BM2003

BASIC FINANCIAL STATEMENTS II

Statement of Comprehensive Income
The statement of comprehensive income is one (1) of the five (5) financial statements required in a
complete set of financial statements for the distribution of a corporation. The statement of
comprehensive income covers the same period as the income statement and consists of two (2) major
sections (Averkamp, 2020):
• Net income (or net earnings) from the company’s income statement; and
• Other comprehensive income consists of positive or negative amounts for foreign currency translation
and hedges and a few other items.

Income Statement
The income statement reports the success or profitability of the company’s operations over a specific
period. This statement is usually made first, as the balance of this statement is used to create other
financial statements.

Illustrative Example 1: Jericho Company

JERICHO COMPANY
Income Statement
For the Month Ended October 31, 2X20
Revenues
Service revenue P 94,000
Expenses
Salaries and wages expense P 18,000
Rent expense 12,000
Advertising expense 5,000
Utilities expense 4,000
Total Expenses 39,000
Net Income P 55,000

JERICHO COMPANY
Retained Earnings Statement
For the Month Ended October 31, 2X20
Retained earnings, October 1 P 0
Add: Net income 55,000
Total 55,000
Less: Dividends 26,000
Retained earnings, October 31 P 29,000

04 Handout 1 *Property of STI

 student.feedback@sti.edu Page 1 of 5
 BM2003

JERICHO COMPANY
Statement of Financial Position
October 31, 2X20
Assets
Cash P 161,000
Accounts receivable 28,000
Supplies 32,000
Equipment 140,000
Total assets P 361,000
Liabilities and Stockholders’ Equity
Liabilities
Accounts payable 32,000
Stockholders’ equity
Common stock P 300,000
Retained earnings 29,000 329,000
Total liabilities and stockholders’ equity P 361,000

JERICHO COMPANY
Statement of Cash Flows
For the Month Ended October 31, 2X20
Cash flow from operating activities
Cash receipts from revenues P 66,000
Cash payments for expenses (39,000)
Net cash provided by operating activities 27,000
Cash flows from investing activities
Purchase of equipment (140,000)
Cash flows from financing activities
Sale of common stock P 300,000
Payment of cash dividends (26,000) 274,000
Net increase in cash 161,000
Cash at the beginning of the period 0
Cash at the end of the period P 161,000

The numbers in red show the relationships of the four (4) financial statements:
1. Net income is computed first and is needed to determine the ending balance of retained earnings.
2. The ending balance of retained earnings is needed in preparing the balance sheet.
3. The cash shown on the balance sheet is needed in preparing the statement of cash flows.

Other Comprehensive Income

Other comprehensive income refers to items of income and expenses that are not recognized as a part of
the profit and loss account. This income appears as a line item below the income statement. In simple
words, it is a gain or loss that has not been realized. Examples of other comprehensive income are:

04 Handout 1 *Property of STI

 student.feedback@sti.edu Page 2 of 5
 BM2003

• Unrealized gain or loss on bonds

• Unrealized gain or loss on investments that are available for sale
• Foreign currency translation gain or loss
• Pension plans gain or loss

Other comprehensive income can be reported either net of related tax effects or before similar tax effects
with a single aggregate income tax expense.

Proforma Statement of Comprehensive Income:

Lala Corporation
Statement of Comprehensive Income
For the Years December, 20X2 and 20X1
Note 20X2 20X1
Revenue (1) XXX XXX
Cost of sales (2) XXX XXX
Gross profit XXX XXX
Other income (3) XXX XXX
Distribution cost (4) XXX XXX
Administrative expense (5) XXX XXX
Other expenses (6) XXX XXX
Finance costs XXX XXX
Share of profit of associates XXX XXX
Profit before tax XXX XXX
Income tax expense XXX XXX
Profit for the period for continuing operations XXX XXX
Loss for the year from discontinued operations XXX XXX
Profit for the year XXX XXX

Other comprehensive income:

Exchange differences on translating foreign operations XXX XXX
Unrealized gain or losses on fair value through other comprehensive income XXX XXX
Effective portion of cash flow hedges XXX XXX
Gain on property valuations XXX XXX
Actuarial gains and losses on defined benefit plans XXX XXX
Share of other comprehensive income of associates XXX XXX
Income tax relating to the other comprehensive income XXX XXX
Other comprehensive income, net of income tax XXX XXX
Total other comprehensive income for the year XXX XXX
Total comprehensive income for the year XXX XXX

Profit attributable to:

Equity holders of the parent XXX XXX
Non-controlling interest XXX XXX
Total XXX XXX
Earnings per share:
Basic XXX XXX
Diluted XXX XXX

04 Handout 1 *Property of STI

 student.feedback@sti.edu Page 3 of 5
 BM2003

Total comprehensive income attributable to:

Equity holder of the parent XXX XXX
Non-controlling interest XXX XXX

Note 1 - Revenue
Gross sales XXX XXX
Sales returns and allowances (XXX) (XXX)
Sales discounts (XXX) (XXX)
Total XXX XXX

Note 2 - Cost of Sales

Inventory, January 1 XXX XXX
Purchases XXX XXX
Freight in XXX XXX
Purchase returns and allowances (XXX) (XXX)
Purchase discounts (XXX) (XXX)
Goods available for sale XXX XXX
Inventory, December 31 (XXX) (XXX)
Cost of sales XXX XXX

Note 3 - Other Income

Rental income XXX XXX
Dividend revenue (XXX) (XXX)
Total XXX XXX

Note 4 - Distribution costs

Freight out XXX XXX
Salesmen’ commission (XXX) (XXX)
Depreciation – store equipment (XXX) (XXX)
Total XXX XXX

Note 5 - Administrative expenses

Officers’ salaries (XXX) (XXX)
Depreciation – office equipment (XXX) (XXX)
Total XXX XXX

Note 6 – Other expenses

Loss on sale of equipment XXX XXX
Loss on sale of investment XXX XXX
Total XXX XXX

04 Handout 1 *Property of STI

 student.feedback@sti.edu Page 4 of 5
 BM2003

Statement of Changes in Equity

The statement of changes in equity is a reconciliation of the beginning and ending balances in a company’s
equity during a reporting period. It is not considered an essential part of the monthly financial statements,
and so is the most likely of all the financial statements not to be issued. However, it is a common part of
the annual financial statements. The report starts with the beginning equity balance, and then adds or
subtracts such items as profits and dividend payments to arrive at the ending balance. The general
calculation structure of the statement is:

𝐵𝑒𝑔𝑖𝑛𝑛𝑖𝑛𝑔 𝑒𝑞𝑢𝑖𝑡𝑦 + 𝑁𝑒𝑡 𝑖𝑛𝑐𝑜𝑚𝑒 − 𝐷𝑖𝑣𝑖𝑑𝑒𝑛𝑑𝑠 ± 𝑂𝑡ℎ𝑒𝑟 𝑐ℎ𝑎𝑟𝑔𝑒𝑠 = 𝐸𝑛𝑑𝑖𝑛𝑔 𝑒𝑞𝑢𝑖𝑡𝑦

The transactions most likely to appear on this statement are as follows:

• Net profit or loss
• Dividend payments
• Proceeds from the sale of stock
• Treasury stock purchases
• Gains and losses recognized directly in equity
• Effects of changes due to errors in prior periods
• Effects of changes in fair value for certain assets

The statement of changes in equity is most commonly presented as a separate statement, but can also be
added to another financial statement. It is also possible to provide a greatly expanded version of the
statement that discloses the various elements of equity. For example, it could separately identify the par
value of the common stock, additional paid-in capital, retained earnings, and treasury stock, with all of
these elements, then rolling up into the ending equity total.

References
Averkamp, H. (2020). What is the statement of comprehensive income. Retrieved from
https://www.accountingcoach.com/blog/what-is-the-statement-of-comprehensive-income
Weygandt, J. J., Kimmel, P. D., & Kieso, D. E. (2018). Accounting principles 13th Ed. New Jersey: John
Wiley & Sons.

04 Handout 1 *Property of STI

 student.feedback@sti.edu Page 5 of 5