MULTIPLE INCOME

STATEMENTS
The following account titles are used in recording acquisition and sale
of merchandise of a merchandising trading business:
● SALES – sales of merchandise are recorded on this account at selling price. This
is a temporary or nominal account representing income from selling of
merchandise. This account has a normal credit balance.
● SALES RETURN & ALLOWANCES – this account is debited for all the
merchandise returned by customers. The debit entry is at the original selling
price of the merchandise. This account is also being used for all goods delivered
to customers but are found to be defective or not as ordered and the buyers still
desire to retain the goods as is. The customer in this case is normally permitted
to deduct a certain amount from the selling prices of the goods delivered. This is
a deduction from Sales account.
● SALES DISCOUNT – this account is debited in the book of the seller whenever a
buyers avails of the cash discounts provided by the seller. This is deduction from
sales account.
● PURCHASES – this is a temporary account to which the cost
of goods bought during the period is debited. This account
usually has a debit balance at the end of the accounting
period.
● PURCHASE RETURNS AND ALLOWANCES – goods
bought and returned to supplier and even those that were
bought and received as defective or not as ordered are
subjected to certain reductions from their acquisition prices
when not returned to the supplier. These deductions and
returns of purchased goods are credited to this account.
Purchase returns and allowances account is a deduction from
the Purchases account.
● Purchase Discount - this account is credited in the books of
the buyer whenever the purchaser avails of the cash discount
given by the seller. This is a deduction from Purchases
account.
● Freight In - If the buyer pays the expenses of transporting the goods from the place of
the seller to his place of business, such expenses are debited to the Freight-in account.
The total amount debited to this account is added to the net cost of purchases for the
period.
● Freight Out - if the seller pays the expenses of transporting the goods from his place to
the place of the buyer, such expenses are debited to the Freight-out account. This is
reported as part of operating expenses under the distribution or selling expenses
classification
● Merchandising Inventory – at the end of every accounting period, a physical count of the
unsold merchandise on hand is taken. The total amount of these goods on hand is debited
to the Merchandise Inventory account.
NOTES TO FINANCIAL STATEMENT ON MULTIPLE
1. NET SALES

2. COST OF SALES

3. OTHER INCOME

4. DISTRIBUTION EXPENSE

5. ADMINSTRATIVE / GENERAL EXPENSE

6. OTHER EXPENSE

7. FINANCE COST
1. NET SALES - the first line after the heading of
the income statement
Gross Sales xxx
Less: Sales Return and allowances xxx
Net Sales xxx
2. COST OF SALES
OR COST OF GOODS SOLD REPRESENT THE COST OF MERCHANDISE
INVENTORY SOLD BY THE BUSINESS TO ITS CUSTOMERS. THIS
COMPRISES THE COMPANY’S BIGGEST EXPENSE AND IS DEDUCTED
FROM NET SALES TO ARRIVE AT THE GROSS PROFIT.
COMPUTATION OF COST OF SALES
Merchandise Inventory, Beginning xxx

Add: Net Cost of Purchases

Purchases xxx

Less: Return & Allowances xxx

Purchases Discount xxx xxx

Net Purchases xxx

Add: Freight-in xxx xxx

Goods Available for Sale xxx

Less: Merchandize inventory, end xxx

COST OF SALES XXX

3. OTHER INCOME

is income derived from sources other than the

company’s main line of business. Examples are
interest income, dividends income, commission
income, rent income, and gain on sales of equipment.
 4. DISTRIBUTION EXPENSES / SELLING EXPENSES

are those incurred in directly selling the merchandise. This includes salaries
of sales personnel, expenses incurred in promoting or advertising the product,
commission on sales, store supplies used, utilities used in store, depreciation
expense of assets used in the store and the cost of transporting the
merchandise to the customer’s place of business under the account title
freight out or delivery expense.
5. GENERAL / ADMINISTRATIVE EXPENSES

Are expenses necessary in the management of the office. This includes the salaries of
personnel, office supplies used, utilities used in the office, depreciation of office
assets and the provision of bad debts or uncollectible accounts.
Note: if the business has a small office, does not
maintain a store, and sales are made in the office,
operating expenses need not be categorized under
selling and administrative expenses.
6. OTHER EXPENSES

Are expenses not connected to the operating

activities of the business.
An example of this is loss of sale of assets and
discount lost.
7. FINANCE COST

- are interest expense paid for the use of borrowed funds.

COMPONENTS OF MULTIPLE-STEP INCOME STATEMENT
Ren Ren Merchandising

Income Statement

For the year ended December 31, 2019

Note

Net Sales 1 xxx

Cost of Sales 2 XXX

Gross Profit xxx

Other Income 3 xxx

Total Income xxx

Operating Expenses

Distribution Expenses 4 xxx

Administrative Expenses 5 xxx

Other Expenses 6 xxx

Finance Cost 7 xxx xxx

Operating profit before tax xxx

Less: Income Tax 20# xxx

Net PRofit after tax xxx
EXAMPLE:
Sales 782,000
Bad Debts Expense 2,000
Sales Return and Allowances 32,000 Interest Expense 2,400
Sales Discount 48,000 Loss on Sale of Equip. 1,600
Purchases 220,000 Discount Lost 1,000
Purchases Returns & Allowances 34,000 Interest income 30,000
Purchases Discount 26,000 Rent income 20,000
Freight-in 10,000 Utilities expense -store 6,000
Merchandise Inventory, Beginning 180,000 Office Salaries expense 34,000
Merchandise Inventory, End 120,000 Utilities expense-office 4,400
Sales Salaries Expense 52,000 Office Supplies 3,000
Depreciation Expense - Store equipment 7,800
Note 1 - NET SALES

Gross Sales 782,000

Less: Sales return & allowances 32,000
Sales Discount 48,000 80,000
Total 702,000
 NOTE 2 - COST OF SALES
Merchandise inventory, beginning 180,000
Add: Net Cost of Purchases
Purchases 220,000
Less: Purchase return & allowances 34,000
Purchase discount 26,000 60,000
Net Purchases 160,000
Add: Freight in 10,000 170,000
Goods Available for sale 350,000
Less: Merchandise, inventory end 120,000
COST OF SALES 230,000
NOTE 3 - OTHER INCOME

Interest Income 30,000

Rent Income 20,000

Total 50,000
NOTE 4 - DISTRIBUTION EXPENSE
Sales Salaries Expense 52,000
Depreciation Expense – Store Equipment
7,800
Utilities Expense – Store 6,000
Total 65,800
Note 5 - ADMINISTRATIVE EXPENSES

Office Salaries Expense 34,000

Utilities Expense – Office 4,400
Office Supplies 3,000
Bad Debts Expense 2,000
Total 43,400
 Note 6 - OTHER EXPENSES
Loss on Sale of Equipment 1,600
Discount Lost 1,000
Total 2,600

Note 7 - FINANCE COST

Interest Expense 2,400
 Ren Ren Merchandising

Income Statement

For the year ended December 31, 2017

Note

Net Sales 1 702,000

Less: Cost of Sales 2 230,000

Gross Profit 472,000

Other Income 3 50,000

Total Income 522,000

Less: Operating Expenses

Distribution expenses 4 65,800

Administrative Expenses 5 43,400

Other Expenses 6 2,600

Finance Cost 7 2,400 114,200

Net Profit/Income before tax 407,800

Less: Income Tax (20%) 81,560

NET PROFIT AFTER TAX 326,240