PILAR COLLEGE OF ZAMBOANGA CITY, INC.

R.T. LIM BOULEVARD, ZAMBOANGA CITY

BASIC EDUCATION DEPARTMENT

PAASCU Accredited Level III
A.Y. 2020-2021

SENIOR HIGH SCHOOL

GRADE 11

LEARNING
MODULE in
FUNDAMENTALS OF ACCOUNTANCY,
BUSINESS & MANAGEMENT (ABM) 2

Unit Topic: Analysis and Interpretation of Financial Statements

Lesson 2: The Statement of Comprehensive Income
(Income Statement)

NAME: ______________________________________________

SECTION: ___________________________________________

MRS. ROWENA L. ESTERO

TEACHER
 Subject Area: Fundamentals of Accountancy, Business & Management 2 Quarter: FIRST
Unit Topic: Analysis & Interpretation of Statement Statements Time Allotment: 180 minutes

Lesson 2: STATEMENT OF COMPREHENSIVE INCOME (SCI)

INTRODUCTION

The Statement of Comprehensive Income or the Income Statement is the first financial statement that a
company prepares because this statement is one of the four major financial statements of a company
that provide a representation of the company's current performance to investors. This information is
used to evaluate the overall value of a company and its share price. The income statement is one of the
most important financial statements because of its indication of profits, its timely reporting, and its
classification of revenues and expenses.

In this lesson, the main focus for discussion is the identification and description of the various accounts
under the elements of the statement of comprehensive income. The end goal of the income statement is
to prepare one for a single proprietorship using the single step income statement and one for a
merchandising business using the multistep income statement.

OBJECTIVES:

Students will be able to:

a. identify and describe the elements of the Statement of Comprehensive Income;
b. prepare a SCI for a service business using the single step approach;
c. prepare a SCI for a merchandising business using the multistep approach; and
d. demonstrate accuracy, open-mindedness, diligence and patience in performing the discussion,
activities and the preparation of the statement of comprehensive income for both single
proprietorship and merchandising business.

DISCUSSION

Answer the trivia:

\
Merriam purchased 24 bottles of soft drinks at P
7.00 per bottle and sold each for P10.00. How
much is the net profit of Merriam as a result of
the sale of soft drinks.

Analysis & Interpretation of Financial Statements / SCI Page 1 of 10 11

 DISCUSSION What is a Statement of Comprehensive Income?

Statement of Comprehensive Income or the Profit and Loss Statement is a financial statement that
shows the result of operations for given period. It consists of the Revenue, Cost and Expenses.

What are the Elements of the Statement of Comprehensive Income ?

THE REVENUE ACCOUNTS

Revenue represents the earnings of the business from sales of goods or service rendered. Revenue
accounts have a normal credit balance. Some common revenue accounts are:

 Sales – a temporary proprietorship account used to summarize sale of goods of a trade or a

merchandise business. This includes cash sales and sales on account.
 Service Income – the earnings derived from service rendered by a servicing business to its customers.
This includes cash and on account services.
 Professional Fees – the earnings derived from services rendered by a professional or professional
servicing firm to its clients which could be in cash or in collectibles.
 Interest Income – the earnings representing the time value of money derived from the promissory
notes received by the business, whether in cash or collectible in the future.
 Rent Income – the income earned from allowing others for the use of the property or facility of the
business.
 Gain on sale of Other Assets – the income derived from the sales of assets used in the business
operation. There in gain on sale if the proceeds exceed the book value or cost of the disposed asset.
Examples are gain on sale of equipment, gain on sale of investments, gain on sale of land, etc.

THE EXPENSE ACCOUNTS

Expenses are costs incurred in conducting the business activities. Expense accounts have normal debit
balances. Some common expense accounts are:

 Cost of Sales – the value of merchandise sold.

 Supplies Expense – the amount of supplies consumed or used by the business during the period.
Examples are used office papers, inks, ballpen, etc.
 Salaries and Wages Expense – the amount paid to services rendered by the employees in the
operation of the business.
 Doubtful Account Expense – the estimated amount of losses from collectible accounts arising from
credit sales of the current period. This is also called bad debts expense or uncollectible account
expense.
 Depreciation Expense – represents the current periodic cost for using depreciable plant assets. In
accordance with the systematic cost allocation principle, the acquisition cost of depreciable plant asset
should be allocated as expense over the useful lives of the related plant assets.
 Insurance Expense – the amount of insurance policy incurred during the current period. Examples are
premiums on building insurance, life insurance, plant insurance, etc.

 Taxes and Licenses Expense – the cost of local as well as national taxes that are incurred and required to
be paid in connection with the conduct of business. Examples are: cost of acquire mayor’s permit,
registration cost of the business, percentage tax on sales, etc.

11
Analysis & Interpretation of Financial Statements / SCI Page 2 of 10
 DISCUSSION

Forms of the Statement of Comprehensive Income or Income Statement

1. Natural Form – presents expenses according to nature. This type of income statement is used in a
service business.
2. Functional Form – presents expenses according to functions (e.g. cost of sales, selling expenses,
administrative expenses). This type is used in a merchandising business.

Preparing the Statement of Comprehensive Income

Note 1 –Other Income

NATURAL FORM STATEMENT OF Rent Income P 35,000
COMPREHENSIVE INCOME Dividends Income 10,000
Gain on sale of equipment 6,000
Interest Income 4,000
Total P 55,000
=======
APPLE FRESH LAUNDRY SERVICES
Income Statement
For the year ended December 31, 2019 Note 2 – Depreciation Expenses
Depreciation Expense
- Building P 12,000
Note Depreciation Expense
Service Revenue P 298,000 - Equipment 1,000
Other Income 1 55,000 Total P 13,000
Total Income P 353,000 =======
Expenses:
Salaries P 160,000 Note 3 – Other Expense
Loss on sale of furniture P 2,600
Depreciation 2 13,000
========
Supplies 10,000
Rent 7,000
Insurance 2,000 Note 4 – Finance Costs
Other Expenses 3 2,600 Interest Expense
Finance Cost 4 3,400 198,000 - Mortgage P 2,400
Net Income P 155,000
Interest Expense – Loan 1,000
=========
Total P 3.400
======

Analysis & Interpretation of Financial Statements / SCI Page 3 of 10

11
 DISCUSSION

FUNCTIONAL FORM STATEMENT OF

COMPREHENSIVE INCOME

APPLE FRESH LAUNDRY SERVICES

Income Statement
For the year ended December 31, 2019

Sales P 120,930
Less: Sales Returns and Allowances P 1,100
Sales Discount 20 1,120
Net Sales P 119,810
Less: Cost of Goods Sold:
Beginning Inventory P 0
Add: Net Purchases:
Gross Purchases P 220,500
Freight In 300
Total P 220,800
Less: Purchase Returns 2,400 218,400
Total goods available for sale P218,400
Less: Ending Inventory 158,750 39,650
Gross Profit from Operations P 60,160
Less: Operating Expenses:
Salaries a& wages P 5,400
Rent Expense 5,000
Freight-Out 150
Advertising Expense 1,300
Insurance Expense 590
Supplies Expense 500
Depreciation Expense 1,500
Utilities Expense 975
Miscellaneous Expense 700 P 16,115
General and Administrative Expenses
Office Salaries P 500
Office Supplies Expense 100
Utilities Expense 50
Depreciation on Building 150 800 16,915
Operating Income P 43,245
Add (Less): Non-Operating Expenses:
Interest Income P 250
Interest Expense 100 150
Net Income from Operation before Income Tax P 43,395
Less: Income Tax 150
NET INCOME after tax P 43,245
========

Analysis & Interpretation of Financial Statements / SCI Page 4 of 10

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 DISCUSSION

Gross Profit is the difference between the sales revenue earned during the period and the cost to the
of the merchandise it has sold. In evaluating the performance of a merchandising company, many
analysis find it useful to express the gross profit as a percentage of net sales. The percentage is
called the gross profit rate. By computing the gross profit rate earned in successive accounting
periods, users of financial statements may gain insight into the strength of the company’s products
in the marketplace. A rising gross profit rate usually means that demand for the company’s products
is strong enough that the company has been able to increase the sales prices.

In evaluating the rate of gross profit earned by a particular company, the users of the financial
statements should consider the rate earned by the company in prior periods and also the gross profit
rates earned by other companies in the same industries. In most merchandising companies, the gross
profit rate remains reasonably consistent from one period to the next. Gross profit rate usually lies
between 30% to 40% of net sales, depending upon the type of merchandise sold. The gross profit rate
usually is lowest on fast moving merchandise, such as groceries, and highest on low-volume goods.

Operating expenses are incurred for the purpose of producing revenue. These expenses often are
subdivided into functional classifications, such as selling expenses and general and administrative
expenses. Subdividing operating expenses into functional classifications aids management and other
users of the statements in evaluating different aspects of the company’s operations separately. The
classifications of operating expenses into subcategories is a common practice, but it is not required
under generally accepted accounting principles.

Operating income or income from operations shows the relationship between revenue earned from
customers and expenses incurred in producing the revenue. In effect, operating income measures the
profitability of a company’s basic business operations and leaves out other types if revenues and
expenses.

Non-Operating Items are revenues and expenses that are not directly related to company’s primary
business activities. These items are listed in a final section of the income statement following the
determination of operating income. Two significant non-operating items, the interest expense and
income taxes expense. Interest expense stems from the manner and in which assets are financed, not
the manner in which these assets are used in business operations. Income taxes are not viewed as
operating expenses because paying income taxes does not help produced revenue. Any non-
operating revenue, such as interest revenue earned on investments, also is listed in this section of the
income statement.

Most of the investors or the owner’s consider net income to be the most important figure in the
income statement. This amount represents the overall increase or (decrease) in owner’s equity
resulting from business operations during the period.

Analysis & Interpretation of Financial Statements / SCI Page 5 of 10 11

 PILAR COLLEGE OF ZAMBOANGA CITY, INC.
R.T. LIM BOULEVARD, ZAMBOANGA CITY

BASIC EDUCATION DEPARTMENT

PAASCU Accredited Level III
A.Y. 2020-2021

SENIOR HIGH SCHOOL

GRADE 11

RETURN THIS
MODULE 2
FUNDAMENTALS OF ACCOUNTANCY,
BUSINESS & MANAGEMENT (ABM) 2
Unit Topic: Analysis and Interpretation of Financial Statements
Lesson 1: The Statement of Comprehensive Income
(Income Statement)

Lesson’s knowledge Check (Activity 1)

Activities 2 to 5
Assessment Page

Name: Date Returned:

Section:

MRS. ROWENA L. ESTERO

TEACHER
 Kindly answer the lesson’s knowledge check, activities 1 to 5 and the assessment part with all
honesty and sincerity. You may write your answers in the indicated spaces of the activity.
.

KNOWLEDGE CHECK

ACTIVITY 1: SURVEY SAYS!

Read the following questions and write your answer on the space provided for.
1. Why is the Statement of Comprehensive Income important to management and other users of the
financial information? Integration No. 3 (Lesson Across Discipline - Economics)

2. How can the knowledge of the Statement of Comprehensive Income be considered relevant on my
part as a student of this institution?

3. Integration No. 1: (ICV) What values am I expected to learn and develop in the process of studying
the statement of comprehensive income? Why?

4. Integration No. 2 (Social Integration) How can my knowledge of the Statement of Comprehensive
Income be able to help in my relationship towards other members of my community?

5. Why is there a need to subdivide operating expenses into functional classifications?

Short Essay Rubric:

Standard Excellent Very Good Good Fair

 Explains the topic with correct description and
provides related examples. 5 4 3 2
 Content shows connection of the concept and explains
sensible decision about the topic that can help achieve
the goal.

11
Analysis & Interpretation of Financial Statements / SFP Page 6 of 10
 ACTIVITIES

ACTIVITY 2: Matching Type!

Direction: Match the appropriate definitions with the terms listed below. Write only the LETTER
identifying the appropriate definition on the space as provided before each statement. .

A. Transportation In G. Purchase Discount

B. Single Step Income Statement H. Merchandise Inventory
C. Selling Expense I. Transportation Out
D. Sales Purchase J. Sales Discounts
E. Gross Profit from sales K. Cash Discounts
F. Multiple Step Income Statement L Retained Earnings Discount

_________1. Net sales less cost of the sales

_________2. Freight expenses or other delivery cost on merchandise purchased for resale
_________3. Discounts taken on merchandise purchased for resale
_________4. Discount given on sales or merchandise
_________5. An income statement on which a report changes in its corporation’s retained earnings
that occurred during an accounting period
_________ 6. The unsold goods or merchandise on hand at a given time
_________ 7. An income statement on which3:cost
ACTIVITY TRUEof goods
ORsold and the expenses are less in steps to
FALSE!
arrive at net income
_________ 8. Merchandise sent to notify its recipient that the business sending the memorandum has
it in its records credited the account of the recipient
_________ 9. A memorandum sent to notify its recipient that the business sending the memorandum
has in its records debited the account of the recipient
_________ 10. Freight expenses or delivery cost on merchandise sold by seller

ACTIVITY 3: True or False!

Direction: On the space provided before the statement, write TRUE if the statement is correct or FALSE
if the statement is incorrect
___________ 1. The heading for an income statement might include the line “For the year ended
December 31, 2017”..
___________ 2. The account title “accrued interest payable” would appear on the income statement.
___________ 3. Balance sheet shows the result of operation for a given period.
___________ 4. Service Income are revenues earned by performing services for customers.
___________ 5. Expenses related to the use of electricity, fuel, water and telecommunications facilities
are recorded under utilities expenses.
___________ 6. Expired portion of premium paid on insurance coverage is Supplies Expense.
___________ 7. Rent Expense is the amount paid for the use of space, equipment and other rentals.
___________ 8. Payments made to employees for rendering services to the company is Salaries Expense.
___________ 9. Interest Income and Interest Expense are income statement accounts.
___________10, Supplies Expense is the same as Supplies Used.

Analysis & Interpretation of Financial Statements / SCI Page 7 of 10

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 ACTIVITIES

ACTIVITY 4: Single Step Statement of Comprehensive Income!

Direction: Presented below are the income statement accounts for Willie’s Auto Repair Shop for the year ended
December 31, 2018. Prepare a NATURAL FORM Statement of Comprehensive Income for
Willie’s Auto Repair Shop for the year ended December 31, 2018 by completing the statement below.

Supplies Expense P 400 Salaries Expense P 45,000

Bad Debts Expense 4,900 Utilities Expense 46,750
Taxes & Licenses 7,250 Rent Expense 55,000
Depreciation Expense 9,750 Repair Income 275,000
Insurance Expense 10,000

Willie’s Auto Repair Shop

Statement of Comprehensive Income
For the Year Ended December 31, 2018

Repair Income P
Expenses: Rent Expense P
Utilities Expense
Salaries Expense
Insurance Expense
Depreciation Expense
Bad Debts Expense
Supplies Expense 400 .
Net Income P
===========

ACTIVITY 5: THINK ABOUT IT!

Direction: Answer the questions in two or three complete sentences. Write your answers inside the
box provided below
1. How is the income statement of a service business different from the merchandising business? State
the component that differs the two businesses and explain briefly.

2. Integration No. 4 (Faith/ Biblical Reflection: Mark 8:36). How will you relate the bible verse with
the lesson discussed on the Statement of Comprehensive Income: “For what shall it profit a man,
if he shall gain the whole world, and lose his own soul”?

Short Essay Rubric:

Standard Excellent Very Good Good Fair
Content shows connection of the concept and explains 5 4 3 2
sensible decision about the topic that can help achieve the
goal.

Analysis & Interpretation of Financial Statements / SCI Page 8 of 10

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 ASSESSMENT

Direction: Prepare a Statement of Comprehensive Income of KLM International Co. as of December

31, 2013 using the multiple step approach based on the given accounts.

Depreciation Expense-Other Assets P 240 Marketing Expense P 1,100

Beginning Inventory of Merchandise 7,800 Purchases 63,000
Advertising Expense 900 Other Expenses 220
Purchase Returns & Allowances 2,500 Salaries Expense 10,200
Office Supplies Expense 300 Sales 84,000
Miscellaneous Expense 300 Sales Returns 3,500
Transportation Expense 800 Telephone Expense 470
Ending Merchandise Inventory 15,300 Income Tax Expense 2,160

KLM INTERNATIONAL CO.

Multiple Step Comprehensive Income Statement
For the year ended December 31, 2013

Analysis & Interpretati on of Financial Statements / SCI Page 9 of 10 11

 SUMMARY

In this lesson, you learned the meaning of the Statement of Comprehensive Income You also learned the
description of each account that affects the elements of the statement of comprehensive income. Lastly,
you are expected to prepare a SCI of a service business using the single step approach and for a
merchandising business using the multiple step approach.

EXIT INSTRUCTIONS

Answer activities with all honesty and sincerity. Check your answer on the lesson’s knowledge check,
activities 1 to 5 and the assessment part to ensure that all blanks have been answered. Make sure that you
do not leave any blank space unanswered. Please do not forget to write your name and the date of
submission of your answer sheets.

The entire module should be submitted back to the teacher before getting the next module.

SUPPORTING REFERENCES

Lim, Reyge Toh-Li Y., Fundamentals of Accounting, Revised Edition 2004, Manila, pages 254-289
Ong, Flocer Lao., Fundamentals of Accounting, Textbook for Beginners, Second Edition, 2008, pages
7-31
Valencia, Edwin G., Basic Accounting, 2002, pages 34-35

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Analysis & Interpretation of Financial Statements / SCI Page 10 of 10 11