Week 7 - Statement of Changes in Owners Equity

Question 1

Since the owner will bear the ultimate responsibility and will be accountable
for the success or failure of the business, it is important to understand the
changes in the owner’s equity or capital in the business. The statement of
changes in equity tells this story

Answer 1

read

Question 2

this is also known as Owner’s equity. It represents the right of the owner
over the resources of the firm

Answer 2

Capital

Question 3

It is also called net assets, or residual assets.
From the accounting equation, we can derive owner’s equity

Answer 3

Owner’s equity = Assets - Liabilities

Question 4

Usually it consists of the owner’s investment and the earned profit less any
withdrawals made during a given period.

Answer 4

Owners equity

Question 5

This is a type of business which is owned by only one person

Answer 5

Sole or single proprietorship

Question 6

this is also the manager or boss of his own
business.

Answer 6

Sole or single proprietorship

Question 7

two or more people join together to
contribute money, property or industry for purposes of dividing the profits
(or loss) among themselves.

Answer 7

PARTNERSHIP

Question 8

It is composed of five to fifteen people. It is organized by operation of the law
and considered the most complex form of a business organization.

Answer 8

Corporation

Question 9

Sole proprietorship

what account title should be use for Statement of owners equity

Answer 9

Name of owner, capital

Question 10

partnership

what account title should be use for Statement of owners equity

Answer 10

Name of owner, capital (create as many
capital accounts as there are owners)

Question 11

Corporation

what account title should be use for Statement of owners equity

Answer 11

Stockholders’ equity

Question 12

Like the Statement of Financial Position and Statement of Income, which
have different elements, the Statement of Changes in Equity also has its own.
These are as follows:

Answer 12

Beginning capital represents the total capital at the start of the business. If
the firm has been operating in the past year, the beginning capital of the
current year is the same the ending capital of the previous year.
Investments made by the owner may represent the original investment made
at the start of business, and any additional investments thereafter.
Investments are added to the capital beginning to arrive at the total
investments used during the year.
Net profit is also derived from the income statement and is also added to the
beginning capital and additional investments done during the year. If the
business incurred a net loss, the same is deducted.
Withdrawals or drawings are resources of the firm which were taken by the
owner for personal use.
Ending capital is the difference arrived at after deducting withdrawals from
the sum of the beginning capital, additional investments, and profit. Ending
capital also represents the residual claim of the owner on the total resources
or assets of the firm after deducting the claims of creditors.

Question 13

Similar to the heading of a statement of income, the statement of changes in
equity will have to show:

Answer 13

 Name of business
 Statement of changes in equity
 Period covered by the statement

Question 14

this is a Financial Statement that focuses on the residual interest of the
owner in the business.>

Answer 14

The Statement of Changes in Equity

Question 15

represents the total capital at the start of the business. If
the firm has been operating in the past year

Answer 15

beginning capital

Question 16

the ________ of the
current year is the same the ending capital of the previous year.

Answer 16

beginning capital

Question 17

______ made by the owner may represent the original investment made
at the start of business, and any additional _______ thereafter.
________ are added to the capital beginning to arrive at the total
investments used during the year

Answer 17

investment

Question 18

also derived from the income statement and is also added to the
beginning capital and additional investments done during the year. If the
business incurred a net loss, the same is deducted.

Answer 18

net profit

Question 19

are resources of the firm which were taken by the
owner for personal use

Answer 19

withdrawals or drawings

Question 20

the difference arrived at after deducting withdrawals from
the sum of the beginning capital, additional investments, and profit.

Answer 20

ending capital

Question 21

represents the residual claim of the owner on the total resources
or assets of the firm after deducting the claims of creditors.

Answer 21

ending capital

Question 22

what are the Steps in Preparing the Statement of Owner’s Equity

Answer 22

Step 1. Gather the needed information
The Statement of Changes in Owner’s Equity is prepared second to the Income
Statement. We will still be using the same source of information. Again, the most
appropriate source of information in preparing financial statements would be
the adjusted trial balance. Nonetheless, any report with a complete list of updated
accounts may be used. We will also be using the Income Statement later in the
process.
Step 2. Prepare the Heading
The heading is made up of three lines. The first line contains the name of the
company. The second line shows the title of the report: it would be Statement of
Changes in Owner’s Equity, Statement of Owner’s Equity, or simply Statement of
Changes in Equity. The third line shows the period covered. The report covers a span
of time; hence we use For the Year Ended, For the Quarter Ended, For the Month
Ended, etc.
Step 3. Capital at the beginning of the period
Report the capital balance at the beginning of the period reported – or the amount at
the end of the previous period. Remember that the ending balance of the last period
is the beginning balance of the current period.
Step 4. Add Additional Contribution
Contributions from the owner capital, hence added to the capital balance.
Step 5. Add Additional Contribution
Net income increases capital hence it is added to the beginning capital balance. Net
income is equal to all revenues minus all expenses.
Step 6. Deduct Owner’s withdrawals
Withdrawals made by the owner are recorded separately from contributions. You
can easily find it in the adjusted trial balance as “Owner, Drawings”, “Owner,
Withdrawals”, or any other appropriate account. Withdrawals decrease capital,
hence are deducted.
Step 7. Compute for the ending balance
Compute for the balance of the capital account at the end of the period and draw the
lines. One horizontal line means that a mathematical operation has been performed.
Two horizontal lines (double-rule) are drawn below the final amount

Question 23

The Statement of Changes in Owner’s Equity is prepared second to the Income
Statement. We will still be using the same source of information. Again, the most
appropriate source of information in preparing financial statements would be
the adjusted trial balance. Nonetheless, any report with a complete list of updated
accounts may be used. We will also be using the Income Statement later in the
process.

Answer 23

Step 1. Gather the needed information

Question 24

The heading is made up of three lines. The first line contains the name of the
company. The second line shows the title of the report: it would be Statement of
Changes in Owner’s Equity, Statement of Owner’s Equity, or simply Statement of
Changes in Equity. The third line shows the period covered. The report covers a span
of time; hence we use For the Year Ended, For the Quarter Ended, For the Month
Ended, etc.

Answer 24

Step 2. Prepare the Heading

Question 25

Report the capital balance at the beginning of the period reported – or the amount at
the end of the previous period. Remember that the ending balance of the last period
is the beginning balance of the current period.

Answer 25

Step 3. Capital at the beginning of the period

Question 26

Contributions from the owner capital, hence added to the capital balance

Answer 26

Step 4. Add Additional Contribution

Question 27

Net income increases capital hence it is added to the beginning capital balance. Net
income is equal to all revenues minus all expenses

Answer 27

Step 5. Add Additional Contribution

Question 28

Withdrawals made by the owner are recorded separately from contributions. You
can easily find it in the adjusted trial balance as “Owner, Drawings”, “Owner,
Withdrawals”, or any other appropriate account. Withdrawals decrease capital,
hence are deducted.

Answer 28

Step 6. Deduct Owner’s withdrawals

Question 29

Compute for the balance of the capital account at the end of the period and draw the
lines. One horizontal line means that a mathematical operation has been performed.
Two horizontal lines (double-rule) are drawn below the final amount

Answer 29

Step 7. Compute for the ending balance

Question 30

a report that shows the items that affect the capital or equity
account. Simply, we are just presenting this formula in a formal report:
Capital, ending = Capital, beg. + Additional Contributions + Net Income - Withdrawals
where: Net Income = Income - Expenses

Answer 30

Statement of Changes in Equity

Question 31

refers to the right of the owner over the resources of the firm after deducting the
claims of creditors.

Answer 31

EQUITY

Question 32

used by the firm will vary depending on the form of business
organization

Answer 32

equity accounts

Question 33

the account title usually used for sole proprietorships and partnerships

Answer 33

capital

Question 34

the account title used for corporations.

Answer 34

Stockholders’ equity

Question 35

arrived at by adding the beginning capital, any
additional investments made during the period, net income, and deducting any
withdrawals made by the owner.

Answer 35

Statement of changes in equity