STATEMENT OF COMPREHENSIVE INCOME & STATEMENT OF CHANGES IN EQUITY

The Statement of Comprehensive Income or Income Statement, also called Statement of Profit and
Loss, or Statement of Operations, is a summary of the results of the business activities of the enterprise
during a period of time that shows its financial performance. It presents the revenues earned during the
period and the expenses related thereto, utilizing the following formula:

REVENUES - EXPENSES = NET INCOME(LOSS)

1. ELEMENTS OF AN INCOME STATEMENT

Revenues – amounts that a business earns from selling goods, or providing services to its
customers.

Expenses – money spent or cost incurred in an entity’s efforts to generate revenues.

2. EXAMPLES OF REVENUE ACCOUNTS

a. Service Revenue – revenue earned from rendering services. Other account titles may be
used depending on the industry of the business such as, Professional Fees for professional
practice, etc.
b. Sales – revenue from selling goods to customers . It is the principal revenue account of
merchandising businesses.
- Sales Discounts – a contra-revenue account that represents reduction in the amount
paid by customers for early payment. It is shown in the Income Statement as a
deduction to Sales.
- Sales Returns & Allowances – also a contra-revenue account and therefore shown as a
deduction to Sales. Sales return occurs when there is actual return of a defective item.
Sales allowance happens when the customer is willing to keep the item with a reduction
in its selling price.
c. Rent Income – earned from leasing-out commercial spaces such as office space, stalls,
booths, apartments, condominiums, etc.
d. Interest Income – revenue earned from lending money, and to include interest earned from
Notes Receivables. Also to include interests earned on bank deposits.
e. Dividend Income – dividends earned on entity’s investments with other businesses.
f. Commission Income – earned by brokers and sales agents.
3. EXAMPLES OF EXPENSE ACCOUNTS
a. Cost of Goods Sold - It represents the value of the items sold to customers, under the
perpetual inventory system. If the business shoulders the cost of transporting the goods
it purchased, such cost is also recorded in Cost of Goods Sold. Service companies do not
have Cost of Goods Sold.
b. Purchases – cost of merchandise acquired that are to be sold in the normal course of
business, under the periodic inventory system.
- Purchase Discount – a contra-expense account that represents reduction in the amount
to be paid to supplier for early payment. It is shown in the Income Statement as a
reduction to Purchases.
- Purchase Returns & Allowances – also a contra-expense account and shown as a
deduction to Purchases.
c. Salesmen’s Commissions
d. Salaries & Wages – compensation to employees for their services to the company.
e. Advertising – costs of promoting the business such as those incurred in newspaper
publications, television, and radio broadcasts, billboards, flyers, etc.
f. Delivery Expense – costs incurred by the business in transporting the goods sold to the
customers. It is also known as Freight-out.
g. Depreciation Expense – refers to the portion of the cost of fixed assets(property, plant
and equipment) used for the operations of the period reported.
h. Insurance Expense – insurance premiums paid or payable to insurance companies.
i. Interest Expense- cost of borrowing money.
j. Rent Expense- cost paid or to be paid to a lessor for the right to use a commercial
property such as an office space, a storeroom, a building, etc.
k. Repairs & Maintenance – cost of repairing and servicing certain assets such as building
facilities, machinery and equipment.
l. Representation Expense – entertainment costs for customers.
m. Supplies Expense – cost of office supplies used by the business.
n. License Fees and Taxes – business taxes, registration, and licensing fees paid to the
government.
o. Telecommunications Expense – cost of using communication and telephone
technologies such as mobile phones, land lines, and internet.
p. Training and Development – costs for the enhancement of employee skills.
q. Utilities Expense – water and electricity costs paid or payable to utility companies.
r. Bank Service Charge – costs charged by banks for the use of their services.
4. FORM OF THE INCOME STATEMENT

Accountants traditionally prepare the Income Statement in either the single-step form or the
multiple-step(multi-step) form.

Under the Single-step form, revenues are listed ahead of the expenses; the total of the expenses
is then deducted from the total of the revenues to arrive at net income.

Name of Business
Income Statement
Period ended __________________

REVENUES
Net Sales P xxx
Other revenues xxx P xxx

COSTS & EXPENSES

Cost of Goods Sold P xxx
Operating Expenses xxx
Other Expenses xxx
Provision for Income Tax xxx P xxx
________

NET INCOME P xxx

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 Under the Multi-step form, the Income Statement presents several sections with intermediate
amounts that enhance the usefulness and significance of the contents of the Statement.

Name of Business
Income Statement
Period ended____________________

Net Sales P xxx

Less: Cost of Goods Sold xxx
_______
Gross Profit P xxx
Less: Operating Expenses xxx
_______
Operating Income P xxx
Add(Less): Other Revenues(Expenses) xxx
_______
Income Before Income Tax P xxx
Less: Provision for Income Tax xxx
_______

NET INCOME P xxx

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5. STATEMENT OF CHANGES IN OWNER’S EQUITY

The Statement of Changes in Owner’s Equity portrays changes in the capital balance of a
business over a reporting period, where income earned during the period is added to the
beginning Capital balance and owner drawings are subtracted. The result is the ending balance
in the Capital account.

The amount of owner’s equity is increased by income and owner contributions. The balance is
decreased by losses and owner’s drawings.
STRUCTURE OF THE STATEMENT OF CHANGES IN OWNER’S EQUITY:

Name of Business

Statement of Changes in Owner’s Equity

For the period ended_______

Capital at the beginning of the period

Add(Less): Net Income(Net Loss) for the period

Total/Balance

Add(Less): Additional Investments(withdrawals) during the period

Capital at the end of the period