Republic of the Philippines

Department of Education
National Capital Region
DIVISION OF CITY SCHOOLS – MANILA
Manila Education Center Arroceros Forest Park
Antonio J. Villegas St. Ermita, Manila

FABM2

https://theinterviewportal.com/2017/05/07/visual-merchandiser

Quarter 1 Week 3 Module 3

Learning Competency:
Prepare Statement of Comprehensive Income of
a Merchandising Business Using a Multi-Step
Approach ABM_FABM12-Ic-d-7)
 Learning Module for Accountancy, Business and Management

HOW TO USE THIS MODULE?

Before starting the module, I want you to set aside other task/s that may
disturb you while enjoying the lessons. Read the simple instructions below
to successfully enjoy the objectives of this kit. Have fun!

1. Follow carefully all the contents and instructions indicated in

every page of this module.

2. Write on your notebook the concepts about the lessons.

Writing enhances learning , that is important to develop and
keep in mind.

3. Perform all provided activities in the module.

4. Let your facilitator/guardian assess your answers using the

answer key card.

5. Analyze conceptually the posttest and apply what you have

learned.

PARTS OF THE MODULE

 Learning Module for Accountancy, Business and Management
Expectations - These are what you will be able to know after
completing the lessons in the module.
Pre-test - This will measure your prior knowledge and the concepts
to be mastered throughout the lesson.
Looking Back to your Lesson - This section will measure what learnings
and skills did you understand from the previous lesson.
Brief Introduction- This section will give you an overview of the
lesson.
Activities - This is a set of activities you will perform with a partner.
Remember - This section summarizes the concepts and applications of
the lessons.
Check your Understanding - It will verify how you learned from the
lesson.
Post-test - This will measure how much you have learned from the
entire module

The Statement of Comprehensive

LESSON
3
Income of a Merchandising Business

EXPECTATIONS

You will represent real-life situations using statement of comprehensive

income in a merchandising business.

Specifically, this module will help you:

❖
know the Elements of a Statement of Comprehensive Income an d describe
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 Learning Module for Accountancy, Business and Management

=+
LOOKING BACK TO YOUR LESSON

Directions: Solve for the net income or net loss for the following independent
cases.

1. If Income is Php20,000.00 and Expenses are

Php15,000 Net income /(Net Loss ) is _________
2. If Income is Php75,000.00 and Expenses are Php100,000
Net income /(Net Loss ) is _________
3. If Income is Php85,000.00 and Expenses are Php65,000
Net income /(Net Loss ) is _________
4. If Income is Php56,000.00 and Expenses are Php100,000
Net income /(Net Loss ) is _________
5. If Income is Php88,000.00 and Expenses are Php200,000
Net income /(Net Loss ) is _________

BRIEF INTRODUCTION

You already learned the single approach SCI for a single proprietorship

business in module 2. This module will discuss about the multi-step approach

better for merchandising business. They termed it as multi-step because there are
several steps needed in order to arrive at the company’s net income.

According to Haddock, Price and Farina (2012), the elements of a

multi-Step approach of a merchandising company are as follows: First part is

Sale, the total amount of revenue that the company was able to generate from
selling products. The second part is contra revenue. Sales Returns record
returns of customers or allowances for such returns. Sales returns occur when
customers return their products for reasons such as but not limited to defects or
change of preference. Sales discount is discount given to customers who pay early
and is also known as cash discount. Sales discount is awarded to customers who
pay earlier or before the deadline.

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 Learning Module for Accountancy, Business and Management

For the third part is Cost of Goods Sold. This account represents the actual
cost of merchandise that the company was able to sell during the year.
Beginning Inventory is the amount of inventory at the beginning of the
accounting period. This is also the amount of ending inventory from the previous
period. Net Cost of Purchases is equal to Purchases plus Freight- In. Net
Purchases is Purchases minus the contra purchases account (Purchase
discount and purchase returns). Purchases is an amount of goods bought during
the current accounting period. Contra Purchases is an account that is credited
being “contrary” to the normal balance of purchases account. Purchase
discount is account used to record early payments by the company to the
suppliers of merchandise. Purchase returns is account used to record
merchandise returned by the company to their suppliers. Freight In is an
account used to record transportation costs of merchandise purchased by the
company. This is called freight in because this is recorded when goods are
transported into the company. You have to add beginning inventory and net
cost of purchases for you to get the cost of goods available for sale. Ending
Inventory is the total cost of inventory unsold at the end of the accounting cycle.
Sales less cost of goods sold is Gross Profit

Fourth Part is General and Administrative Expenses. These expenses are not
directly related to the merchandising function of the company but are necessary
for the business to operate effectively. Fifth Part is Selling Expenses, these
expenses are those that are directly related to the main purpose of a merchandising
business: the sale and delivery of merchandise. These do not include cost of goods
sold and contra revenue accounts. Gross Profit less

general and administrative expenses and selling expenses will yield a net
income for a positive result while net Loss for a negative result.

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An example of a Multi-Step Approach in a simpler format

THEONE JOY SELLING COMPANY

HEADING
STATEMENT OF COMPREHENSIVE INCOME
For the year ended December 31, 2020
SALES
 Learning Module for Accountancy, Business and Management
NET SALES Php 460,000.00

COST OF SALES
Cost of Goods Sold (285,000.00)

Gross Profit Php 175,000.00 GROSS PROFIT

General & Administrative Expenses

Salaries Expense (Php 20,000.00)

Rent Expense (15,000.00)

Depreciation Expense (10,000.00) GENERAL &

ADMINISTRATIVE

(5,000.00)

(1,000.00)
Utilities Expense
(51,000.00)
Miscellaneous Expense

Total

Selling Expenses Salaries

Expense (Php10,000.00)

Rent Expense (8,000.00) SELLING

Depreciation Expense (7,000.00) EXPENSES

Utilities Expense (6,000.00)

Total (31,000.00)

Net Income Php 93,000.00

 Learning Module for Accountancy, Business and Management
Comprehensive Income 7,000.00

Total Net Income before Tax Php100,000.00 NET INCOME/

============ (NET LOSS)

ACTIVITIES

Activity 1. Determine whether the account title is general or selling.

1. Salaries of administrative assistant

2. Salaries of utility staff

3. Salaries of sales agents

4. Light and water of home office

5. Rental of Sales office building

6. Depreciation of office equipment

7. Depreciation of delivery van

8. Advertising expenses

9. Commission expense

10. Sales Commission of Account Executive

Activity 2 . Solve for the elements of Comprehensive Income for the following
independent Activity:

1. Joy Ride Company’s salaries to sales agents amounted to Php10,000.

Salaries of accountants amounted to Php20,000. No other expenses were
incurred. How much is the company’s general and administrative expense?
 Learning Module for Accountancy, Business and Management
2. Joy Ride’s beginning inventory amounted to Php250,000. Net purchases
amounted to Php70,000. Freight is 15,000. Compute for the company’s cost
of goods available for sale.

3. Joy Ride’s purchases is Php100,000 while purchase returns and purchase

discounts amounted to Php20,000 and Php10,000 respectively. How much
is the company’s purchases?

4. Company’s Cost of Goods Sold amounted to Php235,000. Net cost of

purchases totaled Php85,000. Beginning inventory amounted to
Php250,000. Sales amounted to Php500,000. Compute for the company’s

Ending Inventory.

5. Gross profit of Happy Joy Ride amounted to Php175,000. Net Sales is

Php300,000, compute for cost of goods sold?

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 Learning Module for Accountancy, Business and Management

Activity 3. Prepare a multi-step Statement of Comprehensive Income for the

following accounts taken from Tin’s Ready to Wear Companyfor the period
ended of December 31, 2019

Net Sales Php75, 000.00, Cost of Sales Php30, 000.00, General and
Administrative Expenses Php12,000.00 and Selling Expenses Php25, 000.00

REMEMBER
The elements of a Comprehensive Income for a merchandising business
are Net Sales, Cost of Sales, and Expenses. Expenses are presented according
to function of expense method which is a Multi-Step Approach for a
merchandising business. Other expenses under the function of expense method
are distribution cost, administrative expenses, other expenses, interest expense
and income tax expense.
1. Net Sales is equal to sales less contra sales account (sales returns and
allowances and sales discount )

2. Gross Profit is equal to n et Sales less Cost of Goods Sold (Cost of Sales)

3. To arrive at cost of sales, you have to deduct merchandise inventory

end to the cost of goods available for sales.

4. To get the amount of cost of goods available for sale, you have add net
cost of purchases to merchandise inventory beginning.

5. Add freight in to Net purchases to get the Net Cost of purchases

6. Net Purchases is equal to purchases less purchase discount and
purchase returns and allowances.