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    The document discusses the statement of comprehensive income (SCI), including its purpose to show a company's revenues, expenses and net income over a period of time. It describes the key elements of the SCI like revenues, expenses, costs of goods sold, operating expenses and how to prepare single-step and multi-step versions. The document also provides examples of accounting for revenue, expenses and costs for a sample convenience store to illustrate preparing an SCI.

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    Funda 2

    Uploaded by

    Lorraine Miralles
    1K views20 pages
    The document discusses the statement of comprehensive income (SCI), including its purpose to show a company's revenues, expenses and net income over a period of time. It describes the key elements of the SCI like revenues, expenses, costs of goods sold, operating expenses and how to prepare single-step and multi-step versions. The document also provides examples of accounting for revenue, expenses and costs for a sample convenience store to illustrate preparing an SCI.

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    Statement of comprehensive income

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    The document discusses the statement of comprehensive income (SCI), including its purpose to show a company's revenues, expenses and net income over a period of time. It describes the key elements of the SCI like revenues, expenses, costs of goods sold, operating expenses and how to prepare single-step and multi-step versions. The document also provides examples of accounting for revenue, expenses and costs for a sample convenience store to illustrate preparing an SCI.

    Copyright:

    © All Rights Reserved
    Download as PPTX, PDF, TXT or read online from Scribd
    Download as pptx, pdf, or txt
    1K views20 pages

    Funda 2

    Uploaded by

    Lorraine Miralles
    The document discusses the statement of comprehensive income (SCI), including its purpose to show a company's revenues, expenses and net income over a period of time. It describes the key elements of the SCI like revenues, expenses, costs of goods sold, operating expenses and how to prepare single-step and multi-step versions. The document also provides examples of accounting for revenue, expenses and costs for a sample convenience store to illustrate preparing an SCI.

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    LESSON 2: STATEMENT OF COMPREHENSIVE INCOME

    Learning Objetcives
     understand the purpose of the Statement of Comprehensive Income ( SCI )
     identify the elements of the Statement of Comprehensive Income ( SCI )
     describe the nature of the accounts reported on the SCI
     prepare a single - step Statement Comprehensive Income for a service
    company
     prepare a multi - step Statement Comprehensive Income for a
    merchandising company and
     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 while a net loss
    if its a net negative result. This can be prepared for a month, a quarter or a year.
     This statement contains the following information:
    • revenue generated by operating the business;
    • cost spent to generate the revenue; and
    • income, which is the excess of revenue over costs.
     the SCI describe as a “ for the period . This means that the amounts presented on the report
    include only those occured within the given period
    ABC COMPANY
    Statement of Comprehensive Income
    For the year ended December 31, 20X1

    Revenues ₱ 1, 290,000
    Less: Expenses ₱ 890,000
    Net Income ₱ 400,000
    Figure 1: Statement of Comprehensive Income
    COMPONENTS OF THE STATEMENT OF
    COMPREHENSIVE INCOME
    1. INCOME - refers to a transaction that increases assets and/ or
    decreases liabilities leading to increase in equity resulting from the
    operations of the business and not from the owners contribution.

    2. EXPENSES - are transactions that decrease assets and/or


    increase liabilities leading to decrease in equity resulting from the
    operations of the business and not the distributions to owners
    FRIENDLY CONVENIENCE STORE:
    INCOME
    1. Recall Maria Reyes, the regular costumer of Juana Dela Cruz. Maria
    purchased 3 small cans of sardines that Juana sells for ₱25 each. Maria
    asked Juana to include it in her account. Juana purchased the sardines
    from her wholesaler supplier at ₱15 per can.

    2. Recall Pedro Benitez whonrentee a small space on the store's countertop


    for his coffee vending machine. On October 1, 20X1, he paid six months
    advance rental of ₱500 per month.

    3. Juana Dela Cruz, owner of the store, deposited ₱1,000 to the store's
    savings account from her personal account.
    KINDS OF INCOME
    1. REVENUE - income generated from the primary operations of
    the business
    2. GAINS - income derived from other activities of the business

    TWO KINDS OF EXPENSES


    1. EXPENSES - are related to the primary operations of the
    business
    2. LOSSES - from other activities of the business

    Note: the primary operation of the business is the main criterion for
    the classification on the other hand, those from other business maybe
    of one time or limited occurrence
    ACCRUAL CONCEPT OF ACCOUNTING

    ACCRUAL - one of the fundamental concepts of financial


    accounting. Specifically, this is the concept that dictates whwn an
    item must be reported on the SCI. Accrual states that revenue must
    be reported on the accounting period that it was earned.

    REVENUE - is earned upon delivery of goods and services, not


    when payment is recieved from the costumers.
    THREE APPROACHES IN RECOGNIZING
    EXPENSES
    a. the matching principle requires that expenses should be
    recorded i the same period in which the revenue, to which
    those expenses relate, is recognized.
    b. the principle of rational allocation requires the cost of long
    term expenditure to be rationally allocated over the period of
    usage based on the expected pattern of usage.
    c. expenditures are charged immediately to expense if the period
    and the pattern of usage is not clear such that there is no
    rational way to allocate.
    Components of Revenues

    Service Income - generally used to describe revenue derived from rendering of


    services. A more specific account name may be used to identify the services
    rendered such as Rental Income, Professional Fee and Tuition Fee Revenue.

    Example: Tuition Fee Revenue


    Twinkle - Twinkle Pre - School collected tuition fee of ₱1,250,000
    and ₱1,455,00 for the school years of 20X1-20X2 and 20X2 - 20X3,
    respectively. The school closed in April and May. Determine the
    tuition fee revenue to be reported on SCI for the calendar year 20X2.
    SALES- sales revenue account is genrally used to describe revenue derived
    from selling of goods. A more specific account name used to identify the sold
    goods such as Office Supplies, Book Sales, Food Sales, etc.

     Revenue from sales of goods is recognized when goods have been


    delivered. However costumers are allowed to return goods that do not meet
    their quality standards. When goods are return, it is not deducted from Sales.
    Rather , normal accounting practice is to report it under the account name
    Sales Return and Allowances - a Contra Sales account.

    NOTE: only Net Sales is reported on the face of the SCI. Net Sales refer to
    Gross Sales less Sales Return and Allowances and Sales Discount.
    ( Net Sales = Gross Sales - Sales Return and Allowances - Sales Discount )
    FRIENDLY CONVENIENCE STORE: SALES
    REVENUE
    Juana Dela Cruz, owner of Friendly Convenience Store,
    sold 3 boxes of ballpoint pens to Mrs. Susan Gonzalez on account
    at a price of ₱15 per pen. Juana gave Mrs. Gonzalez two weeks to
    pay the account. Moreover, Juana told Mrs. Gonzalez that she
    will deduct 2% discount if she pays within a week.
    Mrs. Gonzalez returned one week later. She returned five
    pens and took advantage of the discount.
    Determine the amount of Sales, Sales Return, Sales
    Discount and Net Sales from the transaction with Mrs. Gonzalez
    COMPONENTS OF EXPENSES
    Cost of Goods Sold ( Cost of Sales )
    - an account used by companies that sells good instead of services. For trading
    operations, Cost of Sales collects the cost of the merchandise sold. This
    includes the purchases price of inventory, brokerage and shipment cost to bring
    the goods to the premises of the company. This shipment cost is called Freight
    - In
    - Cost of Sales is part of inventory accounting.
    TWO WAYS OF KEEPING RECORDS OF INVENTORY
    1. Perpetual - means that the Inventory and Cost of Goods Sold account are
    perpetually updated. The Inventory account is increased when goods for sale
    are acquired and decreased when goods are sold. The Cost of Goods Sold
    account is updated every time sa sale is made.
    2. Periodic - inventory account is only periodically updated. Means that the
    inventory account is updated only at end of the year or end of the month.

    What happen when merchandise are acquired or sold?


    - cost of merchandise acquired is collected using the Purchases account.

    Two Contra - Purchase Accounts


    - Purchase Returns
    - Purchase Discounts

    Net Purchases = Purchases + Freight - In - Purchase Returns - Purchase


    Discount )
    How is Cost of Goods Sold determine in a periodic Inventory System
    Beggining Inventory
    ADD: Net Purchases
    Cost of Goods available for sale
    Less: Ending Inventory
    Cost ogf goods sold
    FRIENDLY CONVENIENCE STORE: COST OF GOODS SOLD

    Juana Dela Cruz, owner of Friendly Convenience Store, asked for your help to determine the cost of
    sales of her store. This is the first year of operations for Juana's store. She provided the following data to you.

    Purchases ( based on suppliers receipts ₱55,344


    Freight in ( based on receipts of taxi fares she incurred when she shops 430
    for merchandise at Divisoria
    Purchase Returns 760

    Based on the inventory count taken at the last day of the year, the ending inventory is valued at ₱2,320. How
    much is cost of sales.
    OPERATING EXPENSES- refer to all other expenses related to the
    operation of the business, other than cost of sales. These include salaries of
    employees, supplies, utilities ( electricity, telephone, and water bills ) gasoline
    expenses, representation, bad debts expenses, depreciation and amortization.

    FRIENDLY CONVENIENCE STORE: BAD DEBTS EXPENSE


    Current year sales of the stores amounted to ₱128,865. Of this only
    ₱700,000 is cash sales. Based on the company's experience, bad debts is 3% of
    total sales or 6.5% of credit sales. Determine bad debts expense given the
    following.
    1. Juana Dela Cruz, the manager - owner decided to use percentage of total
    sales method.
    2. Juan Dela Cruz, the manager - owner decide to use percentage of credit sales
    method.
    OTHER EXPENSES AND OTHER INCOME

    - losses and other expenses as well as gains and other income


    are reported after the operating section of the SCI. Line items
    included under this section are interest income from
    investments of excess cash, interest expense from borrowing
    and gain or loss from sale of equipment ( proceeds from sale
    less net book value of PPE on date of sale)
    PRESENTATION OF STATEMENT OF COMPREHENSIVE
    INCOME
    SINGLE - STEP STATEMENT OF COMPREHENSIVE INCOME
    - groups all revenue items together and all expense items together. It is called a single step
    SCI because net income is computed using only one step, deducting total expenses from
    total revenues. Subtotal are not computed and presented on the SCI. This format is generally
    used by small businesses and service businesses.

    MULTI - STEP STATEMENT OF COMPREHENSIVE INCOME


    - revenue and expenses are classified and presented on the following sections: gross profit,
    operating and non operating section. Subtotals are presented at the end of each section,
    namely gross profit,operating income and net income.
    - expenses are listed based on usage or function of expense. Operating expenses are
    categorized into cost of sales, general and administrative expenses and selling expenses.
    NORMAL BALANCES
     the normal balance of all expense account is debit

     the normal balance of all revenue account is credit


    ASSESSMENT
    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?
    3. Happy Selling 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.
    4. Company's Cost of Goods Sold amounted to Php285,00. Net Cost of purchases totaled
    Php85,000. Beginning inventory amounted to Php250,00. Sales amounted to Php 500,000.
    Compute for the company's Ending inventory.
    5. Gross profit of Happy Selling amounted to Php175,000. Beginning Inventory totaled
    Php250,000. Ending inventory amounted to Php 50,000 while Net Cost of Purchases totaled
    Php85,000. Compute for Happy Net Sales.
    ACTIVITY NO.1
    1. Prepare a single - step SCI using the following:
    Revenues - 20,000
    Rent expenses - 3,000
    Salaries Expense - 4000
    Utilities expense - 2000
    2. Prepare a multi - step SCI using the following:
    Sales - 20,000
    Cost of Good sold -10,000
    General and administrative - 4,000
    Selling expenses - 2,000

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