Less

on 2 Statement of Comprehensive Income (SCI)

Directions. Read and analyze each item carefully. Write the letter corresponding to the best answer on your
answer sheet. 1 point each.
1. This is a financial statement that informs the reader about the “performance” and activities of
the company for a certain period.
A. Statement of Comprehensive Income
B. Statement of Financial Position
C. Statement of Changes in Equity
D. Statement of Cash Flow
2. This is typically the date of the statement of comprehensive income?
A. “As of December 31, 2019”
B. “For the period ended December 31, 2019”
C. Either A or B
D. None of the above
3. Which of the following is an element of a Statement of Comprehensive Income?
A. Sales
B. Accounts Payable
C. Notes Receivable
D. Capital
4. Which of the following is an element of a Statement of Comprehensive Income?
A. Notes Payable
B. Bonds Payable
C. Service Fee
D. Capital
5. Which of the following is an element of a Statement of Comprehensive Income?
A. Note Payable
B. Interest Expense
C. Interest Receivable
D. Bonds Payable
6. Which of the following is an element of a Statement of Comprehensive Income?
A. Interest Payable
B. Interest Expense
C. Cash
D. Prepaid Rent
7. Which of the following is an element of a Statement of Comprehensive Income?
A. Prepaid Insurance
B. Gross Profit
C. Furniture and Fixture
D. Equipment
8. Which of the following is only ancillary to the entity’s operation?
A. Professional fees charged by an auditing firm
B. Sales Revenue earned by a convenience store
C. Sales Revenue earned by a drug store
D. Gain on Sale of land
9. Which of the following is classified as selling expenses?
A. Salaries of the president
B. Salaries of sales executives
 C. Depreciation of administration building
D. Depreciation of office equipment
10. Which of the following is the correct gross profit formula?
A. Sales + Cost of Sales = Gross Profit
B. Sales + Gross Profit = Cost of Sales
C. Sales – Gross Profit = Cost of Sales
D. None of the above

TERM DEFINITION

Statement of Comprehensive Income
Also known as the income statement. Contains the results of
the company’s operations for a specific period of time which
is called net income if it is a net positive result while a net
loss if it is a net negative result. This can be prepared for a
month, a quarter or a year. (Haddock, Price, & Farina, 2012)

Temporary Accounts Also known as nominal accounts are the accounts found
under the SCI. They are called such because at the end of
the accounting period, balances under these accounts are
transferred to the capital account, thus having only
temporary amounts and resulting to zero beginning balances
at the beginning of the following year. (Haddock, Price, &
Farina, 2012)Examples of temporary accounts include
revenues, sales, utilities expense, supplies expense, salaries
expense, depreciation expense, interest expense among
others.

Activity 1 Prepare a Personal SCI:

1. Get a piece of paper.

2. Write your monthly allowance (computed by daily allowance x number of days in a month)
3. Write the amount you spend on food, transportation, phone load, etc. (make it monthly to
match your allowance)
4. Deduct the amount you spend from the amount of your allowance
5. Associate allowance with revenue and spending with expense with the net amount as net
income.

Processing Questions:
1. How much is the net amount?
2. Do you have greater revenue than your expenses? Or vice versa?
3. There might be some cases your computation is zero or even negative. This means
that your expenses are higher than your income/revenue.
4. A business can still earn even without having cash and can still lose even with a full
bank account. You will understand these concepts as you go through with the
lesson.

Lesson 2.1 Nature of Statement of Comprehensive Income

 The Statement of Comprehensive Income informs the reader about the “performance” and
activities of the company for a certain period (e.g. for the period ended December 31, 2019). It
generally contains the revenues and expenses incurred by an entity for the specified period.

A Statement of Comprehensive Income is conventionally compared to a running video

because it presents an entity’s business activities from the start to the end of a period.

Below are the key features of a statement of comprehensive income.

Key Features of Statement of Comprehensive Income (Income Statement)

1. The Heading
The statement of comprehensive income is a financial report. As a financial report, it
must be properly identified and dated. The appropriate title of the statement will enable the
user to differentiate the statement of comprehensive income from the other financial reports
issued by the entity. The heading includes the Name of the Entity, the Title of the Report (i.e.,
Statement of Comprehensive Income, and the period it covers (i.e., For the period ended
December 31, 2019)

2. Revenues
Revenues arise in the course of the ordinary activities of an entity and are referred to by
a variety of different names including sales, fees, interest, dividend, royalties, and rent (IASB
2010).
Revenues are the first line item in the statement of comprehensive income. Smaller and
less complex entities will have one or two sources of revenues. Larger and more complex
entities, on the other hand, will have multiple sources of revenues, recorded when earned.

3. Expenses
Expenses arising in the course of the ordinary activities of the entity include, for
example, cost of sales, wages, and depreciation. They usually take the form of an outflow or
depletion of assets such as cash and cash equivalent, inventory, property, plant and
equipment.
Classifying expenses for merchandizing concern is more complex than in a service
concern. For a merchandizing concern, the expenses are classified as cost of sales, selling
expenses, and administrative (operating) expenses.

The cost of sales is the amount paid or payable by the business entity to its supplier for
the merchandize sold to the business entity’s customers. Cost of sales will take a general
formula as seen below:

Beginning Inventory
Add: Net Purchases
Total Goods Available for Sale
Less: Ending Inventory
Cost of Sales

Net purchases for the year are the total amount paid or payable to suppliers for the
period. Net purchases follow a formula as shown below:

Gross Purchases
Less: Purchase Discounts
 Purchase Returns
Add: Freight-In
Net Purchases

4. Gain and Losses

Gains represent other items that meet the definition of income and may or may not,
arise in the course of the ordinary activities of an entity. To reiterate, gains are incidental to the
operation of a business. For example, if a law firm sells its office printer for P 5,000.00 when
the carrying amount of the printer is P 4,000.00, a gain amounting to P 1,000.00 must be
recorded.
Losses, on the other hand, represent other items that meet the definition of expense
and may or may not arise in the course of the ordinary activities of the entity.
5. Other Items
Other items included in the computation of the total comprehensive income are taxes
and items of other comprehensive income. Income tax is the sum of money payable to the
government.

Lesson 2.2. Two Approaches in Making Statement of Comprehensive Income:

1. Single-step – Called single-step because all revenues are listed down in one section while
all expenses are listed in another. Net income is computed using a “single-step” which is
Total Revenues minus Total Expenses. (Haddock, Price, & Farina, 2012)
2. Multi-step – Called multi-step because there are several steps needed in order to arrive at
the company’s net income. (Haddock, Price, & Farina, 2012)

The two are only formats and will yield the same amount of net income/loss.
The single-step SCI is more commonly used by service companies while multi-step format
is more commonly used by merchandising companies

Sample Format of Statement of Comprehensive Income:

LEARNING IS FUN COMPANY

Statement of Comprehensive Income Heading
For the period ended December 31, 2019
Sales Revenue P 100,000.00 Revenue
Less: Expenses
Salaries Expense 40,000.00
Rent Expense 20,000.00 Expenses
Depreciation 10,000.00
Utilities 5,000.00
Miscellaneous Expense 1,000.00 76,000.00
Net Income P 24,000.00 Net income/loss

Figure 2.1 Sample Format of Statement of Comprehensive Income using a Single-Step Approach.
(This is commonly used in Service Concern Type of Business)

Lesson 2.3. Steps in Preparing a Statement of Comprehensive Income using Single-Step

Approach
1. Draft the Appropriate Title
The appropriate title for the for Learning is Fun Company as shown above is;
Learning is Fun Company
Statement of Comprehensive Income
For the period ended December 31, 2019
2. Determine Total Revenue from the Trial Balances
Refer to the example above, the total revenue which came from the total sales is P
100,000.00.
Sales Revenue P 100,000.00

3. Determine total Operating Expenses

Based on the example above, our expenses can be determined as follows;
Salaries Expense 40,000.00
Rent Expense 20,000.00
Depreciation 10,000.00
Utilities 5,000.00
Miscellaneous Expense 1,000.00

4. Determine the effect of other items

Based on our worksheet, there are no items pertaining to gains, losses, and other
comprehensive income. Income taxes are also ignored in the case. Having noticed such items,
net income can now be determined by deducting Sales Revenue from Operating Expenses as
shown on the example above.

Sample Format of Statement of Comprehensive Income using a Multi-Step Approach.

ABM TRADING
STATEMENT OF COMPREHENSIVE INCOME Heading
FOR THE PERIOD ENDED DECEMBER 31, 2019
Sales 129,000
Less: Sales Returns & Allowances 7,000 Revenue
Sales Discounts 3,000 10,000
Net Sales 119,000
Less: Cost of Sales
Merchandise Inventory, Beginning 80,000
Add: Purchases 50,000
Freight In 2,000
Total Purchases 52,000 Cost of Sales
Less: Purchase Returns & Allowances 4,500
Purchase Discounts 5,000 9,500 42,500
Total Goods Available for Sale 122,500
Less: Merchandise inventory, End 50,000 72,500
Gross Profit 46,500
Less: Administrative and Operating Expenses
Salaries 14,500
Freight Out 3,500
Insurance Expense 500
Interest Expense 580
Cost of Sales
Bad Debts 7,400
Depreciation-Store Equipment 10,500
Depreciation-Store Furniture 7,200 44,180
Net Income 2,320
Add: Other Income
Commission Income 7,000 Cost of Sales
Interest Income 345 7,345
Net Income for the Period 9,665
======
Figure 2.2 Sample Statement of Comprehensive Income using Multiple-Step Approach.

Lesson 2.4. Steps in Preparing SCI Using Multiple-Step Approach:

1. Determine the revenues.

Since the entity is a merchandising concern, its revenue will come from sales. The revenue to
be presented in the statement of comprehensive income must be net of the discounts, return
and allowances. Sales discounts and returns and allowances are called contra revenue
because it is on the opposite side of the sales account. The sales account is on the credit side
while the reductions to sales accounts are on the debit side. This is “contrary” to the normal
balance of the sales or revenue accounts. (Haddock, Price, & Farina, 2012)
Sales returns – This account is debited in order to record returns of customers or allowances
for such returns.(Haddock, Price, & Farina, 2012) Sales returns occur when customers return
their products for reasons such as but not limited to defects or change of preference.
Sales discount – This is where discounts given to customers who pay early are recorded.
(Haddock, Price, & Farina, 2012) also known as cash discount. This is different from trade
discounts which are given when customers buy in bulk. Sales discount is awarded to
customers who pay earlier or before the deadline. (Sales less Sales Discounts and Returns is
equal to Net Sales)
2. Determine the Net Purchases, Cost of Sales and Gross Profit
This account represents the actual cost of merchandise that the company was able to sell
during the year. (Haddock, Price, & Farina, 2012).

Beginning inventory – This 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 = Purchases + Freight In
Net Purchases = Purchases – (Purchase discount and purchase returns)

Purchases – amount of goods bought during the current accounting period. Contra Purchases
–An account that is credited being “contrary” to the normal balance of Purchases account.
Purchase discount – Account used to record early payments by the company to the
suppliers of merchandise. (Haddock, Price, & Farina, 2012) This is how buyers see a sales
discount given to them by a supplier.
Purchase returns and allowances – Account used to record merchandise returned by
the company to their suppliers. (Haddock, Price, & Farina,2012) This is how buyers see a
sales return recorded by their supplier.

Freight In – This account is used to record transportation costs of merchandise purchased by

the company. (Haddock, Price, & Farina, 2012)
Note that there is a difference between freight-in and freight-out. Freight-in denotes charges
pertaining to the receipts or purchase of goods. Freight-in is accounted for as an addition to
purchases. Freight-out, on the other hand, pertains to the delivery of cost of goods sold.
Freight-out is treated as a selling expense.

Add Beginning inventory and Net cost of Purchases to get Cost of Goods Available for Sale

Ending Inventory – amount of inventory presented in the Statement of Financial Position. Total
cost of inventory unsold at the end of the accounting cycle.
 Sales less Cost of Goods Sold is Gross Profit

3. Determine the Administrative and Operating Expenses

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. (Haddock, Price, & Farina, 2012) Example of general and administrative expenses
include utilities for home office, salaries of admin personnel
Selling or Operating Expenses – These expenses are those that are directly related to
the main purpose of a merchandising business: the sale and delivery of merchandise. This
does not include the cost of goods sold and contra revenue accounts. (Haddock, Price, &
Farina, 2012) Examples of selling expenses include sales commissions, delivery expenses,
and advertising expenses.

4. Determine the Net Income

Gross Profit less General and Administrative Expenses less Selling Expenses is Net Income
for a positive result while Net Loss for a negative result.

Activity 2

Instruction: Identify each element or account title if it can be found on a service or

merchandising business. Complete the table by putting a ( ) check mark or (X) cross mark in the
corresponding columns.

Account Titles Service Business Merchandising Business

Ex. Professional Fees  X
Sales
Consulting Revenue
Purchases
Cost of Sales
Inventory Beginning
Referral Revenue
Freight-In
Purchase Returns & Allowances
Advertising Revenue
Service Revenue

Reflection:
Think of all elements or accounts in the Statement of Comprehensive Income for service and
merchandising business, list it down and explain.

Activity 3

Instruction: True or False. Write the word “True” if the statement is correct and “False” if it is
incorrect. Write the answer on the space provided before each number.

________ 1. Income statement shows the profitability of the business.

________ 2. It is customary for service organization industries operated as sole proprietors to omit
the cost of service.

________ 3. Freight-in charges pertain to the receipt or purchase of goods.

________ 4. Income statement reflects the performance of an entity for a specified time period.

________ 5. Freight-out is treated as an administrative expense.

________ 6. The income statement heading specifies a point of time, indicating “as of or “as at”.

________ 7. Revenue is the amount earned by a business in its main operating activities.

________ 8. When a company disposes equipment and receives an amount more than the carrying
value of assets in the accounting records, the company should record or report gain.

________ 9. The multistep income statement shows gross profit in its presentation.

________10. The single step income statement format segregates the operating revenues and
expenses from the non-operating revenues.

________11. Net sales minus the cost of goods sold equals to gross profit.

________12. Gross profit minus operating expenses is best defined as net sales.

________13. Gross profit is computed as the difference between the net sales and cost of sales.
________14. The statement of comprehensive income informs the reader about the “performance”
and activities of the company for a certain period.

________15. Salary of personnel in the production department is considered to be operating

expenses.

Activity 4

Case #1. Sindayen Engineering Consultants

The following are the accounts of Sindayen Engineering Consultants for December 31, 2019.

Professional Fees 625,000.00

Salaries Expense (62,500.00)
Supplies Expense (93,750.00)
Depreciation Expense (75,000.00)
Utilities Expense (50,000.00)
Insurance Expense (25,000.00)
Rent Expense (112,500.00)
Loss on sale of equipment (50,000.00)

You are employed by the entity as its bookkeeper in its first year of operation. You will prepare the
necessary financial statement for the current year;
Instructions:

1. Determine the net income.

2. Prepare a Statement of Comprehensive Income using Single-Step Approach

ACTIVITY 5 – SOLVING THE PROBLEM

Case #2. Tee Shirts Company.

Refer to the partial trial balance of Tee Shirts Company below;

TEE SHIRTS COMPANY

TRIAL BALANCE
DECEMBER 31, 2019

ACCOUNTS DEBIT CREDIT

Inventory, beginning 2,000,000.00
Sales 15,000,000.00
Sales Returns and Allowances 10,000.00
Sales Discount 120,000.00
Purchases 8,000,000.00
Freight-in 200,000.00
Freight-out 500,000.00
Purchase Discounts 100,000.00
Purchase Returns and Allowances 10,000.00
Salary Expense 1,000,000.00
Utilities Expense 240,000.00
Permit & Licenses 10,000.00
Repair and Maintenance 100,000.00
Depreciation 120,000.00
Inventory, end 1,750,000.00

You are employed by the company as its bookkeeper in its first year of operations. You will prepare
the necessary financial statement for the current year.
Instructions:
1. Compute for the net sales for the year.
2. Compute for the cost of sale for the year.
3. Compute for the gross profit for the year.
4. Compute for the income for the year.
5. Prepare a Statement of Comprehensive Income using a Multi-step Approach.

Activity 6 Choosing the Right One

Read and carefully examine the statements and choose the best answer.
1. Select the most appropriate description of the statement of comprehensive income’s key
features.
A. A statement of comprehensive income is like a picture that depicts a static image of an
entity.
 B. A statement of comprehensive income is like a moving video that depicts a moving scene
of an entity.
C. A statement of comprehensive income contains assets, liabilities, and equity.
D. A statement of comprehensive income is dated “As of December 31, 2019”
2. Which is an appropriate date for a statement of comprehensive income?
A. “As of December 31, 2019”
B. “For the period ended December 31, 2019”
C. Either A or B
D. Neither A or B
3. Which of the following is an element of a statement of comprehensive income?
A. Cash
B. Receivables
C. Revenues
D. Interest Receivables
4. Which of the following is an element of a statement of comprehensive income?
A. Cash equivalents
B. Capital
C. Drawing
D. Professional fees
5. Which of the following is an element of a statement of comprehensive income?
A. Note Payable
B. Note receivable
C. Interest Receivable
D. Interest Expense
6. Which of the following is an element of a statement of comprehensive income?
A. Interest Payable
B. Interest Expense
C. Rent Expense
D. Prepaid Rent

7. Which of the following is an element of a statement of comprehensive income?

A. Account Payable
B. Interest Payable
C. Interest Receivable
D. Gross Profit
8. Which of the following is only ancillary to the entity’s operation?
A. Professional fees charged by a law firm
B. Sales revenue earned by a variety store
C. Sales revenue earned by a department store
D. Gain on sale of property, plant and equipment
9. Which of the following is classified as selling expenses?
A. Salaries of corporate executive
B. Salaries of salesman
C. Depreciation of corporate headquarters
D. Depreciation of automobile
10. Which of the following is the correct gross profit formula?
A. Sales + Cost of Sales = Gross Profit
B. Sales + Gross Profit = Cost of Sales
C. Sales – Gross Profit = Cost of Sales
D. None of the above.