Fabm2 Module 3

ACEBA Systems Technology Institute Inc.
Senior High School

Track : Academic
Strand : Accountancy, Business and Management
Specialization : Bookkeeping NCIII
Grade : 12
Grading Period : 1st Sem. (sy.2020-2021)
Prepared by : Mr. Renniel L. Apuro
Fundamentals of Accountancy, Business and Management 2

Module WEEK 3
Components of the Statement of Comprehensive income and Accrual Concept of
Accounting
Objectives:
1. Understand the purpose of the Statement of Comprehensive Income (SCI);
2. Identify the elements of the Statement of Comprehensive Income (SCI);
3. Describe the nature of the accounts reported on the Statement of Comprehensive
Income (SCI);
4. Prepare a single-step Statement of Comprehensive Income for a service company;
5. Prepared a multi-step Statement of Comprehensive Income for a merchandising
company; and
6. Determine the normal balances of the elements of the Statement of Comprehensive
Income (SCI).
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.
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. Examples of temporary accounts
include revenues, sales, utilities expense, supplies expense, salaries expense, depreciation
expense, interest expense among others
Single-step and multi-step format of the SCI
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.
Senior High School
Track : Academic
Grade : 12
Multi-step
Called multi-step because there are several steps needed in order to arrive at
the company’s net income.
Difference of the Statement of Comprehensive Income of a Service Company and of

a Merchandising Company
The main difference of the Statements of the two types of business lies on how they
generate their revenue. A service company provides services in order to generate revenue and
the main cost associated with their service is the cost of labor which is presented under the
account Salaries Expense. On the other hand, a merchandising company sells goods to
customers and the main cost associated with the activity is the cost of the merchandise which
is presented under the line item Cost of Goods Sold. In presenting these items on the
Statement of Comprehensive Income, a service company will separate all revenues and
expenses (as seen in the single-step format) while a merchandising company will present total sales and
cost of goods sold on the first part of the statement which will net to the company’s gross profit before
presenting the other expenses which are classified as either administrative expenses or selling
expenses (as seen in the multi-step format).
Example of Statement of Comprehensive Income (SCI).
Learning is Fun Company

Statement of Financial Position Heading
As of December 31, 20K6
Service Revenue Revenues P100,000

Expenses
Salaries Expense 40,000 Example of Report form
Rent Expense 20,000 SFP
Depreciation Expense Expenses 10,000
Utilities Expense 5,000
Miscellaneous Expense 1,000
Total expenses P76,000
Net Income Net Income/Loss P24,000

Senior High School
Track : Academic
Grade : 12
>>>> amounts in the SCI are temporary meaning that each period (month,
quarter, year) amounts go back to being zero to start all over.
Components of the Statement of Comprehensive Income
The SCI is an action-packed financial statement. In contrast, the SFP is still

photograph. The SCI is the statement that explains some of the changes that occur between
two SFPs taken one year apart.
What are the actions reported on the SCI ?
INCOME AND EXPENSES.
Income- refers to a transaction that increase assets and/or decreases liabilities and leading to
increase in equity resulting from the operations of the business and not from the owner’s
contribution.
Expenses- are transactions that decrease asset and/or increase liabilities leading to decrease
in equity resulting from the operations of the business and not because of distributions to
owners.
 Revenues less Expenses. Net income for positive result and net loss for a negative
result.
HAPPY SELLING COMPANY

STATEMENT OF COMPREHENSIVE INCOME Heading
FOR THE YEAR ENDED DECEMBER 31, 20K6
Sales P500,000
Sales Returns Contra Revenue (P30,000)
Sales Discounts (10,000) (40,000)
NET SALES P460,000
Cost of Goods Sold Cost of Goods Sold
Beginning Inventory
Net Cost of Purchases P250,000
Purchases P100,000
Purchase Returns (20,000)
Purchase Discounts (10,000)
Net Purchase 70,000
Freight In 15,000 85,000
Cost of Goods available for sale 335,000
Ending Inventory (50,000) (285,000)
Gross Profit P175,000
Senior High School
Track : Academic
Grade : 12
General & Administrative Expenses

Salaries Expense General & (P20,000)
Rent Expense Administrative (15,000)
Depreciation Expense (10,000)
Expenses
Utilities Expense (5,000)
Miscellaneous Expense (1,000) (51,000)
Gross Profit P175,000
General & Administrative Expenses

Salaries Expense General & (P20,000)
Rent Expense Administrative (15,000)
Expenses
Utilities Expense (5,000)
Miscellaneous Expense (1,000) (51,000)
Selling Expenses
Salaries Expense (P10,000)
Rent Expense Selling Expenses (8,000)
Utilities Expense (6,000) (31,000)
Net Income P93,000
Example of Multi-step SCI
 First part is SALES
Sales- is the total amount of revenue that the company was able to generate from selling
products.
 Second part compose of CONTRA REVENUE
Contra Revenue- it is called contra because it is on opposite side of the sales account. The
sales accounts 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.
Senior High School
Track : Academic
Grade : 12
Sales returns – This account is debited in order to 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 – This is where discounts given to customers who pay early are recorded.
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 returns and Sales discount is Net Sales
 Third part is COST OF GOOD SOLD
Cost of Good Sold- This account represents the actual cost of merchandise
that the company was able to sell during the year.
“Cost of Goods Sold”
– cost of the goods that were sold which is different from cost of goods purchased.
Benta (Sales), Puhunan sa benta (Cost of Goods Sold).
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 – 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) Called freight in
because this is recorded when goods are transported into the company.
Senior High School
Track : Academic
Grade : 12
Add Beginning inventory and Net cost of Purchases to get Cost of Goods Available for
Sale
Ending inventory – amount if 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
 Fourth part is GENERAL ADMINISTRATIVE EXPENSES

General 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

Selling 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 cost of
goods sold and contra revenue accounts.
Gross Profit less General and Administrative Expenses less Selling Expenses is Net
Income
for a positive result while Net Loss for a negative result
Sample questions:
Easy:
1.Learning is Fun Company generated revenues amounting to Php 100,000. Expenses for the
year totaled Php 76,000. How much is the company’s net income for the year?
Answer: P24,000.
2.Happy Selling Company’s salaries to sales agents amounted to Php 10,000. Salaries of
accountants amounted to Php 20,000. No other expenses were incurred. How much is the
company’s general and administrative expense?
Answer: P20,000.
Medium:
1.Happy Selling’s beginning inventory amounted to 250,000. Net purchases amounted to
70,000.
Freight In totaled 15,000. Compute for the company’s cost of goods available for sale.
Answer: P335,000.
Senior High School
Track : Academic
Grade : 12
2.Happy Selling’s Sales amounted to Php 500,000. Sales returns and sales discounts
amounted to Php 30,000 and Php 10,000 respectively. Purchases of the company totaled Php
100,000 while purchase returns and purchase discounts amounted to Php 20,000 and Php
10,000 respectively. How much is the company’s Net Sales? Net Purchases?
Answer: Net sales - P460,000; Net Purchases - P70,000
Difﬁcult
1.Company’s Cost of Goods Sold amounted to Php 285,000. Net cost of purchases totaled
Php
85,000. Beginning inventory amounted to Php 250,000. Sales amounted to Php 500,000.
Compute for the company’s Ending Inventory.
Answer: P50,000.
2.Gross profit of Happy Selling amounted to Php 175,000. Beginning Inventory totaled Php
250,000. Ending Inventory amounted to Php 50,000 while Net Cost of Purchases totaled Php
85,000. Compute for Happy’s Net Sales.
Answer: P460,000
How a company can earn without having cash and lose even with lots of cash.
a. Company can still have net income without cash transactions due to accrued income
A sari-sari store who sells a lot of merchandise but majority of the sales are on credit.
High net
income, low cash balance.
b. Company can still have net loss with a lot of cash revenues due to depreciation and accrued
expense
We always see a lot of people buying from Jollibee/Mcdo using cash but a new
branch can still
have net loss due to the depreciation expense of its building/equipment.
Important matters:
a. Without the SCI, the company cannot truly know if it is earning.
Examples:
Businesses don’t usually account for their revenues and expenses as long as the
owners
see that cash is coming in. They sometimes forget that equipment is depreciated and some
expenses are accrued.
Senior High School
Track : Academic
Grade : 12
b. The importance of the format:

i. Single-Step vs Multi-Step and why is single-step more often used in service companies
while
multi-step ismore often used in merchandising companies (service companies don’t have
inventories)
ii. Use of reduction to sales and contra purchases (contra accounts are used to easily
determine those accounts that are directly connected to sales and purchases. These can also
be used as a determinant of quality –sales returns and purchase returns)
iii. Separation of the General and Administrative Expenses with the Selling Expenses
(companies can know how to reduce expenses and increase net income by pin pointing
which expense is very high)
What’s a Single-Step Income Statement?
A single-step income statement presents the revenue, expenses and ultimately the profit or
loss generated by a business, but it reports on this information by using just one equation to
calculate profits. The equation used in a single-step income statement is:
Net Income = (Revenues + Gains) – (Expenses + Losses)
The single-step income statement offers a straightforward accounting of the financial activity
of your business. It’s easy to understand and relatively easy to prepare.
What’s a Multi-Step Income Statement?
A multi-step income statement reports much of the same general information included in a
single-step income statement, but it uses multiple equations to determine the net income, or
profit, of the company.
The multi-step income statement breaks down operating revenues and operating expenses
versus non-operating revenues and non-operating expenses. This separates revenues and
expenses that are directly related to the business’s operations from those that are not directly
tied to its operations.
The multi-step income statement uses three different accounting formulas to arrive at the net
income:
1. GROSS PROFIT = NET SALES – COST OF GOODS

SOLD
Cost of goods sold is subtracted from net sales. This gives the gross profit.
Senior High School
Track : Academic
Grade : 12
2. OPERATING INCOME = GROSS PROFIT –

OPERATING EXPENSES
Operating expenses are subtracted from gross profit. This gives you the operating income.
3. NET INCOME = OPERATING INCOME + NON-

OPERATING ITEMS
Operating income is added to the net non-operating revenues, gains, expenses and losses.
This final figure gives the net income or net loss of the business for the reporting period.
Single-Step vs Multi-Step Income Statement
A single-step income statement gives a simple accounting of a business’s net income,

whereas a multi-step income statement follows a three-step process to calculate net income,
separating operational from non-operational revenues and expenses.
ADVANTAGES OF SINGLE-STEP INCOME

STATEMENTS
 Easy to Prepare: Because single-step income statements require you to make fewer

calculations and because they don’t break down operating versus non-operating line items,
single-step reports take less time and effort to prepare.
 Easy to Read: The single-step income statement is a streamlined document. It focuses
on the bottom line, net income, so it’s easy to see at a glance how well the business is
performing financially.
ADVANTAGES OF MULTI-STEP INCOME STATEMENTS
 Offer Greater Detail: Multi-step income statements offer an itemized breakdown of a

business’s revenue and expenses, categorized by operating and non-operating revenue for
more insight into the financial health of the company.
 Report Gross Profit: Unlike a single-step income statement, multi-step income
statements report on gross profit. Gross profit is an important metric because it shows how
efficiently a business uses labor and supplies to generate revenue.
 Report Operating Income: Multi-step income statements report on a company’s
operating income, which gives insight into how efficiently a company earns a profit from its
primary business activities.
Senior High School
Track : Academic
Grade : 12
Examples:
1. At the end of the first month of operations for Juan’s Service Company, the business
had the following accounts: Cash, Php19,000; Prepaid Rent, Php500; Equipment,
Php5,000 and Accounts Payable Php2,000. By the end of the month, Jackson's had
earned Php20,000 of Revenues, Php1,000 of Utilities Expenses and Php1,500 of
Salaries Expenses. Calculate the net income to be reported by the company for this
first month.
Answer: Php 17,500 (Topic: Calculation of net income)
2. During October, a sari-sari store had the following transactions involving revenue and
expenses. Did the firm earn a net income or incur a net loss for the period? What was
the amount?
Paid Php1,200 for rent

Provided services for Php2,750 in cash
Paid Php250 for telephone service
Provided services for Php1,900 on credit
Paid salaries of Php1,675 to employees
Paid Php350 for office cleaning service
Answer: Net income P 1,175 (Topic: Calculation of Net Income)
3. Compute for the Cost of Goods Sold using the following:
Sales – 15,000
Purchases – 2,000
Purchase returns – 200
Purchase discounts – 200
Freight in – 100
Beginning inventory – 1,000
Ending inventory – 500
Answer: P2,200 (Topic: Calculation of cost of goods sold)
Prepare a single-step Statement of Comprehensive Income using the following:

Revenues – 20,000
Rent expense – 3,000
Senior High School
Track : Academic
Grade : 12
Salaries expense – 4,000

Utilities expense – 2,000
ANSWER:
Company Name
Statement of Comprehensive Income
For the Year (Year End)
Revenues P 20,000
Expenses:
Rent Expense (P 3,000)
Salaries Expense (4,000)
Utilities Expense (2,000) (9,000)
Net Income P 11,000.00
COMPANY
Prepare a multi-step Statement of Comprehensive Income using the following:

Sales – 20,000
Cost of Goods Sold – 10,000
General and administrative expenses – 4,000
Selling expenses – 2,000
ANSWER:
Company Name
For the Year (Year End)
Sales P 20,000
Cost of Goods Sold 10,000
Gross Profit 10,000
General and Administrative Expenses 4,000
Selling Expenses 2,000
Net Income P 4,000
Senior High School
Track : Academic
Grade : 12
Nena had the following expense accounts for the year ended December 31, 2016:
A. Salaries of admin personnel
B. Salaries of janitors
C. Salaries of sales agents
D. Utilities of home office
E. Rent of office building
F. . Depreciation of office equipment
G. Depreciation of delivery van
H. Advertising
I. Cost of merchandise sold during the year
Identify if the account is part of the general and administrative expenses or selling
expenses
Suggested Answer: (Topic: Classification of accounts)
Appendix
35
a. Salaries of admin personnel General and Admin
b. Salaries of janitors General and Admin
c. Salaries of sales agents Selling
d. Utilities of home office General and Admin
e. Rent of office building General and Admin
f. Depreciation of office equipment General and Admin
g. Depreciation of delivery van Selling
h. Advertising Selling
i. Cost of merchandise sold during the year N/A (Cost of goods sold)
Senior High School
Track : Academic
Grade : 12
Another Example:
On February 1, 20A4, Ethel Ramos open a store that sells school supplies. Ethel wanted to
know the result of operating the store. Ethel knew you were studying accounting so she
asked for your help. The following were taken from the accounting records of Ethel’s Store.
BalanceDebitCreditSalesP114,567Sales return1,544Sales
discount1,675Purchases61,558Purchase return504Purchase discount1,076Freight-
in765Utilities expense4,000Salaries expense14,000Rent expense10,000Depreciation 500
Additional Information:
Physical inventory conducted at the end of the year revealed an ending inventory of
P15,345.
Depreciation is for shelves and cabinets used as display racks and storage in the store.
Ethel has a small office inside the store. Allocate 15% of rent and utilities general and
administrative expense.
25% of Aga’s salaries are located to General and Administrative Expense. Aside
from tending the store, he was also task to file receipt and maintain some reords.
Requirements:
All accounts above have normal balances. Indicate whether the accounts have debit
or credit balances
Prepare the year ended SCI using the single-step approach
Prepare the year ended SCI using the multi-step approach
Senior High School
Track : Academic
Grade : 12
Answer:
Requirement #1
Balance Debit Credit

Sales P114,567 P114,567
Sales return 1,544 1,544
Sales discount 1,675 1,675
Purchases 61,558 61,558
Purchase return 504 504
Purchase discount 1,076 1,076
Freight-in 765 765
Utilities expense 4,000 4,000
Salaries expense 14,000 14,000
Rent expense 10,000 10,000
Depreciation 500 500
Requirement #2
Ethel’s Store
For the year ended December 31, 20A4
Net sales P111,348

Increase in Inventory* 15,345
126,693
Less: Expenses:
Net purchases 60,743
Salaries expense 14,000
Rent expense 10,000
Utilities expense 4,000
Depreciation 500
Senior High School
Track : Academic
Grade : 12
89,243
Net income P37,450
Single-step SCI
Requirement #3
Ethel’s Store
For the year ended December 31, 20A4
Net sales P111,348

Less: Cost of Good Sold 45,398
Gross Profit 65,950
Less: Operating Expense
Selling expenses 22,900
General and Administrative 5,600
28,500
Net Income P37,450
Multi-step SCI
Additional computations:
1. Net Sales
SalesP114,567Less: Sales Return1,544Less: Sales discount1,675Net SalesP111,348
2. Cost of Good Sold

Beginning InventoryP0Purchases61,558Add: Freight-in765Less: Purchase return504Less:
Purchase discount1,076Net purchases60,743Less: Ending inventory15,345Cost of Goods
soldP45,398
Senior High School
Track : Academic
Grade : 12
3. Operating Expenses
BalanceSelling ExpenseGeneral & Administrative expense (G & A)Utilities expense15% to G

&AP4,000P3,400P600Salaries expense25% to G & A14,00010,500 3,500Rent expense15% to G
& A10,0008,5001,500Depreciation500500TotalP28,500P22,900P5,600
Long Quiz
I. True or False: Read each sentence carefully and determine whether the
statement is True or False. Write your answer in the space provided before
the number.
__________1. The SCI is a picture of operations of the company as of the cut-off date.
__________2. The major elements of the SCI are income and expenses.
__________3. Cost of sales is computed as cost of goods sold available for sale less ending
inventory.
__________4. Expense recognition strictly requires the matching of expenses against
revenue.
__________5. Goods returned by customers are immediately deducted to the sales revenue
account.
Senior High School
Track : Academic
Grade : 12
__________6. In periodic inventory accounting, inventory is determined by conducting a

physical count of merchandise owned.
__________7. Expenses decrease assets and therefore have credit normal balances.
__________8. Depreciation expense is a line account found in an SCI prepared following the
multi-step format.
__________9. Revenue result increase in equity and therefore has a credit normal balance.
__________10. Revenue result increase in equity and therefore has a credit normal balance.
II. Modified Matching Type: Classify the line accounts on the table as to
single-step/nature of expense or multi-step/function of expense SCIs
Net sales Rent expense Utilities expense
Net purchase Cost of sales Interest income
Depreciation and amortization Bad debts expense Interest expense
General and administrative Selling expense Gain from sale of PPE
expense
Salaries expense Advertising expense Decrease in inventory
Single-Step SCI
Multi-Step SCI
III. Comprehensive Problem.

The following are taken from the records of ABC Company for the year ended
December 31, 20X2.
Debit Credit
Sales P764,985
Purchase discount 8,200
Purchase returns and 5,465
allowances
Purchases 459,990
Senior High School
Track : Academic
Grade : 12
Freight-in 9,180
Sales discount 13,300
Sales return and allowances 5,455
Depreciation expense 25,000
Amortization expense 10,000
Salaries expense 80,000
Utilities expense 55,000
Advertising expense 35,000
Rent expense 60,000
Interest income 5,444
Interest expense 5,677
Gain on sale of PPE 5,465
Bad debts expense ???
Based on actual physical count, inventory balance are as follow:

January 1, 20X2 P25,455
December 31, 20X2 P20,765
Bad debts expense is 4% of net sales. Classify the bad debt expense as general administrative
expense
1. Determine the following:
a. Net sales
b. Net purchases
c. Cost of goods sold
d. Bad debts expense
2. Prepare a nature of expense SCI.

3. Prepare a function of expense SCI. Additional information.
a. Depreciation of P5,000 is for computer equipment used in the administrative office.
b. Amortization is attributed to office leasehold improvements.
c. 40% of salaries are attributed to sales personnel.
d. Utilities for the store represent 35% of utilities expense.
e. Rent for the office space is P20,000.

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ACEBA Systems Technology Institute Inc.

Senior High School

Fundamentals of Accountancy, Business and Management 2

STATEMENT OF COMPREHENSIVE INCOME

Single-step and multi-step format of the SCI

Difference of the Statement of Comprehensive Income of a Service Company and of

Example of Statement of Comprehensive Income (SCI).

Learning is Fun Company

Service Revenue Revenues P100,000

Total expenses P76,000

Net Income Net Income/Loss P24,000

Components of the Statement of Comprehensive Income

The SCI is an action-packed financial statement. In contrast, the SFP is still

What are the actions reported on the SCI ?

INCOME AND EXPENSES.

HAPPY SELLING COMPANY

General & Administrative Expenses

General & Administrative Expenses

Example of Multi-step SCI

 First part is SALES

 Second part compose of CONTRA REVENUE

 Third part is COST OF GOOD SOLD

Net Cost of Purchases = Purchases + Freight In

Purchases – amount of goods bought during the current accounting period.

Contra Purchases –An account that is credited being “contrary” to the

Purchase discount – Account used to record early payments by the

Purchase returns – Account used to record merchandise returned by the

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

Ending inventory – amount if inventory presented in the Statement of Financial Position.

Sales less Cost of Goods Sold is Gross Profit

 Fourth part is GENERAL ADMINISTRATIVE EXPENSES

 Fifth part is SELLING EXPENSES

b. The importance of the format:

What’s a Single-Step Income Statement?

Net Income = (Revenues + Gains) – (Expenses + Losses)

What’s a Multi-Step Income Statement?

1. GROSS PROFIT = NET SALES – COST OF GOODS

2. OPERATING INCOME = GROSS PROFIT –

3. NET INCOME = OPERATING INCOME + NON-

Single-Step vs Multi-Step Income Statement

A single-step income statement gives a simple accounting of a business’s net income,

ADVANTAGES OF SINGLE-STEP INCOME

 Easy to Prepare: Because single-step income statements require you to make fewer

ADVANTAGES OF MULTI-STEP INCOME STATEMENTS

 Offer Greater Detail: Multi-step income statements offer an itemized breakdown of a

Answer: Php 17,500 (Topic: Calculation of net income)

Paid Php1,200 for rent

3. Compute for the Cost of Goods Sold using the following:

Prepare a single-step Statement of Comprehensive Income using the following:

Salaries expense – 4,000

Prepare a multi-step Statement of Comprehensive Income using the following:

Balance Debit Credit

Net sales P111,348

Net sales P111,348

SalesP114,567Less: Sales Return1,544Less: Sales discount1,675Net SalesP111,348

2. Cost of Good Sold

BalanceSelling ExpenseGeneral & Administrative expense (G & A)Utilities expense15% to G

__________6. In periodic inventory accounting, inventory is determined by conducting a

III. Comprehensive Problem.