Republic of the Philippines

Department of Education
REGION IV-A
SCHOOLS DIVISION OFFICE OF CAVITE PROVINCE
TANZA NATIONAL COMPREHENSIVE HIGH SCHOOL
SENIOR HIGH SCHOOL
DAANG AMAYA II, TANZA, CAVITE

Grade 12
Fundamentals of Accountancy,
Business and Management 2
Learner’s Packet

First Semester
1st Quarter, 2020-2021

TANZA NATIONAL COMPREHENSIVE HIGH SCHOOL

Address: Daang Amaya II, Tanza, Cavite 4108
Telephone No.: (046) 450-0253 / (046) 454-5532 (Senior High School)
E-mail: [email protected] / [email protected]
 Learner’s Packet FABM2 Grade 12 First Semester 1st Quarter

Note to the Learners

This learner packet is designed for you to have a meaningful learning
opportunities and experiences for guided and independent learning at your own pace and
time. You will be enabled to process the contents of the learning resource while being an
active learner. The packet has the following parts and icon:

Introduction This part, the new lesson will be introduced to you in

various ways such as a story, a song, a poem, a
problem opener, an activity or a situation

Development This section provides a brief discussion of the lesson.

This aims to help you discover and understand new
concepts and skills.

Engagement This comprises activities for independent practice to

solidify your understanding and skills of the topic.

Assimilation This section provides an activity which will help you

transfer your new knowledge or skill into real life
situations or concerns.

Assessment This is a task which aims to evaluate your level of

mastery in achieving the learning competency.
The following are some reminders in using this learning packet:

1. Use the learning packet with care. Do not put unnecessary mark/s on any part of the
learning packet. Use a separate sheet of short bond paper in answering the exercises,
activities including the application and assessment.

2. Do not forget to answer each part before moving on to the other activities included in
the learning packet.

3. Read the instructions carefully before doing each task.

4. Finish the task at hand before proceeding to the next

5. Observe honesty and integrity in doing the tasks and checking your answers.

6. Use the answer keys provided at the back of the learning packet in checking your
activities and exercises.

7. Return the answer sheet of exercises, activities, application and assessment on the
submission date.

If you encounter any difficulty in answering the tasks in this module, do not hesitate to
consult your subject teacher or adviser. Always bear in mind that you are not alone.

We hope that through this material, you will experience meaningful learning and gain deep
understanding of the relevant competencies. You can do it!

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 Learner’s Packet FABM2 Grade 12 First Semester 1st Quarter

WEEK 1: ELEMENTS OF STATEMENT OF FINANCIAL POSITION (SFP)

Here are the following learning competencies expected to be covered at the end of
the unit:
The learners demonstrate an understanding of account titles
under the assets, liabilities, and capital accounts of the
Statement of Financial Position, namely, cash, receivables,
Content Standards inventories, prepaid expenses, property, plant and equipment,
payables, accrued expenses, unearned income, long-term
liabilities and capital that will equip him/her in the preparation
of the SFP using the report form and account form.
The learners are able to solve exercises and problems that
require preparation of an SFP for a single proprietorship with
Performance Standards
proper classification of accounts as current and noncurrent
using the reports form and the account form.

The learners
Most Essential Learning 1. identify the elements of the SFP and describe each item
Competencies (MELC’s) 2. prepare an SFP using the report form and account form with
proper classification of items as current and noncurrent
1. Describe the elements of the SFP
2. Enumerate the basic elements of the Statement of
Financial Position
Specific Learning 3. Determine the normal balances of each elements of the
Outcomes SFP.
4. Describe current and noncurrent accounts
5. Differentiate account form from report form of SFP
6. Prepare a Statement of Financial Position
Content Statement of Financial Position (SFP)
Commission on Higher Education (2016). Teaching Guide
Learner’s Materials for Senior High School. Fundamentals of Accountancy,
Pages Business and Management 2 pp. 2-18
Textbook Pages Salazar, D. (2016). Fundamentals of Accountancy, Business
and Management 2. Rex Publishing Inc. pp. 1-29
Learning Resources N/A

INTRODUCTION
In this second accounting subject, the first four chapters shall deal with the
preparation of the basic financial statements and their analysis and interpretation. The
bookkeeper starts with the (1) analysis of business transactions and economic events,
followed by (2) recording in the general journal and special journals, and (3) calssiying
in the general ledgers. The general ledger accounts are summarized as assets,
liabilities, owner’s equity, revenue, cost and expenses. Financial statements are
prepared from these summarized accounts
The financial statements are:
• Statement of Financial Posiition or Balance Sheet
• Statement of Income or Statement of Financial Performance

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 Learner’s Packet FABM2 Grade 12 First Semester 1st Quarter

• Statement of Cash Flows

The statement of changes in owner’s equity is also prepared to connect the

Statement of Income with the Statement of Financial Position. The financial statement
analysis and interpretation is the last step in the accounting process.

DEVELOPMENT

STATEMENT OF FINANCIAL POSITION

• Also known as the balance sheet. This statement includes the amounts of the
company’s total assets, liabilities, and owner’s equity which in totality provides the
condition of the company on a specific date. (Haddock, Price, & Farina, 2012)
• Statement of financial position or a balance sheet is a financial snapshot of your
business at a given date in time. It lists your assets, your liabilities and the difference
between the two, which is your owner's equity, or net worth.
The elements and equation for the SFP is ASSETS = LIABILITIES + OWNER’S
EQUITY.
• Assets are what the business owns.
• Liabilities are what the business owes or claims against assets.
• Owner’s Equity is what the business is worth.

PERMANENT ACCOUNTS
• As the name suggests, these accounts are permanent in a sense that their balances
remain intact from one accounting period to another. (Haddock, Price, & Farina,
2012)
• Examples of permanent account include
ASSETS
• Cash - money owns by the company whether cash in bank or cash on hand
• Receivables – the company’s right to collect or claim payment
• Inventory – the cost of unsold merchandise
• Prepaid Expenses – future expenses that the company had paid for in
advance.
• Property, plant and equipment – long-term assets that are used in the
operation of the business
• Intangible Assets – patent, brand name, and trademark

LIABILITIES
• Payables – it is the obligation to pay (accounts payable, notes payable)
• Accrued Expenses – unpaid expenses of the company
• Unearned Income – advance payment/deposits by the customers
• Long-Term Liabilities – obligations with due dates that fall more than one year

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 Learner’s Packet FABM2 Grade 12 First Semester 1st Quarter

EQUITY
• Capital – reflects all transactions of the business with its owner in is capacity
as the owner. This account will reflect the balance of the owner’s investments
in the business such as cash contributions

• Basically, assets, liabilities and equity accounts are permanent accounts.

• They are called permanent accounts because the accounts are retained permanently
in the SFP until their balances become zero.
• This is in contrast with temporary accounts which are found in the Statement of
Comprehensive Income (SCI). Temporary accounts unlike permanent accounts
will have zero balances at the end of the accounting period.

CONTRA ASSETS
• Those accounts that are presented under the assets portion of the SFP but are
reductions to the company’s assets.
• These include Allowance for Doubtful Accounts and Accumulated Depreciation.

• Allowance for Doubtful Accounts is a contra asset to Accounts Receivable.

This represents the estimated amount that the company may not be able to
collect from delinquent customers.
• Accumulated Depreciation is a contra asset to the company’s Property, Plant
and Equipment. This account represents the total amount of depreciation
booked against the fixed assets of the company.

NORMAL BALANCES

Debit and credit refers to the sides of the T-account. A debit entry means that the amount
should be placed on left side of the T-account. A credit side means that the amount should
be placed on the right side of the T-account. The normal balance of asset account is debit
while the normal balance of liability and equity is credit.

Report Form and Account Form

• Report Form – A form of the SFP that shows asset accounts first and then liabilities
and owner’s equity accounts after. (Haddock, Price, & Farina, 2012). The balance
sheet shown earlier is in report form.

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 Learner’s Packet FABM2 Grade 12 First Semester 1st Quarter

• Account Form – A form of the SFP that shows assets on the left side and liabilities
and owner’s equity on the right side just like the debit and credit balances of an
account. (Haddock, Price, & Farina, 2012)
• Emphasize that the two are only formats and will yield the same
amount of total assets, liabilities, and equity
• Emphasize that assets should always be equal to liabilities and equity

Group accounts under Current Assets, Noncurrent Assets, Current Liabilities,

Noncurrent Liabilities and Owner’s Equity
• Current Assets – Assets that can be realized (collected, sold, used up) one year
after year-end date.
Examples:
• Cash
• Accounts Receivable
• Merchandise Inventory
• Prepaid Expense

• Current Liabilities – Liabilities that fall due (paid, recognized as revenue) within one
year after yearend date.
Examples:
• Notes Payable
• Accounts Payable
• Accrued Expenses (example: Utilities Payable)
• Unearned Income

Note: Current Assets are arranged based on which asset can be realized first
(liquidity). Current assets and current liabilities are also called short term assets
and shot term liabilities

• Noncurrent Assets – Assets that cannot be realized (collected, sold, used up) one
year after yearend date.
Examples:
• Property, Plant and Equipment (equipment, furniture, building, land)
• Long Term investments
• Intangible Assets
• Noncurrent Liabilities – Liabilities that do not fall due (paid, recognized as revenue)
within one year after year-end date.
Examples:
• Loans Payable
• Mortgage Payable

Note: Noncurrent assets and noncurrent liabilities are also called long- term assets
and long-term liabilities.
Statement of Financial Position of a Service Company and of a Merchandising
Company
• The main difference of the Statements of the two types of business lies on the
inventory account. A service company has supplies inventory classified under the
current assets of the company.

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 Learner’s Packet FABM2 Grade 12 First Semester 1st Quarter

• While a merchandising company also has supplies, inventory classified under the
current assets of the company, the business has another inventory account under its
current assets which is the Merchandise Inventory, Ending.

Sample of a Report Form SFP

Different parts of the

Statement of Financial Position

Heading
i. Name of the Company
ii. Name of the Statement
iii. Date of preparation
(emphasis on the
wording – “as of”)

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 Learner’s Packet FABM2 Grade 12 First Semester 1st Quarter

Sample of a Account Form SFP

Different parts of the Statement of Financial Position

Heading
i. Name of the Company
ii. Name of the Statement
iii. Date of preparation (emphasis on the wording – “as of”)

ENGAGEMENT
It’s time to check your understanding! Answer the following activities in a separate
sheet of paper.

ACTIVITY 1
Determine the following accounts if ASSET, LIABILITY or EQUITY. If your answer is
ASSET or LIABILITY, identify if CURRENT or NONCURRENT.
______________1. Notes Payable _______________6. Capital
______________2. Unearned Rent Income _______________7. Prepaid Supplies
______________3. Trademark _______________8. Furniture and Fixture
______________4. Account Receivable _______________9. Accrued Salaries
______________5. Land _______________10. Allowance for Bad Debts

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 Learner’s Packet FABM2 Grade 12 First Semester 1st Quarter

ACTIVITY 2

Solve the following problems:

Easy
1. Learning is Fun Company had current assets amounting to Php 100,000. Noncurrent
assets for the year totaled Php 76,000. How much is the company’s total assets?
2. Happy Selling Company’s total liabilities amounted Php 10,000. Total equity had an
ending balance of Php 20,000. How much is total assets?

Average
1. Happy Selling’s had the following accounts at year end: Cash-250,000, Accounts
Payable-70,000, Prepaid Expense-15,000. Compute for the company’s current assets.
2. Happy Selling’s Accounts Receivable amounted to Php 500,000. Prepaid Expense and
Unearned Income totaled Php 30,000 and Php 10,000 respectively. Cash balance
amounted to Php 100,000 while Accounts Payable and Inventory totaled to Php 20,000
and Php 10,000 respectively. How much is the company’s current assets? Current
liabilities?

Difficult
1. Company’s Total Liabilities and Equity amounted to Php 285,000. Total noncurrent
assets ended at Php 85,000. Cash totaled Php50,000. Inventory amounted to
Php100,000. Assuming the company had no other assets, how much is Accounts
Receivable?
2. Total assets amounted to Php575,000. Total equity amounted to Php 250,000.
Accounts Payable amounted to Php 50,000 while Unearned Income totaled Php
85,000. Assuming there are no other current liabilities, compute for the company’s
noncurrent liabilities.

ASSIMILATION

ABM Company
POST – CLOSING TRIAL BALANCE
Dec. 31, 2016

Accounts Debit Credit

Cash in Bank P 123,153
Petty Cash Fund 10,000
Account Receivable 659,340
Allowance for Bad debts P 15,000
Notes Receivable 132,200
Merchandise Inventory 774,307
Prepaid Expenses 3,200
Furniture 900,000
Acc. Dep. – Furniture 45,000
Transportation Equipment 1,400,000

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 Learner’s Packet FABM2 Grade 12 First Semester 1st Quarter

Acc. Dep. – Transpo Equipment 140,000

Accounts Payable 960,300
Notes Payable-Non Current 234,000
SSS, Philhealth, HDMF Payable 4,000
Withholding Taxes Payable 2,600
Accrued Expenses 1,300
Pinky Ramos, Capital 2,600,000

TOTAL P 4,002,200 P 4,002,200

Requirement 1: Compute the accounting equation for the above post-closing trial balance of
Pinklane Company as of Dec. 31, 2016.

Assets = Liabilities + Equity

___________ ____________ __________
___________ ____________ __________
___________ ____________ __________

Requirement 2: Prepare Statement of Financial Position as of Dec. 31, 2016.

A. Account Form
B. Report Form

ASSESSMENT

Directions: Read carefully each item. Use a separate sheet for your answers. Write
only the letter of the best answer for each test item.

1. Which of the following is not recorded in the SFP?

A. Assets B. Equity C. Liabilities D. Revenues

2. Which of the following assets is NOT a current asset?

A. Cash B. Equipment C. Inventories D. Receivables

3. What are the resources or things value owned by an enterprise?

A. Assets B. Equity C. Expenses D. Liabilities

4. What do you call the transferring of cost of asset to expense?

A. Allowance for Bad debts C. Accumulated Depreciation
B. Accounts Payable D. Accrued Interest Payable

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 Learner’s Packet FABM2 Grade 12 First Semester 1st Quarter

5. What is a Current Assets?

A. It is cash or cash equivalent which is not restricted for current use.
B. It is expected not to be realized or is held for sale or consumption in the normal
course of the business operating cycle.
C. It is held primarily for trading purposes or for the long term, and it is expected to be
realized more than twelve months of the SFP date.
D. It is expected to be settled in the normal course of the business operating cycle.

6. What is a contra-validation account that refers to the amount estimated uncollectible?

A. Accounts Payable C. Allowance for Bad Debts
B. Accrued Interest Payable D. Accumulated Depreciation

7. Which of the following is an example of noncurrent liability?

A. Accrued Expenses C. Loans Payable
B. Deferred Income D. Short-term Liabilities

8. What accounts are reported in the SFP?

A. Assets C. Liability B. Equity D. Revenue

9. What are these various materials which remain unused at the end of the accounting
period?
A. Accounts Receivable C. Prepaid Supplies
B. Accounts Payable D. Withdrawal Account

10. What pro forma of the SFP that presents its elements in horizontal order following the
accounting equation?
A. Account Form B. Direct Method C. Indirect Method D. Report Form

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 Learner’s Packet FABM2 Grade 12 First Semester 1st Quarter

WEEK 2: ELEMENTS OF STATEMENT OF COMPREHENSIVE INCOME (SCI)

AND PREPARING SINGLE -STEP SCI
Here are the following learning competencies expected to be covered at the end of
the unit:

The learners demonstrate an understanding of the service

income and operating expenses of a service business as well
as sales, contra sales, purchases, contra purchases accounts,
Content Standards cost of goods sold and general administrative and selling
expenses of a merchandising business that will equip him//her
in the preparation of the SCI for both service and
merchandising business.
The learners are able to solve exercises and problems that
Performance Standards require preparation of an SFP for a service business and a
merchandising business.

The learners
1. identify the elements of the SCI and describe each of these
Most Essential Learning
items for a service business and a merchandising business
Competencies (MELC’s)
2. prepare an SCI for a service business using the single-step
approach
7. Describe purpose of the SCI
Specific Learning 8. Explain the elements of SCI
Outcomes 9. Describe the nature and parts of the single-step SCI
10. Prepare a single-step SCI
Elements of Statement of Comprehensive Income (SCI)
Content
Prepare a single-step SCI
Commission on Higher Education (2016). Teaching Guide
Learner’s Materials for Senior High School. Fundamentals of Accountancy,
Pages Business and Management 2 pp. 19-35
Textbook Pages Salazar, D. (2016). Fundamentals of Accountancy, Business
and Management 2. Rex Publishing Inc. pp. 33-53
Learning Resources N/A

INTRODUCTION

We continue our study of financial statements with the Statement of Comprehensive

Income (SCI). The SCI is a statament that reports the results of the operations of the business
for one accounting period. This statement contain the following information.
• Revenue generated by operating the business;
• Costs spent yo generate the revenue; and
• Income, which is the excess of revenue over costs.

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 Learner’s Packet FABM2 Grade 12 First Semester 1st Quarter

DEVELOPMENT

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
• revenues, sales
• utilities expense, supplies expense
• salaries expense, depreciation expense, interest expense among others.

The Elements of an Income Statement

• The income statement shows the business’s income, expenses, gains, and losses.
The end product of these transactions is net income or loss. Some also call the income
statement a statement of profit and loss, or P&L.
• Generally accepted accounting practices (GAAP) also refer to this report as statement
of income because the income statement shows not only income and expenses from
continuing operations (which basically is revenue minus expenses), but also income
from myriad sources, such as the gain or loss that results when a company sells an
asset.

• Revenue: Gross receipts earned by the company selling its goods or services
• Gains: Income from non-business-related transactions, such as selling a company
asset
• Expenses: The costs to the company to earn the gross receipts
• Losses: The flip side of gains, such as losing money when selling the company
car

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.
• 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.

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 Learner’s Packet FABM2 Grade 12 First Semester 1st Quarter

• 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

SERVICE BUSINESS AND MERCHANDISING BUSINESS COMPARED

• The major revenue for a service business called Service Revenue comes from
rendering services to clients for a fee while the major revenue for a merchandising
business called Sales comes from selling goods or merchandise.
• Merchandise represents the stocks of goods bought by the merchandiser for resale to
its customers.
• Cost of Sales is a major expense of a merchandiser which represents the cost of
buying the merchandise which were sold to obtain a revenue.
• Gross Income on Sales or Gross Profit is the mark-up or margin of profit in selling the
goods to the customers and would be a good basis for determining whether the
company’s pricing policy is adequate’

SINGLE-STEP STATEMENT OF COMPREHENSIVE INCOME

• 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)
• A single step income statement is a financial statement format that lists all expenses
including cost of goods sold in one column.
• In other words, the single step income statement presentation doesn’t break expenses
out into categories like cost of goods sold, operating, non-operating, and other. All of
the expenses are listed together and totaled.

Many companies like this format

because it is simple and easy to
prepare. Expenses are not
typically listed out in detail.
Instead, individual expense
accounts are combined into broad
categories like selling expenses,
general and administrative
expenses, and cost of goods sold.
A single step statement rarely lists
more than a few main expense
categories.

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 Learner’s Packet FABM2 Grade 12 First Semester 1st Quarter

• As you can see, all of the expenses are added up and totaled into one number. This is
great for simplicity’s sake, but it doesn’t give the external users of the financial
statements much information about the company operations.
• Typically, public companies are required to issue a multi-step statement to the public.
Private companies are often required by banks and other creditors to either issue a
multi-step statement or develop a detailed schedule listing specific expenses in order
to get financing.
• Although the single step income statement lacks detail, it is relatively easy to prepare
and easy to analyze. That is why it’s most often used for internal purposes.
Management prepares single step statements for single departments as well as
company divisions to analyze the performance during a period and set budget goals
for the next period.
• Some managers use a combination single-multi step statement for internal uses.
These combination statements typically include slightly more detail than the single
step but less detail than a true multi step statement.

Different Parts of the Statement of Comprehensive Income

a. Heading
• Name of the Company
• Name of the Statement
• Date of preparation (emphasis on the wording – “for the”)

b. Sample of a Single-step Form SCI

• First part is revenues.
This is the total amount of revenue that the company was able to generate from
providing services to customers
• Second part is expenses (can be broken down into General and Administrative
and Selling Expenses)
Please see the discussion in multi-step for general and administrative and
selling expenses.
• Revenues less Expenses. Net income for a positive result and net loss for a
negative result

Sample Single-Step SCI

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 Learner’s Packet FABM2 Grade 12 First Semester 1st Quarter

ENGAGEMENT

It’s time to check your understanding! Answer the following activities in a separate
sheet of paper.

ACTIVITY 1
ABM Nursery School
The ABM Nursery School is a preparatory school for children three to five years
old. Students are enrolled for a schoolyear. Parents can pay the full tuition fee of
P70,000 at the start of the school year (June). There is also an option to pay two
installments of P37,000 each at the start of every semester (June 1 and November 1).
Of the 150 students enrolled, 80 are paid in full at the start of the year. The remaining
students are on installment basis. One school year runs from June 1 to March 31.
Determine the tuition fee revenue for the period December 31. This is
the first year of ABM Nursery School operations.

ACTIVITY 2

ABM Nursery School (Continuation)

The ABM Nursery School is a preparatory school for children three to five years
old. There are 10 teachers employed by ABM Nursery School, 5 senior teachers with
a salary of P30,000 each per month and 5 junior teachers at P18,000 each per month.
There are also 4 administrators with average monthly salary of P35,000 each. Annual
depreciation for furniture and fixtures amounted to P100,000. Utilities expense for the
year totals to P200,000.

Requirement:

1. List down the expenses of ABM Nursery School following the nature of
expense.
2. Prepare a single-step SCI (CY December 31) for ABM Nursery School. Use
the Revenue information from Activity 1.

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 Learner’s Packet FABM2 Grade 12 First Semester 1st Quarter

ASSIMILATION

Here is the adjusted trial balance of Rey Lantin Services for the calendar year 20X1.
Make a single-step statement of income for the year.

Accounts Debit Credit

Cash in Bank P 100,000
Account Receivable 480,000
Allowance for Bad debts P 5,000
Prepaid Rent 10,000
Office Equipment 660,000
Acc. Dep. – Office Equipment 60,000
Salaries Payable 30,000
Accounts Payable 240,000
Rey Lantin, Capital 455,000
Service Income 2,000,000
Cost of Service 1,050,000
Administrative Salaries 280,000
Advertising Expense 70,000
Utilities Expense 60,000
Transportation Expense 9,000
Bad Debt Expense 5,000
Depreciation Expense 6,000
Rent Expense 60,000

TOTALS P 2,790,000 P 2,790,000

ASSESSMENT

TRUE OR FALSE: Read each sentence carefully and determine whether the statement
is True or False. Write your answers in the space provided before the number.
.
__________ 1. The SCI is a picture of the results 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 available for sale less ending
inventory.
__________ 4. Expense recognition strictly requires the matching of expenses against
revenue.

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 Learner’s Packet FABM2 Grade 12 First Semester 1st Quarter

__________ 5. Goods returned by customers are immediately deducted to the Sales

Revenue account.
__________ 6. Temporary accounts are also called real accounts.
__________ 7. Cost of Sales is a major expense of a merchandiser which represents the
cost of buying the merchandise which were sold to obtain a revenue.
__________ 8. Losses are the income from non-business-related transactions.
__________ 9. Revenue result in increase in equity and therefore has a credit normal
balance.
__________ 10. Revenue result in increase in equity and therefore has a credit normal
balance.

Comprehensive Problem

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. Prepare a
single-step income statement

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 Learner’s Packet FABM2 Grade 12 First Semester 1st Quarter

WEEK 3: PREPARING A MULTI-STEP STATEMENT OF COMPREHENSIVE

INCOME (SCI)
Here are the following learning competencies expected to be covered at the end of
the unit:

The learners demonstrate an understanding of the service

income and operating expenses of a service business as well
as sales, contra sales, purchases, contra purchases accounts,
Content Standards cost of goods sold and general administrative and selling
expenses of a merchandising business that will equip him//her
in the preparation of the SCI for both service and
merchandising business.
The learners are able to solve exercises and problems that
Performance Standards require preparation of an SFP for a service business and a
merchandising business.

Most Essential Learning The learners prepare an SCI for a service business using the
Competencies (MELC’s) multi-step approach
1. Describe the nature and parts of the multi-step SCI
Specific Learning 2. Differentiate selling expense from gen. administrative
Outcomes expense
3. Prepare a multi-step SCI
Preparing Multi-Step Statement of Comprehensive Income
Content
(SCI)
Commission on Higher Education (2016). Teaching Guide
Learner’s Materials
for Senior High School. Fundamentals of Accountancy,
Pages
Business and Management 2 pp. 19-35
Textbook Pages Salazar, D. (2016). Fundamentals of Accountancy,
Business and Management 2. Rex Publishing Inc. pp. 33-53
Learning Resources N/A

INTRODUCTION

Multi-step income statements are one of the two income statement formats businesses
can use to report their profits. A multi-step income statement reports a company’s revenues,
expenses and overall profit or loss for a specific reporting period. It is a more detailed
alternative to the single-step income statement and uses multiple equations to calculate a
business’s net income. An income statement, also called a profit and loss statement, is one of
three major financial statements that all businesses should prepare as part of their financial
accounting, along with a balance sheet and a cash flow statement.

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DEVELOPMENT

Multi-Step SCI

• Called multi-step because there are several steps needed in order to arrive at the
company’s net income. (Haddock, Price, & Farina, 2012)
• Emphasize that the two are only formats and will yield the same amount of net
income/loss
• Discuss that single-step SCI is more commonly used by service companies
while multi-step format is more commonly used by merchandising companies
• Multi-step income statements are one of the two income statement formats businesses
can use to report their profits.
• A multi-step income statement reports a company’s revenues, expenses and overall
profit or loss for a specific reporting period.
• It is a more detailed alternative to the single-step income statement and uses multiple
equations to calculate a business’s net income.
• An income statement, also called a profit and loss statement, is one of three major
financial statements that all businesses should prepare as part of their financial
accounting, along with a balance sheet and a cash flow statement.
• The multi-step income statement details the gains or losses of a business, in a specific
reporting period. It offers an in-depth analysis of a business’s financial performance.
Its format separates a company’s operating revenue and operating expenses from its
non-operating revenue and non-operating expenses.
• By differentiating between a business’s operating and non-operating accounting, the
multi-step income statement gives insight into how a company’s primary business
activities generate income and affect costs, as compared to the performance of its non-
essential activities.
• A multi-step income statement also differs from an income statement in the way that it
calculates net income. A single-step income statement includes just one calculation to
arrive at net income.
• Multi-step income statements, on the other hand, use multiple equations to calculate
net income. In doing so, they also calculate gross profit and operating income, which
aren’t included on a single-step income statement. In comparison, a single-step
income statement gives a simple record of financial activity.

MULTI-STEP INCOME STATEMENT FORMULAS

There are three formulas you need to use for this method of calculating net income.

To calculate gross profit on your income statement, you use the formula:
Gross Profit = Net Sales – Cost of Goods Sold

To calculate operating income, you use the formula:

Operating Income = Gross Profit – Operating Expense

To calculate net income, you use the formula:

Net Income = Operating Income + Non-Operating Items

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 Learner’s Packet FABM2 Grade 12 First Semester 1st Quarter

Sample Multi-Step SCI

Parts of a Multi-Step SCI

i. First part is sales. This is the total amount of revenue that the company was able to
generate from selling products
ii. Second part compose of contra revenue – called contra 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)
• ii.i. 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.

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• ii.ii. 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.
iii. Sales less Sales returns and Sales discount is Net Sales
iv. Third part is Cost of Goods Sold – This account represents the actual cost of
merchandise that the company was able to sell during the year. (Haddock, Price, &
Farina, 2012)
iv.i. 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.
iv.ii. Net Cost of Purchases = Purchases + Freight In
iv.ii.i. Net Purchases = Purchases – (Purchase discount and purchase
returns)
iv.ii.i.i. Purchases – amount of goods bought during the current
accounting period.
iv.ii.i.ii. Contra Purchases –An account that is credited being
“contrary” to the normal balance of Purchases account.
iv.ii.i.ii.i. 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.
iv.ii.i.ii.ii. 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.
iv.ii.ii. 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.
iv.iii. Add Beginning inventory and Net cost of Purchases to get Cost of Goods
Available for Sale
iv.iv. Ending inventory – amount if inventory presented in the Statement of
Financial Position. Total cost of inventory unsold at the end of
the accounting cycle.
v. Sales less Cost of Goods Sold is Gross Profit
vi. Fourth Part is 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)
vii. Fifth Part is 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. (Haddock, Price, & Farina, 2012)
viii. Gross Profit less General and Administrative Expenses less Selling Expenses is Net
Income for a positive result while Net Loss for a negative result

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 Learner’s Packet FABM2 Grade 12 First Semester 1st Quarter

Simpler Multi-Step SCI

ENGAGEMENT
It’s time to check your understanding! Answer the following activities in a separate
sheet of paper.

ACTIVITY 1

Solve the following problems:

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?
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?

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.
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?

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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.
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.

ACTIVITY 2
A. 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

B. 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

ASSIMILATION

Accounts obtained from the books of accounts LMN Trading Company on December
31, 20X1 will enable you to make a multi-step statement of income.

Accounts Debit Credit

Cash in Bank P 155,000
Account Receivable 600,000
Allowance for Bad debts P 45,000
Merchandise Inventory, Jan. 1 150,000
Equipment 300,000
Acc. Dep. – Equipment 110,000
Accounts Payable 180,000
Abel Caro, Capital 650,000
Abel Caro, Drawings 50,000
Net Sales 1,300,000
Net Purchases 630,000
Salaries and Wages 210,000
Bad Debt Expense 20,000
Depreciation Expense 40,000
Rent Expense 80,000
Utilities Expense 50,000
TOTALS P 2,285,000 P 2,285,000

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 Learner’s Packet FABM2 Grade 12 First Semester 1st Quarter

ASSESSMENT

The following are taken from the record of ABM Company for the year ended December 31,
20X2:

DEBIT CREDIT
Sales P764,985
Purchase Discount 8,200
Purchase Returns and allowances 5,465
Purchases 459,990
Freight-in 9,180
Sales discount 13,300
Sales returns 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 follows:

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 and administrative expense.

Determine the following by preparing a multi-step form of SCI.

a. Net Sales
b. Net Purchases
c. Cost of goods sold
d. Bad debts expense
e. Gross Profit
f. Total Expenses
g. Net Income/Loss

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 Learner’s Packet FABM2 Grade 12 First Semester 1st Quarter

WEEK 4: PREPARING STATEMEENT OF CHANGES IN EQUITY

Here are the following learning competencies expected to be covered at the end of
the unit:
The learners demonstrate an understanding of the forms of business
organization, namely, single proprietorship, partnership, and
Content Standards corporation, and the structure of a SCE of a single proprietorship that
will equip him/her in the preparation of the said financial report.
The learners are able to solve exercises and problems that require
Performance Standards preparation of an SCE for a single proprietorship.

Most Essential Learning The learners prepare an SCE for a single proprietorship .
Competencies (MELC’s)
11. Identify the purpose and elements of the Statement of
Specific Learning Changes in Equity
Outcomes 12. Prepare a Statement of Changes in Equity (SCE)
13. Appreciate the importance of preparing SCE
Content Statement of Changes in Equity (SCE)
Commission on Higher Education (2016). Teaching Guide
Learner’s Materials for Senior High School. Fundamentals of Accountancy,
Pages Business and Management 2 pp. 36-45
Textbook Pages Salazar, D. (2016). Fundamentals of Accountancy, Business
and Management 2. Rex Publishing Inc. pp. 57-70
Learning Resources N/A

INTRODUCTION
The financial statements form a set of interrelated reports. The Statement of Financial
Positon (SFP) was discussed in Lesson 1. In Lesson 2, we studied the Statement of
Comprehensive Income (SCI). The third part of the set, which will we will discuss in this
lesson, is the Statement of Changes in Equity (SoCE).
Recall that the SFP is a report on the company’s assets, liablities, and equity. The
equity component of the SFP shows the claim of the owners on the company’s assets. This
is the reason why equity accounts are of particular interest to the readers of the financial
statements. The SoCE is prepared to meet the requirements of the readers to understand the
transactios that caused the movements in equity accounts.

DEVELOPMENT

STATEMENT OF CHANGES IN EQUITY

• All changes, whether increases or decreases to the owner’s interest on the company
during the period are reported here. This statement is prepared prior to preparation of
the Statement of Financial Position to be able to obtain the ending balance of the equity
to be used in the SFP. (Haddock, Price, & Farina, 2012).

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 Learner’s Packet FABM2 Grade 12 First Semester 1st Quarter

• A Statement of Owner's Equity shows the changes in the capital account due to
contributions, withdrawals, and net income or net loss.
• Capital is increased by owner contributions and income, and decreased
by withdrawals and expenses.
• The Statement of Owner's Equity, which is prepared for the sole proprietorship type of
business, shows the movement in capital as a result of those four elements.

FORMS OF BUSINESS ORGANIZATION

• SINGLE/SOLE PROPRIETORSHIP –An entity whose assets, liabilities, income and
expenses are centered or owned by only one person (Haddock, Price, & Farina,
2012).
• PARTNERSHIP – An entity whose assets, liabilities, income and expenses are
centered or owned by two or more persons (Haddock, Price, & Farina, 2012).
• CORPORATION – An entity whose assets, liabilities, income and expenses are
centered or owned by itself being a legally separate entity from its owners. Owners
are called shareholders or stockholders of the company (Haddock, Price, & Farina,
2012).

Sample Statement of Changes in Equity

• Initial Investment – The very first investment of the owner to the company.
• Additional Investment – Increases to owner’s equity by adding investments by the
owner (Haddock, Price, & Farina, 2012).
• Withdrawals –Decreases to owner’s equity by withdrawing assets by the owner
(Haddock, Price, & Farina, 2012).
• *Distribution of Income – When a company is organized as a corporation, owners
(called shareholders) do not decrease equity by way of withdrawal. Instead, the
corporation distributes the income to the shareholders based on the shares that they
have (percentage of ownership of the company)

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 Learner’s Packet FABM2 Grade 12 First Semester 1st Quarter

Statement of Changes in Equity of a Sole Proprietorship

Different Parts of the Statement
of Changes in Owner’s Equity

a. Heading
i. Name of the Company
ii. Name of the Statement
iii. Date of preparation
(emphasis on the wording
– “for the”)

b. Increases to Equity
i. Net income for the year
ii. Additional investment

c. Decreases to Equity
i. Net loss for the year
ii. Withdrawals by the owner

Statement of Changes in Equity of a Partnership

Statement of Changes in
Partners’ Equity is used by a
partnership instead of the
Statement of Changes in
Owner’s Equity. The differences
between the two are as follows:
a. Title – instead of owner’s,
partners’ is used to denote
that this is a partnership
b. There are two or more
owners in a partnership
thus, the changes in the
capital account of each
partner is presented
c. The net income is divided
between partners (not
always equal. Based on
the agreement. Example:
60:40, 40:60, etc.)

Statement of Changes in Equity of a Corporation

The Statement of Changes in Shareholders’ Equity is used by a corporation instead of the
Statement of Changes in Owner’s Equity. The differences between the two are as follows:

a) Title – instead of owner’s, shareholders’ is used to denote that this is a corporation

b) There are an unlimited number of shareholders but unlike the partnership, the names
of the shareholders are not indicated here. Instead, the corporation keeps an official
list with the corporate secretary
c) The capital account is called share capital (just like owner’s being shareholders)

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 Learner’s Packet FABM2 Grade 12 First Semester 1st Quarter

d) Instead of additional investment, share issuances (happens when shares are sold to
shareholders) increases the share capital of a corporation
e) Instead of withdrawals, distribution of net income to shareholders decreases the
Capital of the corporation

ENGAGEMENT
It’s time to check your understanding! Answer the following activities in a separate
sheet of paper.

ACTIVITY 1

Answer the following questions:

Easy

1. Which form of business organization puts the least risk on its owners?
2. Which form of business organization is owned by only one person?

Average

1. Increases in owner’s equity without additional investment

2. Decreases to owner’s equity apart from net effect of revenues and expenses.

Difficult

1. Beginning owner’s equity amounted to P 300,000. Net loss for the year totaled P 45,000.
No additional investments and withdrawals for the period. Compute for total increase in
equity for the year.
2. Ending owner’s equity amounted to P70,000. Additional investments during the year
amounted to P30,000. Withdrawals totaled P50,000. Compute for the company’s net
income for the year assuming beginning equity is P10,000.

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 Learner’s Packet FABM2 Grade 12 First Semester 1st Quarter

ACTIVITY 2
A.
On February 15, 20X1, Ian Espineli opened ABM Fantasy Bakeshop. He invested
P75,000 to purchase an oven and bakery supplies. The business generated a net income of
P37,545 in 20X1. Moreover, Ian used P15,000 from the account of ABM Fantasy to pay the
electricity and phone bills of his house. Ian invested an additional P13,400 and P17,650 on
March 16, 20X2 and August 19, 20X2, respectively. Net income for 20X2 was reported at
P48,950. Ian’s Drawings account has a balance of P20,000 on December 31, 20X2.
Required: Prepare ABM Fantasy Bakeshop’s Statement of Changes in Equity for the
year ended December 31, 20X2.

B.
The ABM Playdate Kiddie Gym is owned and managed by RJ Abad. The balance of
RJ Abad, Capital is P765,430 and P857,340 on December 31, 20X1 and December 31, 20X2,
respectively. Net income for 20X2 is P115,465. RJ did not make additional contribution to
the business in 20X2. Determine the balance of the RJ Abad, Drawings account on
December 31, 20X2.

ASSIMILATION

1. Compute the owner’s equity for Norman Gonzales on Dec. 31, 20X1 based on the
following data:

Norman Gonzales, Capital January 1, 20X1 P 450,000

Norman Gonzales, Cash Drawings for 20X1 120,000
Norman Gonzales, Additional Investment 20X1 80,000
Net Income 20X1 90,000

2.
IMERLDA SERVICES
ADJUSTED TRIAL BALANCE
May 31, 2016

Accounts Debit Credit

Cash P 8,000
Accounts Receivable 16,500
Allowance for uncollectible accounts P 2,000
Office Supplies 600
Prepaid Insurance 300
Furniture 10,000
Accumulated Depreciation-Furniture 3,000
Equipment 25,000

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Accumulated Depreciation-Equipment 3,500

Accounts Payable 5,000
Notes Payable 9,000
Interest Payable 200
Salaries Payable 1,500
Imelda, Capital 29,600
Imelda, Drawing 500
Service Income 32,000
Supplies Expense 4,000
Rent Expense 5,000
Salaries 9,500
Insurance Expense 600
Depreciation Expense-furniture 2,000
Depreciation Expense-equipment 2,000
Bad Debts 1,500
Interest Expense 300
TOTAL P 85,800 P 85,800

Required: Prepare a statement of equity for Imelda Services.

ASSESSMENT

TRUE OR FALSE: Read each sentence carefully and determine whether the statement
is True or False. Write your answers in the space provided before the number.
1. The SoCE is dated “as of the year ended”.
2. There are two equity accounts reported on the SoCE of a sole proprietorship, namely,
Owner Capital, and Owner, Drawings.
3. The number of capital accounts presented in SoCE of partnership is equal to the
number of partners.
4. The Drawings account is used for sole proprietorship, partnership and corporation.
5. The partnership net income is allocated to each partner’s capital using the profit and
loss sharing agreement stated in the contract of partnership.
6. Paid-in capital is the amount of contributions given to the corporation in exchange for
the shares of stocks.
7. All equity accounts have normal credit balances.
8. The capital stock account reports the proceeds from the issuance of the stocks.
9. The SoCE of a corporation presents the reconciliation from the beginning to the ending
balances of all the equity accounts.
10. Dividends distributed by corporation are credited against retained earnings.

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 Learner’s Packet FABM2 Grade 12 First Semester 1st Quarter

Comprehensive Problem

On February 15, 20X1, Evelyn Ferrer opened Cookie Fantasy Bakeshop. She
invested 75,000 to purchase an oven and bakery supplies. The business generated a
net income of 37,545 in 20X1. Moreover, used 15,000 from the account of Cookie
Fantasy to pay the electricity and phone bills of her house.

Evelyn invested an additional 13,400 and 17,650 on March 16, 20X1 and August 19,
20X1, respectively. Net income for 20X2 reported at 48,950. Evelyn’s Drawings
account has a balance of 20,000 on December 31, 20X2.

Required:

Prepare Cookie Fantasy Bakeshop’s Statement of Changes in Equity for the year
ended Dec. 31, 20X1 and Dec. 31, 20X2.

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WEEK 1
Activity 1
1. Liability – Current 6. Equity
2. Liability – Current 7. Asset – Current
3. Asset – Noncurrent 8. Asset – Noncurrent
4. Asset – Current 9. Liability – Current
5. Asset – Noncurrent 10. Asset - Current
Activity 2
Easy Average Difficult
1. 176,000 1. 265,000 1. 50,000
2. 30,000 2. 640,000 & 30,000 2. 190,000
WEEK 2
Activity 1
1. Tuition Fee Revenue = 10,780,000
Activity 2
1. Salaries and Wages Expense = 380,000 2. Tuition Fee Revenue = 10,780,000
Depreciation Expense – Furnitute = 100,000 Less: Expenses = (680,000)
Utilities Expense = 200,000 Net Income – 10,100,000
TOTAL = 680,000
WEEK 3
Activity 1
Easy Medium Difficult
1. 24,000 1. 315,000 1. 50,000
2. 20,000 2. Net Sales 460,000 / 2. 460,000
Net Purchase = 70,000
Activity 2
1. Net Income = 4,000
WEEK 4
Activity 1
Easy Medium Difficult
1. Corporation 1. Net Income 1. Increase is zero but decrease is 45,000
2. Sole Proprietorship 2. Withdrawal /Distribution of Income 2. 80,000
Activity 2
1. Beginning Capital (20x2) = 97,545 2. Drawings = 23,555
Additional Investment = 31,050
Add Net Income = 48,950
Less Drawings = (20,000)
Ending Capital (20x2) = 157,545
ANSWER KEY
First Semester 1st Quarter Grade 12 FABM2 Learner’s Packet