment or contribution and it is decreased by permanent withdrawal of the owner/s. Drawing is an account representing the temporary withdrawals made by the owners either in cash or other assets.

Income Summary (Income and expense Summary) is an account used at the end of the accounting period to summarize the income and expense of the company. The balance of this account shows the net income or net loss of the company for the period. The excess of income over the expense is called Net income while the excess of expense over the income is called Net loss. To illustrate, ABC Service Provider Company has a total a total equity of P250,000 in the beginning of the year. During the year, the owner of ABC company contributed additional P50,000 but made a temporary withdrawal of P65,000. At the end of the year the total income and expense are P1200,000 and P1,000,000 respectively. Compute the ending balance of equity: Based on the following illustration, in order to compute the ending balance of equity, the statement of changes in equity is necessary. The statement of changes in equity is presented

below: ABC Service Provider Company Statement of Changes in Equity December 31, 2020 Equity, Beginning Balance Add: Additional Investment Net income Total

250,000 50,000 200,000 500,000

Less: Drawings Equity, Ending Balance

65,000 435,000

The net income of P200,000 is computed by subtracting the total income (P1,200,000) with the total expense (P1,000,000). The ending balance of equity is P435,000. This balance is forwarded in the liability and equity section of statement of financial position. (SEE: statement of financial position) Appendix: Presentation of Net loss To illustrate, XYZ company has a total a total equity of P300,000 in the beginning of the year. During the year, the owner of ABC company contributed additional P100,000 but made a temporary withdrawal of P50,000. At the end of the year the total income and expense are P820,000 and P1,000,000 respectively. Compute the ending balance of equity: Based on the following illustration, in order to compute the ending balance of equity, the statement of changes in equity is necessary. The statement of changes in equity is presented below: ABC Service Provider Company Statement of Changes in Equity December 31, 2020 Equity, Beginning Balance Add: Additional Investment Total Less: Drawings Net Loss Equity, Ending Balance

300,000 100,000 400,000 50,000 180,000 170,000

The net loss of P180,000 is computed by subtracting the total income (P820,000) with the total expense (P1,000,000)....