UNIVERSITY OF MAKATI

J. P. Rizal Ext., West Rembo, Makati City

HIGHER SCHOOL NG UMAK
ABM AND LANGUAGE DEPARTMENT
Course Title Title
Fundamentals of Module
2
Accountancy, Business & No. Statement of Comprehensive Income (SCI)
Management 2
1. identify the elements of the SCI and describe each of these items for a service
Learning Objectives
business and a merchandising business;
At the end of the lesson, the
2. prepare an SCI for a service business using the single-step approach; and
students should be able to:
3. prepare an SCI for a merchandising business using the multistep approach.
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T The STATEMENT OF COMPREHENSIVE INCOME (or sometimes called Statement of profit or loss and other
R comprehensive income) provides a summary of a company’s net assets over a given period. In other words, the
statement highlights the adjustments on equity during a given timeframe.
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D The “statement of comprehensive income” is different from the “income statement” as the income statement
U only shows the profit or loss. A statement of comprehensive income contains two main things: the net income
and other comprehensive income (OCI). The net income is the result obtained by preparing an income
C statement. On the other hand, OCI consists of all the other items that are excluded from the income statement.
T OCI will be discussed in higher accounting studies.
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● Income statement vs. Statement of comprehensive income

C
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● Single-statement vs. Two-statement presentation
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 • Elements of the Statement of Comprehensive Income
- INCOME – is an increase in economic benefits during the period in the form of inflows or enhancements
of assets or decreases of liabilities that result in increases in equity, other than those relating to investments
by the business owners.
⮚ Income includes both revenue and gains. Revenue arises in the course of ordinary activities of the
business while gains represent other items that meet the definition of income and may or may not
C arise in the course of the ordinary activities of the entity.
O - EXPENSES – are decreases in economic benefits during the period in the form of outflows or depletions
of assets or increases of liabilities that result in decreases in equity, other than those relating to
N distributions to the business owners.
T ⮚ Expenses include both expenses and losses. Expenses arise in the course of ordinary activities of
E the business while losses represent other items that meet the definition of expense and may or
may not arise in the course of the ordinary activities of the entity.
N - The difference between income and expense represents profit or loss.
T ⮚ If income is greater than expenses, the difference is profit.
⮚ If income is less than expenses, the difference is loss.

● Presentation of Expenses
a. Nature of expense method - An income statement by nature method is the one in which expenses are
disclosed according to their nature such as depreciation, transports costs, rent expense, wages and salaries
etc. There is no reallocation of these expenses to different functions of the entity (i.e. cost of goods sold,
selling costs, administrative costs and other expenses)
(a) Net Purchases – is computed as follows:
Purchases
Add: Freight-In
Less: Purchase Returns
Less: Purchase Discount
Net Purchases

(b) Change in inventory – is the difference between the beginning inventory and the ending
inventory. This is computed as follows:

Inventory, Beginning
Inventory, Ending
Increase/Decrease

⮚ An increase in inventory is a deduction

⮚ A decrease in inventory is an addition

(a) Net Purchases

(b) Change in inventory
Cost of Goods Sold
 b. Function of expense method (Cost of sales method)
- The functional expense classification is a sorting and presentation method used in accounting, under which
expenses are aggregated and reported by the activities for which they were incurred. For example,
expenses could be aggregated by department and then reported as (for example) administrative expenses
and selling expenses
- Major categories of expenses under the function of expense method
a. Cost of sales - also known as the cost of revenue, and cost of goods sold (COGS), both keep track of
how much it costs a business to produce a good or service to be sold to customers
b. Distribution costs (or Selling expenses) – are cost attributable to selling activities
c. Administrative expenses (or General and administrative expenses) – residual category of expense,
meaning an expense that does not fall in all other categories
d. Other expenses – includes losses, like loss on sale of properties, casualty losses.
e. Interest expenses (or Finance cost)
f. Income tax expense – includes taxes on income, other taxes such as taxes and licenses should be
part of administrative expenses.

● Like in the Statement of Financial Position in Module 1, the breakdown for each line items should be
disclosed in the notes to FS.

ASSESSMENT: The trial balance of Entity A shows the following items of income and expense for the
period ended December 31, 20x1:
A
S Accounts Dr. Cr.
S Sales 1,800,000
E Interest income 120,000
S Gains 40,000
Inventory, beg. 100,000
S Purchases 400,000
M Freight-in 20,000
E Purchase returns 10,000
N Purchase discounts 14,000
T Freight-out 50,000
Sales commission 60,000
Advertising expense 30,000
Salaries expense 600,000
Rent expense 60,000
 Depreciation expense 80,000
Utilities expense 40,000
Supplies expense 20,000
Transportation and travel
expense 10,000
Insurance expense 24,000
Taxes and licenses 140,000
Interest expense 4,000
Miscellaneous expense 2,000
Loss on the sale of equipment 30,000
Totals 1,670,000 1,984,000

Additional information:
a. Ending inventory is ₱160,000.
b. One-half of the salaries, rent, and depreciation expenses pertain to the sales department. The sales
department does not share in the other expenses.

Requirements:
a. Prepare the statement of comprehensive income using the function of expense method (Multi-step
approach). Use the pro-forma statement provided below. Be sure to place a proper heading for the
statement.
b. Prepare a partial “notes” showing breakdowns for the selected line items.

PRO-FORMA STATEMENT:

Notes
Sales
Cost of sales 1
GROSS PROFIT
Other income 2
Distribution costs 3
Administrative expenses 4
Other expenses 5
Interest expense
PROFIT FOR THE YEAR
Other comprehensive income
COMPREHENSIVE INCOME FOR THE YR.

Note 1: Cost of sales

This account consists of the following:

Total goods available for sale

Cost of sales
 Note 2: Other income
This account consists of the following:

Other income

Note 3: Distribution costs

This account consists of the following:

Distribution costs

Note 4: Administrative expenses

This account consists of the following:

( )
( )
( )

Administrative expenses

Note 5: Other expenses

Directions: Identify each expense in which function it belongs: Cost of Goods Sold, Distribution Costs,
Administrative Expenses or Income Tax Payable.

A 1. Miscellaneous Expense
S
2. Freight – Out
S
I 3. Purchase Returns
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4. Depreciation Expense of a Delivery Truck
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M 5. Income Tax
E
6. Rent expense partly for administration partly related on sales
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T 7. Freight In

8. Taxes and Licenses

 9. Sales commission

10. Advertising Expense

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R Millan and Ferrer, Fundamentals of Accountancy, Business & Management 2 (2019), Philippines:
E Bandolin Enterprise
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