BUSINESS1 - Statement of Changes in Owner’s Equity

Statement of Changes in Owner’s Equity

· This statement shows how the owner’s capital changes during a period.

· It starts with the Beginning Capital (the owner’s money at the start).

· Then you add Investments (new money the owner adds) and Net Income (profit from the Income Statement).

· You subtract Withdrawals (money the owner takes out for personal use).

· The result is the Ending Capital.

· This Ending Capital is transferred to the Balance Sheet under Owner’s Equity.

Example
You start a small snack stand:

Real-Life Example: School Bake Sale

Maria, a student, runs a small bake sale for two months.

· She started with ₱5,000 of her own money to buy baking equipment and ingredients. This is the Beginning Capital.

· During the two months, she decided to put in another ₱2,000 to expand her product choices. This is an Investment.

· From her sales, she earned a Net Income of ₱4,500 (from her Income Statement).

· She also took out ₱1,000 from the business to treat her family. This is a Withdrawal.

Maria’s Ending Capital is ₱10,500, which will appear in her Balance Sheet under Owner’s Equity.

XYZ Coffee Shop

· Alex opened the XYZ Coffee Shop with ₱50,000 as his beginning capital.

· After a few weeks, he added another ₱10,000 to buy a new espresso machine. This is an Investment.

· From daily coffee sales and pastries, the shop earned a Net Income of ₱15,000.

· Alex also withdrew ₱5,000 to pay for his personal expenses. This is a Withdrawal.

XYZ Coffee Shop Ending Capital is ₱70,000, which will appear in her Balance Sheet under Owner’s Equity.

Relationship of Income Statement and Statement of Changes in Owner’s Equity

· It shows if the business earned a Net Income or suffered a Net Loss.

· Formula: Revenues – Expenses = Net Income or Net Loss.

The Net Income or Net Loss is transferred to the Statement of Changes in Owner’s Equity.

· If there is Net Income, it is added to the owner’s capital.

· If there is Net Loss, it is subtracted from the owner’s capital.

· Beginning Capital

· Add: Investments and Net Income

· Less: Withdrawals and Net Loss

· Equals Ending Capital

Example:

Period: For the month of September

· Liza runs a milk tea shop. Here are her transactions in September:

· Sales Revenue: ₱40,000

· Rent Expense: ₱10,000

· Supplies Expense (tea, milk, pearls): ₱12,000

· Salaries Expense (part-time helper): ₱5,000

· Liza’s beginning capital in September was ₱50,000.

· She added an extra investment of ₱5,000.

· She withdrew ₱3,000 for personal use.

· The Net Income (₱13,000) from the Income Statement is carried into the Statement of Changes in Owner’s Equity.

· This Net Income increases Liza’s capital.

· The Ending Capital (₱65,000) will later appear in the Balance Sheet.