STATEMENT OF COMPREHENSIVE Reporting by the International

INCOME (INCOME STATEMENT) Accounting Board 2010)

The Statement of Comprehensive Revenues are the first line item in

Income informs the reader about the Statement of Comprehensive
the "performance" and activities of Income. They vary depending to the
the company for a certain period nature of the entity. A small retail
(e.g., for the period ended store has sales as its main revenue.
December 31, 2019). It contains the Revenues may also come from
revenues and expenses incurred by interest from time deposits and
an entity for a specific period. It is dividends earned from shares of
also compared to a running video stocks. Royalties from individuals
because it presents an entity's who would like to use their
activities form the start to the end established brand and technology.
of a period. Owners of fixed properties (e.g. land
and building) may charge third
ELEMENTS OF THE SCI
parties with rent.
Elements and Key Features of a
Income encompasses both revenue
Statement of Comprehensive
and gains.
Income
Revenue arises in the course of
1. The Title
ordinary regular activities.
The Statement of Comprehensive
Gains are other items that
Income is a financial report
represents increases in economic
therefore it must be properly
benefits but does not regularly arise
identified and dated. The title or the
in ordinary business operations. For
heading includes the name of the
example, gain on sale of assets
entity, the title of the report (i.e.,
Statement of Comprehensive *A merchandising company who
Income and the period it covers. sells their inventories earn sales
revenue. If that company, however,
2. Revenues
decided to sell their equipment at a
"Revenues arise in the course of the price higher than its carrying value,
ordinary activities of an entity and is it's a gain on sale of equipment.
referred to by a variety of different
names including sales, fees, interest,
dividend, royalties, rent". (The
Conceptual Framework for Financial
3. Expenses Expenses are decreases in economic
benefits due to, for example,
"Expenses arise in the course of the
salaries, rent, and depreciation.
ordinary activities of the entity
include, for example, cost of sales, Losses do not arise in regular
wages, and depreciation. They business operations such as loss
usually take the form of an outflow from fire, loss from disasters, or loss
or depletion of asset such as cash from sale of assets.
and cash equivalent, inventory,
Income
property, plant, and equipment."
(The Conceptual Framework for Income is increases in economic
Financial Reporting by the benefits during the accounting
International Accounting Board period in the form of inflows or
2010) enhancements of assets or
decreases of liabilities that result in
Revenue earned by business are
increases in equity, other than those
matched with expenses. For service
relating to contributions from equity
entities, expenses are categorized as
participants.
cost of service or operating expense.
In a law firm, cost of service includes Expense
the salaries paid to lawyers who
render services to legal clients in Expenses are decreases in economic
behalf of the law firm. benefits during the accounting
period in the form of outflows or
Operating expenses include rent for depletions of assets or incurrences
office space, salaries for office staff, of liabilities that result in decreases
permits to local government in equity, other than those relating
chapters, depreciation of office to distributions to equity
equipment, and other similar participants.
expenses.
The cost of sales is the direct cost of
For a merchandising concern, the the products sold or the amount
expenses are classified as cost of paid or payable by the business
sales, selling expenses and entity to its suppliers for the
administrative (operating) expenses. merchandise sold to the business
then to then sold to the entity's
Expense encompasses both
customers.
expenses and losses.
4. Gain and losses DIFFERENCE BETWEEN THE SCI OF A
SERVICE BUSINESS AND THE SCI OF
"Gains represent other items that
A MERCHANDISING BUSINESS:
meet the definition of income and
may not, arise in the course of the The main difference lies on how
ordinary activities of an entity." (The they generate their revenue.
Conceptual Framework for Financial
A service company provides services
Reporting by the International
in order to generate revenue and
Accounting Board 2010) Gains are
the main cost associated with their
incidental to the operation of the
service is the cost of labor which is
business.
presented under the account
"Losses represent other items that Salaries Expense. On the other
meet the definition of expenses and hand, a merchandising company
may or may not arise in the course sells goods to customers and the
of the ordinary activities of the main cost associated with the
entity." activity is the cost of the
merchandise which is presented
THE TWO TYPES OF STATEMENT OF
under the line-item Cost of Goods
COMPREHENSIVE INCOME:
Sold.
1. The Single-step Format of the SCI
PREPARATION OF THE STATEMENT
It is called single-step because all OF COMPREHENSIVE INCOME
revenues are listed down in one USING THE SINGLE-STEP APPROACH
section while all expenses are listed
THE DIFFERENT PARTS OF THE
in another. Net income is computed
STATEMENT OF COMPREHENSIVE
using a "single-step" which is Total
Revenues minus Total Expenses.
(Haddock, Price, & Farina, 2012).
This format of SCI is more commonly
used by service companies.

2. Multi-step format of the SCI

It is called multi-step because there

are several steps needed in order to
arrive at the company's net income.
(Haddock, Price, & Farina, 2012) This
format is more commonly used by
merchandising companies.
INCOME FOR A SERVICE BUSINESS a. Sales the total amount of revenue
USING THE SINGLE-STEP APPROACH: that the company was able to
generate from selling products
THE SCI FOR A MERCHANDISING
BUSINESS USING THE MULTI-STEP b. Contra revenue accounts - are
APPROACH called contra because it is on the
opposite side of the sales account.
Nature of the Merchandising
The sales account is on the credit
Business
side while the reductions to sales
A merchandising entity earns its accounts are on the debit side. This
revenue by selling products, called is "contrary" to the normal balance
merchandise or merchandise of the sales or revenue accounts.
inventory. (Haddock, Price, & Farina, 2012)

A merchandising firm may be a b.1 Sales returns - This account is

wholesaler, which buys goods for debited in order to record returns of
resale to retailers, or a retailer, customers or allowances for such
which buys goods for resale to their returns. (Haddock, Price, & Farina,
customers. The goods purchased 2012) Sales returns occur when
and held for resale, whether customers return their products for
wholesale or retail, are known as reasons such as but not limited to
merchandise and are held apart defects or change of preference
from all other inventories.
b.2 Sales discount - This is where
Service vs. Merchandising Business discounts given to customers who
pay early are recorded. (Haddock,
How do the operations of a Price, & Farina, 2012) Also known as
merchandising or trading company cash discount. This is different from
differ from those of the service trade discounts which are given
business we have studied so far? when customers buy in bulk. Sales
How do the activities of Manansala discount is awarded to customers
Law Office differ from those of who pay earlier or before the
Puregold Supermarket? These deadline.
differences are best illustrated in the
following condensed income
statements.
c. Net Sales - Sales less Sales returns c. Net Purchases = Purchases -
and Sales discount is Net Sales. (Purchase discount and purchase

returns)

a. Purchases - amount of goods

bought during the current Beginning inventory - This is the
accounting period. b. Contra amount of inventory at the
Purchases -An account that is beginning of the accounting period.
credited being "contrary" to the This is also the amount of ending
normal balance of Purchases inventory from the previous period.
account.
Ending Inventory - amount if
b. 1 Purchase discount-Account inventory presented in the
used to record early payments by Statement of Financial Position.
the company to the suppliers of Total cost of inventory unsold at the
merchandise. (Haddock, Price, & end of the accounting cycle.
Farina, 2012) This is how buyers see
a sales discount given to them by a III. Determine the Selling Expenses
supplier. (Note 4)

b.2 Purchase returns - Account used Selling Expenses - These expenses

to record merchandise returned by are those that are directly related to
the company to their suppliers. the main purpose of a
merchandising business; the sale
b.3 Freight In This account is used to and delivery of merchandise. This
record transportation costs of does not include cost of goods sold
merchandise purchased by the and contra revenue accounts.
company. It is called freight in (Haddock, Price, & Farina, 2012)
because this is recorded when goods Examples: Freight-out, Salaries
are transported into the company. Expense, Rent Expense, Utilities,
Depreciation
IV. Determine the General and Contra-purchases account balances
Administrative Expenses (Note 5) include P235,112 returns and
allowances and P265,820 discounts
General and Administrative
Expenses -These expenses are not The company is also into costume
directly related to the rentals of different cartoon
merchandising function of the characters, rental income of which
company but are necessary for the amounted to P125,746 for the
business to operate effectively. month.
(Haddock, Price, & Farina, 2012)
To operate, the company needs to
Examples: Salaries Expense, Utilities, pay salaries of P435,874, utilities of
Repairs and Maintenance, P236,987, and rent of P52,365.
Depreciation.Permit and Licenses, Depreciation of furniture,
equipment, and POS system totaled
P39,657.

Miscellaneous Expense

Example:

Teddy Bear Trading is operating a big

store of stuff toys called Crush
Magic. For the month of April 2009,
recorded sales in the ledger
amounted to P8,756,445. Contra-
sales account balances include
P223,650 returns and allowances
and P396,500 discounts

The entity began April with

P2,963,574 of inventory which
decreased by P75,924 at the end of
the month. Purchases made
amounted to P3,685,790 which
were transported to the company
premises costing P352,000 in total.