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SINGLE/SOLE PROPRIETORSHIP
–An entity whose assets, liabilities, income and expenses are centered or owned by only one person
PARTNERSHIP – An entity whose assets, liabilities, income and expenses are centered or owned by two or
more persons.
CORPORATION
– An entity whose assets, liabilities, income and expenses are centered or owned by itself being a legally
separate entity from its owners. Owners are called shareholders or stockholders of the company.
Sample of SCE:
b. Increases to Equity
i. Net income for the year
ii. Additional investment
c. Decreases to Equity
i. Net loss for the year
ii. Withdrawals by the owner
The Statement of Changes in Partners’ Equity is used by a partnerships instead of the Statement of Changes in
Owner’s Equity. The differences between the two are as follows:
a. Title – instead of owner’s, partners’ is used to denote that this is a partnership
b. There are two or more owners in a partnership thus, the changes in the capital account of each partner is
presented
c. The net income is divided between partners (not always equal. Based on the agreement. Example: 60:40,
40:60, etc.)
The Statement of Changes in Shareholders’ Equity is used by a corporation instead of the Statement of
Changes in Owner’s Equity. The differences between the two are as follows:
a. Title – instead of owner’s, shareholders’ is used to denote that this is a corporation
b. There are an unlimited number of shareholders but unlike the partnership, the names of the shareholders
are not indicated here. Instead, the corporation keeps an official list with the corporate secretary
c. The capital account is called share capital (just like owner’s being shareholders)
d. Instead of additional investment, share issuances (happens when shares are sold to shareholders) increases
the share capital of a corporation
e. Instead of withdrawals, distribution of net income to shareholders decreases the Capital of the corporation.
EXERCISE 5: Answer the following questions.
1. Which form of business organization puts the least risk on its owners?
4. Decreases to owner’s equity apart from net effect of revenues and expenses.
5. Beginning owner’s equity amounted to P 300,000. Net loss for the year totaled P 45,000. No additional
investments and withdrawals for the period. Compute for total increase in equity for the year.
6. Ending owner’s equity amounted to P70,000. Additional investments during the year amounted to P30,000.
Withdrawals totaled P50,000. Compute for the company’s net income for the year assuming beginning
equity is P10,000.
3. Owner, Juan invested an initial capital amounting P50,000 in order to put up his janitorial services company.
During the first year of operations (2016), the company had a loss of P25,000. Because of this, Juan
invested additional capital amounting to P50,000 in 2017. In the second year (2017), the company had a
net income of P100,000 and Juan withdrew P10,000 for personal use. Compute for the ending capital
balance of Juan for the year 2017.
4. Owner Juana invested P100,000 to start her laundry business. During the first year of operations (2016), the
company had a net income of P15,000. Juana invested additional P100,000 to grow the business. In 2017,
the business earned P50,000. As of December 31, 2017, Juana’s capital balance is P200,000. How much is
Juana’s withdrawal?
5. In the Statement of Changes in Equity, the company had decreases in capital wherein income is distributed
to owners. Identify the kind of business.
6. The following balances were retrieved from the records of Juan’s Janitorial Services for the year ended
December 31, 2016: