Accounting Cycle of A Service Business-Step 7-Introduction To Financial Statement

ACCOUNTING
CYCLE: Service Business

STEP NO. 7 – PART I
(Statement of Comprehensive Income)
… SHORT REVIEW …
TELL or ASK your classmates something

about our lesson yesterday.
… LET’S START …
1) Who among of you here wanted to

run/own a business someday?
2) State the main purpose or the reason

why you wanted to run a business
someday?
… TODAY’S TOPIC …
After adjustments (adjusting entries and adjusted trial balance) has
been made, it is now time to perform the step 7 of
accounting cycle which is…
Step 7: PREPARING FINANCIAL STATEMENTS-Part I

(Statement of Comprehensive Income)
… OBJECTIVES …
a) define income statement and identify its components;
b) explain the purpose/importance of income
statement;
c) illustrate the format of income statement;
d) learn the steps in preparing income statement; and
e) participate actively in class discussion and
activities.
… ACTIVITY NO. 1 …
(ACTIVATING PRIOR KNOWLEDGE)
Instructions:
1) From the given summary of income earned and expense incurred of ABM Laundry Shop,
compute for the income or loss.
2) Perform this activity for 5 minutes only.
(ACTIVATING PRIOR KNOWLEDGE)
Questions:
1) Is it an income or loss? Why?
 It is an INCOME because the expenses incurred is lesser than income earned.
2) How much is the total income?
 The total income is P10, 000.
3) How did you compute the income?
 In computing the income or loss, add all the income earned less the total expenses incurred.
Revenue/Income – Expenses = Net Income or Net Loss

… LESSON PROPER …
STATEMENT OF COMPREHENSIVE INCOME:

 It is also known as the Profit and Loss Statement, reports the company’s financial
performance in terms of net profit or loss over a specified period of time.
It summarizes the revenues earned and expenses incurred for the specified period of
time.
Components of Statement of Comprehensive
Income:
1) REVENUE/INCOME – refers to the fees or payment earned by an entity for a good

sold or a service offered. (e.g. sales or service revenue, dividend income or interest income,
etc.)
2) EXPENSE – refers to the cost incurred by the business over a period (e.g. salaries and
wages, depreciation, rental charges, etc.)
Importance/Purpose of preparing Statement
of Comprehensive Income:
1) Is the member of Financial Statement that tell us whether or not a company made a profit
or incurred a loss.
2) It helps owners, creditors, competitors, investors in identifying risk and opportunities and
forecast future performance of the business.
3) Using the income statement, investors can both evaluate a company’s past income
performance and assess the uncertainty of future cash flows.
Format of Statement of Comprehensive Income:
1. Heading
2. Total Revenue
3. Total Expenses
4. Total Expenses
Steps in preparing Statement of Comprehensive Income:
Step 1: Gather the necessary information
 In an accounting system, the best tool to take information from would be the "adjusted trial balance". This is the most updated trial
balance (i.e. prepared after considering adjustments to several accounts).
Example:
Step 2: Start by making the heading
 The heading of a financial statement is made up of three lines. The first line contains the name of the
company (Gray Electronic Repair Services). The second line shows the title of the report (Statement of
Comprehensive Income). And the third line indicates the period reported.
 We use For the Year Ended..., For the Quarter Ended..., For the Month Ended..., etc., depending on the
period covered in the report. Nonetheless, some annual income statements omit the "For the Year Ended"
phrase .
Example:
Step 3: Report all revenue accounts
 From the trial balance, we will look for and report all income or revenue accounts. You will need to be
familiar with different income accounts such as Service Revenue, Sales, Professional Fees, Interest Income,
etc.
NOTE: In the adjusted trial balance above, there is only one revenue account - Service Revenue.
Example:
Step 4: Report all expense accounts
 From the adjusted trial balance again, we will take all expenses and include them in the report. Once they are all listed, we will get
the sum of all the expenses.
Example:
NOTE: - It is a good practice to list the expenses from highest to lowest whenever possible. This allows better analysis of
company expenses.
- Drawing a horizontal line means that a mathematical operation has been performed. The line after 370 indicates
that we took the sum of all expenses which amounts to 8,790. The total amount of expenses is aligned with the total amount of revenues.
Step 5: Compute for the Net Income or Net Loss
 Net income or Net Loss is equal to total revenues minus total expenses.
Example:
NOTE: - Draw a single line under 8,790 to indicate that a mathematical operation was made. Two horizontal lines are drawn under the final
amount (1,060 net income). This is known as "double-rule" and is similar to enclosing the final answers in a box or circle in your math test.
“ The preparation is somewhat easy – you just need

to be familiar with the different revenue and
expense accounts.”
(MR & MS Q&A)
Instructions:
1) Group yourselves into two groups.
2) Each group will prepare questions to ask with another group and possible answers to the questions
that will be ask by another group and vice versa.
Note: (Questions that are not related with the topic discussed today will not be scored).
3) All answers will start with the phrase “I BELIEVE”.

 Note: (Answers without starting in “I BELIEVE” will not be scored)
4) The group that correctly ask or answers last will be the winner and will have a prize.
5) Perform the activity for five (5) minutes only.
(YOU CAN THESE!)
Instructions:
1) Using this accomplished Trial Balance (Adjusted) of Visperas Computer Shop, prepare Statement of Comprehensive Income for the
month ended July 31 2015.
2) Write your answer on your columnar notebook.
3) Do it for five (5) minutes.

(YOU CAN DO THESE!)
Questions:
1) Is it an income or loss? Why?
 It is an INCOME because the expenses incurred is lesser than income earned.
2) How much is the total income?
 The total income is P25, 000.
3) How did you compute the income?
 In computing the income or loss, add all the income earned less the total expenses incurred.
Revenue/Income – Expenses = Net Income or Net Loss

(YOU CAN DO THESE!)
4) Illustrate your answer on the board.

(Student who can illustrate correctly will have an extra prize)
QUIZ:
A-Directions: Write TRUE if the statement is correct and FALSE if the statement is wrong.
1) Statement of Comprehensive Income is also known as the Profit and Loss Statement.
2) Statement of Comprehensive Income summarizes the revenue earned and expenses incurred for the certain accounting
period.
3) Statement of Comprehensive Income is composed of Assets, Expenses and Income accounts.
4) The format of Statement of Comprehensive Income is Operating Expenses less Income/Revenues.
5) If the expense is greater than the income, the result will be net income.
B-Directions: Arrange the steps of preparing Statement of Comprehensive Income in proper order. (For items 6-10)
a) Compute for the Net Income or Net Loss
b) Report all revenue accounts
c) Start by making the heading
d) Report all expense accounts
e) Gather the necessary information
NOTE: Write your answer in your ABM activity notebook.

ASSIGNMENT:
Instructions:
1) Prepare the Statement of

Comprehensive Income of Weddings
“R” Us Company.
2) Write your answers on your ABM

activity notebook.

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ACCOUNTING

CYCLE: Service Business

TELL or ASK your classmates something

1) Who among of you here wanted to

2) State the main purpose or the reason

Step 7: PREPARING FINANCIAL STATEMENTS-Part I

Revenue/Income – Expenses = Net Income or Net Loss

STATEMENT OF COMPREHENSIVE INCOME:

1) REVENUE/INCOME – refers to the fees or payment earned by an entity for a good

“ The preparation is somewhat easy – you just need

3) All answers will start with the phrase “I BELIEVE”.

2) Write your answer on your columnar notebook.

3) Do it for five (5) minutes.

Revenue/Income – Expenses = Net Income or Net Loss

4) Illustrate your answer on the board.

NOTE: Write your answer in your ABM activity notebook.

1) Prepare the Statement of

2) Write your answers on your ABM

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