STATEMENT OF COMPREHENSIVE INCOME (SCI)

Statement of Comprehensive Income is same as and previously referred as Income

Statement, when there is no Other Comprehensive Income presented such as; unrealized gains
or loss on translation of foreign operation, re-measurement gain or loss and etc., the
difference of the two will be tackled in higher accounting because of its complexity. The
Statement of Comprehensive Income is the statement that gives you the information regarding
the income and expenses of the company that incurred for a certain period of time.
It is usually presented first in the Financial Statement, because you need to determine the profit
which has to be shown in the capital statement then the balance of capital account is
transferred in the Financial Position.
The Statement of Comprehensive Income answers various questions such as:
1. How much is the gross revenue of the company during the year?
2. How much is the expenses of the company during the year?
3. ing the year?
4. How much merchandise the company purchased during the year?
5. How much earnings did we generate during the year?
6. How much losses did we experienced during the year?
The questions above are answered by reading and analyzing the Income Statement.
Hence, Statement of Comprehensive Income shows the company’s result of operations. The
figures in the Statement of Comprehensive Income is the result of how the management of the
company uses and administrates its resources.
Two Elements of Statement of Comprehensive Income:
1. Revenue
2. Cost and Expenses
In general, income is just computed by simply by deducting the Cost and Expenses from
the Revenue as presented in figure 2.1. If the Revenue is higher than the Cost and Expenses, it
will result to a Net Income. However, if the Cost and Expenses is bigger than the Revenue, it
will result to a Net Loss.
Figure 2.1
Revenue Pxx

Less: Cost and (Pxx)

Expenses
 Net Income or Pxx
Net Loss

If Revenue > Cost and Expenses

= Net Income

If Revenue < Cost and Expenses

= Net Loss

Revenue P100,000

Less: Cost and Expenses 50,000

Net Income or Net Loss P50,000

If Revenue > Cost and Expenses The above figure is NET

= Net Income INCOME because the Revenue
is higher than Cost and
Expenses.

Revenue P50,000

Less: Cost and Expenses 100,000

Net Income or Net Loss (P50,000)

If Revenue < Cost and Expenses = The above figure is NET LOSS
Net Loss because the Cost and
Expenses is greater than
Revenue. The answer is
negative.

Recall in Unit 1 that a Statement of Comprehensive Income is already presented under

Figure 1.5. It shows the details of the details of the three elements of SCI. Income
Statement starts with a title (e.g., Name of the Company, the type of Financial Statements
and the accounting period), then followed by the balances of Revenue, Cost and
Expenses. Figure 1.5 in Unit 1 is presented again to illustrate an example of an Income
Statement of a trading business, while figure 2.2 is for service type business.
Figure 1.5 (all amounts are assumed) MERCHANDISING BUSINESS
 BINJI STORE
Statement of Comprehensive Income
For the year ended December 31, 2020

2020

Net sales
Sales P1800000
Sales discount (P12000) P1788000

Less: Cost of sales

Inventories – beginning 25,000
Purchases 1,220,000
Freight-in 32,250
Total goods available for sale 1,277,250
Inventories – ending (P50000) 1,227,250
Gross profit 560,750
Less: General and operating expenses

Utilities expense 89,000

Rent expense 28,500

Bad debts 2,200

Depreciation – building 8,700

Depreciation - land improvements 1,560

 Depreciation - building improvements 2,620

Depreciation - furniture and equipment 3,450

Depreciation - delivery equipment 7,800

Supplies expense 3,500

Insurance expense 2,455 149,785

Net operating income 410,965

Add: Rent income 57,000
Net income P 467,965

Figure 2.2 (all amounts are assumed) SERVICE BUSINESS

ELMA SALON BUSINESS

Statement of Comprehensive Income
For the year ended December 31, 2020

2020

Service revenue P1600000

Less: Direct cost of services
Direct materials P440000
Direct labor 22,000 462,000
Gross profit 1,138,000
Less: General and operating expenses

Salaries and allowances 55,690

Utilities expense 44,182

 Rent expense 34,125

Depreciation – building 14,325

Depreciation - delivery equipment 13,425

Supplies expense 9,125

Depreciation - furniture and equipment 9,075

Depreciation - building improvements 8,245

Insurance expense 8,080

Bad debts 7,825

Depreciation - land improvements 7,185 211,282

Net operating income 926,718

Add: Other income 33,000
Net income P 959,718

Take note:
 Cost of Sales is used in trading business
 Direct Cost of Services is used in a service type business
 Either service type or a trading have the same computation of net income–
Revenue less Cost and Expenses.
 The 3rd line in the SCI states “For the Year Ended December 31, 2020”. It means
that the amounts in the SCI came from transactions from January 1, 2020 up to
December 31, 2020 only.

Elements of Statement of Comprehensive Income

The two accounts have already shown above the Revenue and Cost and Expenses.
Remember that accounts in the Statement of Comprehensive Income are called nominal
accounts. Meaning at the end of the year, nominal accounts will be closed to Income and
Expenses Summary account. The Income and Expense Summary account is then closed to
Equity. At the end of the year, the balances of the nominal accounts are nil or zero.

The following are accounts under Revenue.

Account Title Normal Balance Definition

REVENUE CREDIT
Sales Credit Revenue from sale of
goods is recognized
when the goods are
delivered and title has
passed.
`Sales return and Debit When customer returned
allowances the products he bought
(Contra Revenue from the company.
Account) A return is a deduction
from sales due to
damages or defects
Sales discount Debit Granting a discount
(Contra Revenue to sales upon prompt
Account) payment

When sold with discount

A discount is given to
boost sales there.
Service Income Credit Revenue from sale of
services is recognized
when service has been
rendered.
Rent Income Credit Revenue collected from
leasing out properties.
Interest Income Credit Revenue received
payment from lending
money to another entity.
Royalty Income Credit Revenue received from
exploitation of artistic or
literary works.
Revenue received from
use of copyrights,
 trademarks, and
patents.
Gain from sale of other Credit Revenue received from
assets sale of assets with
gains.
Miscellaneous Income Credit Income realized that is
not directly related to the
sale of standard
products and services.
Commission Income Credit Income that refers to
fees earned by
exchange of transacting
product or providing a
service.
Referral Revenue Credit Income realized for
being an intermediary of
a transaction.
Other Income Credit Revenue received
other than operation
of business.

Take Note:
Normally the normal balance of Revenue is CREDIT
The sales discount and sales returns and allowances are contra account of revenue. So
the normal balance is debit, meaning it will be deducted to sales.
The collection of cash doesn’t matter in recognizing revenue
In accrual accounting revenue is recognized when earned, regardless of when received
For tax purposes, revenue from sale of services is recognized when collected regardless
of when rendered.
The Bureau of Internal Revenue (BIR) doesn’t apply accrual accounting in the
revenue of a service company.

What is the difference between Gross Sales and Net Sales?

The term “net” means something has been deducted. Sales are deducted by discount
and returns... Sales Return and Discount accounts are contra-revenue account.
 Gross Sales P100,000
Deduction: Sales return and (50,000)
allowances
Sales Discount (25,000)
Net Sales P25,000

Some business uses other assets and resources to generate extra income other than
the main source of their revenue. For example, an RTW (Ready-to-Wear) business may use
portion of its building or an idle land for lease. Thus, it will generate additional income for the
company.

The following are accounts under Cost and Expenses.

Account Title Normal Balance Definition
COST AND DEBIT
EXPENSE
Cost of sales Debit The cost incurred to
purchase or to
produce the products
sold to customers
during the period;
also called cost of
goods sold.
Purchases Debit It will be used only
when company is
uses PERIODIC
METHOD and the
problem is silent
meaning there is no
mentioned method.

When company
bought, purchased,
acquired asset for
the purposes of
selling
Purchase returns Credit When company
and allowances returned what he
purchased
Purchase discount Credit When company
purchased with
 discount
Office Supplies Debit When office supplies
Expense used up
Salaries Expense Debit Includes all
payments as a result
of an employer-
employee
relationship such as
salaries or wages,
13th month pay, cost
of living allowances
and other related
benefits.
Utilities Expense Debit It is the cost by using
electricity, heat and
water, Phone and
internet.
Medical Supplies Debit When medical
Expense supplies used up
Direct Cost Debit It is the cost directly
related on producing
a products and
services.
Rent Expense Debit Cost for leasing
space, equipment, or
other asset.
Interest Expense Debit An expense related
to use of borrowed
funds.
Depreciation Debit The portion of the
Expense cost of a tangible
asset (e.g. buildings
and equipment)
allocated or charged
as expense during
an account ting
period.
Advertising Debit The cost on
Expense promotion of a
product.
Insurance Expense Debit Portion of premiums
paid on insurance
coverage (e.g. on
motor vehicle, health,
 life, fire typhoon or
flood) which has
expired.

Take Note: Normally the normal balance of Cost and Expenses is DEBIT
The purchase returns and allowances, and purchase discount are contra expense
account, the normal balance is credit, and it will be deducted to purchases account.

Cost and expenses are synonymous. Cost in this context means direct cost in selling the
merchandise or rendering the services. Again, the term used in trading is Cost of Sales and
Direct Cost of Services for service business.
Refer to Figure 1.5 (Binji Store) where Cost of Sales is computed using the formula below:

Less: Cost of sales

Inventories – 25,000
beginning

Purchases 1,220,000

Freight-in 32,250

Total goods available 1,277,250

for sale

Inventories – ending (50,000) 1,227,250

The Cost of Sales means the cost of the merchandise sold. It costs Binji store P1, 222,250 to
sell P1, 788,000, which is the net sales. Beginning inventories will form part of the Cost of Sales
as they are assumed sold during the year? Ending inventories are deduction from the Cost of
Sales since the amount is still unsold. Accordingly, no cost is incurred in ending inventories.
Purchases account is presented as its gross amount because there is no Purchase Discount or
Purchase Return in the example given. Purchase Discount is the opposite of Sales Discount
where the company avails discount upon buying bulk amount of goods or by paying within the
discount period. Purchase Return account is used when the merchandise purchase is returned
due to defects and damages. Purchase Discount and Return accounts are contra-purchase
account.

Refer to Figure 2.2 (Elma Parlor) where Direct Cost of Services is computed as follows:
Less: Direct cost of
services

Direct materials 440,000

Direct labor
22,000 462,000

 Direct Materials (DM) means the materials used in order to render the service. In parlor
or salon type of business,
Examples: Cost of scissors purchased, hair coloring materials, shampoos,
manicure and pedicure materials.
 Direct Labor (DL) means salaries of employees who are directly rendering the services.
Examples: Salaries of the hairstylists, pedicurist and manicurist.

The salary of the salon’s office staff is included in General and Operating Expenses as
they are not directly rendering the service.

General and operating expenses are those ordinary and necessary in the conduct of
business. The business will not operate without incurring and paying these expenses. Losses
from sale of other assets other than inventories form part of the General and Operating
expenses account.
Refer to Figure 2.2 the following are example of expenses of Elma Salon Business:
Less: General and
operating
expenses
Salaries and 55,690
allowances
Utilities expense 44,182
Rent expense 34,125
Depreciation – 14,325
building
Depreciation - 13,425
 delivery
equipment
Supplies expense 9,125
Depreciation - 9,075
furniture and
equipment
Depreciation - 8,245
building
improvements
Insurance 8,080
expense
Bad debts 7,825
Depreciation - 7,185
land 211,282
improvements

To illustrate, we will use the same data of Binji Store in Unit 1, except that only nominal
accounts will be presented.

FS account Accounts Debit Credit

Cost of sales Merchandise inventory –

beginning 25,000

Revenue Sales
1,800,000

Revenue Sales discount

12,000

Other income Rent income

57,000

Cost of sales Purchases

1,220,000

Cost of sales Freight in

32,250

Operating Utilities expense

expenses 89,000

Operating Rent expense

 expenses 28,500

Operating Bad debts

expenses 2,200

Operating Depreciation – building

expenses 8,700

Operating Depreciation - land

expenses improvements 1,560

Operating Depreciation - building

expenses improvements 2,620

Operating Depreciation - furniture and

expenses equipment 3,450

Operating Depreciation - delivery

expenses equipment 7,800

Operating Supplies expense

expenses 3,500

Operating Insurance expense

expenses 2,455

Cost of sales Income and expense summary

50,000

Income Statement is again presented in figure 1.5 above. Accounts are classified to
Revenue, Other Income, Cost of Sales and Operating Expenses.

Take note
 Generally, the computation of Statement of Comprehensive Income is “Revenue
less Cost and Expenses
 The Merchandising uses sales to record revenue for sold of goods and products,
while Service Business uses service income to record revenue.
 The Merchandising uses Cost of sales account, while Service Business uses
Cost of Service account.
 Revenue, and Cost and Expenses are nominal account that will be closed to
Income and Expense Summary account.
 The normal balance of Revenue is CREDIT, while Cost and Expenses is DEBIT.