FUNDAMENTALS OF ABM - 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.(Haddock, Price, & Farina, 2012)Examples of temporary accounts include revenues, sales, utilities
expense, supplies expense, salaries expense, depreciation expense, interest expense among others.

LEARNING IS FUN COMPANY

STATEMENT OF FINANCIAL POSITION
AS OF DECEMBER 31, 2016
Service Revenue Php 100,000.00
Expenses:
Salaries Expense Php 40,000.00
Rent Expense 20,000.00
Depreciation Expense 10,000.00
Utilities Expense 5,000.00
Miscellaneous Expense 1,000.00
Total Expenses Php 76,000.00
Net Income Php 24,000.00

Forms of SCI (format)

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. (Haddock,
Price, & Farina, 2012). When preparing the single-step income statement, this statement displays the company's
expenses and revenues without breaking down into further sub-categories. To calculate the single-step income
statement's net income, you will have to subtract the company's total revenue from the total expenses.

The single-step income statement is commonly used by small-sized businesses or those in sole-proprietorship
companies.

Comparatively to a multi-step income statement, the single-step income statement is more straightforward and
relatively easier to prepare and understand.

Multi-step – Called multi-step because there are several steps needed in order to arrive at the company’s net income.
(Haddock, Price, & Farina, 2012).
The multi-step income statement is the standard format of an income statement prepared by big corporations and all publicly
listed companies.
Three equations are used to derive the net income using the multi-step income statement.
Gross Profit= Net Sales - Cost of Goods Sold
Operating income = Gross Profit - Operating Expense
Net Income = Operating Income + Non Operating Items
Companies that prepare their income statement using the multi-step approach will typically breakdown their revenues and
expenses into operating and non-operating business activities.

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
 FUNDAMENTALS OF ABM - Statement of Comprehensive Income (SCI)
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).

Parts of Statement of Comprehensive Income

Sample of Merchandising Business SCI

Net Income 93, 000

 FUNDAMENTALS OF ABM - Statement of Comprehensive Income (SCI)
Sample 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.
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
 FUNDAMENTALS OF ABM - Statement of Comprehensive Income (SCI)

EASY PROBLEMS. (SEATWORK)

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. 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.
4. 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?
5. 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.
6. 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

Agnes is a balut vendor. At the beginning of the day, there were 15 pieces of balut on hand costing P195.00. During
the day, she bought another 7 dozens for P13 per piece. Agnes was able to sell a total of 70 pieces for the day @
P25/piece. However, Agnes gave a P2 discount to Violy, a loyal buyer, who bought 15 pieces of balut.

Compute for the following

a. Net sales
b. Total Goods available for sale for the day
c. Ending Inventory for the day
d. Net purchase for the day
e. Gross profit
 FUNDAMENTALS OF ABM - Statement of Comprehensive Income (SCI)
Activity 1 Directions: Identify whether the following is an element of the Statement of Comprehensive Income of a
service business or of a merchandising business. Write “SFP” if the element is found on the Statement of Financial
Position and Write “SCI” if the element fall under the Statement of Comprehensive Income (1 point each for every
correct answer)

1. Net Sales
2. Freight in
3. Purchases
4. Tuition Fee
5. Gross Profit
6. Service Income
7. Sales Returns
8. Professional Fee
9. Selling Expenses
10. Cost of Goods Sold
11. Salaries Expense
12. Purchases Returns
13. Rent Expense
14. Prepaid Rent
15. Purchase Discounts

Gains Gross Profit Professional Fee Net Income Purchases Sales Discount
Operating expenses Sales return Sales Income Selling expenses Cost of Goods Sold
Service Income

_____1. An example of service revenue.

_____2. The revenue generated from the sale of products.
_____3. It is computed by deducting the cost of sales from net sales.
_____4. It is used to describe revenue derived from the rendering of services.
_____5. A type of income derived from the other activities of the business.
_____6. The account used to report the acquisitions of merchandise for sale.
_____7. It represents the actual cost of inventories that the company was able to sell.
_____8. These are expenses that are directly related to the main purpose of a merchandising business.
_____9. A contra-sales account that is used to report the amount of discount given to or taken by the customers.
_____10. It refers to all other expenses related to the operation of the business such as salary of employees, utility
expense and supplies expense.
FUNDAMENTALS OF ABM - Statement of Comprehensive Income (SCI)
 FUNDAMENTALS OF ABM - Statement of Comprehensive Income (SCI)
Utilities expense - is the cost incurred by using utilities such as electricity, water, waste disposal, heating,
and sewage and etc.
Rent expense - It is an expense which refers to the total cost of using rental property for each reporting
period.
Operating expenses – these are expenditures a business incurs to engage in activities other than those
associated with the production of goods or services; may be classified either as general and administrative
expenses or selling expenses.
Non-operating expenses – These are expenses that are not related directly to the business operation like
interest expense.
Non-operating income - These are other income that are earned by the business which is not related
directly to the business operation like interest income.
Cost of goods sold – also refers to as cost of sales. This refers to the cost of materials and labor directly to
create the product or to sell the product.
Purchases – these are merchandise being bought by the merchandising business which will be used directly
for reselling.
Purchase returns – These are returns to sellers due to either damaged goods, excess quantity shipped and
wrong item, delivered to the company which is a deduction to purchases account.
Purchase discount – is usually granted by suppliers to buyers to encourage prompt payment of the latter’s
account.
Sales – these are the amount received by the merchandising company from the business operations
particularly selling.
Sales returns – these are merchandise sent back by a buyer to the seller, usually for one of the following
reasons: Excess quantity shipped, wrong item, and damaged goods.
Sales discount - is a reduction in the price of a product or service that is offered by the seller, in exchange
for early payment by the buyer.
Non-operating income - is the portion of an organization's income that is derived from activities not related
to its core business operation
 FUNDAMENTALS OF ABM - Statement of Comprehensive Income (SCI)
Task 1. Directions: Prepare Statement of Comprehensive income using single-step in your activity
notebook. Use the following datas given below.
Service business – use single step format
Given:
Depreciation expense ₱ 1,000
Interest expense 500
Professional fees 247,000
Salaries expense 15,000
Rent expense 10,000
Permit & licenses expense 10,000
Utilities expense 8,000
Supplies expense 3,000

Task 2. Directions: Prepare Statement of Comprehensive income using multi-step in your activity
notebook. Use the following data given below.
Merchandising business (perpetual)– use multi-step format
Given:
Sales Revenue ₱ 500,000.00
Sales Return 5,000.00
Cost of Goods Sold 340,000.00
Salaries Expense 25,000.00
Traveling Expense 6,000.00
Supplies Expense 5,000.00
Interest Expense 1,000.00

The store owner in your neighborhood is preparing financial statements for his store (ABC mercantile). And
as an ABM student who have adequate knowledge about these statements, the owner asks if you can
prepare these and he would pay you an adequate amount if you finish it on time, which you immediately
agreed.
Direction: 1. Prepare the statement of comprehensive income for the store owner using the following
given data for this month end December 31, 2020:
Sales Revenue ₱ 66,780.00
Sales Return 5,556.00
Cost of Goods Sold 31,120.00
Salaries Expense 12,000.00
Sales Commission Expense 3,000.00
Traveling Expense 3,000.00
Utilities Expense 6,560.37
Interest Income 2,000.00
Interest Expense 1,000.00