Before going over this module, the learner must answer the PRE-TEST in order for the teacher to

assess Recognition of Prior Learning (RPL) and pin point specific topics that need emphasis during
the discussion.

PRE-TEST

Directions: Solve for the net income or net loss for the following independent cases.

1. If Income is Php20,000.00 and Expenses are Php15,000

Net income /(Net Loss ) is
2. If Income is Php75,000.00 and Expenses are Php100,000 Net
income /(Net Loss ) is
3. If Income is Php85,000.00 and Expenses are Php65,000 Net
income /(Net Loss ) is
4. If Income is Php56,000.00 and Expenses are Php100,000 Net
income /(Net Loss ) is
5. If Income is Php88,000.00 and Expenses are Php200,000 Net
income /(Net Loss ) is

Module 3

Statement of Comprehensive Income of a Merchandising Business

Learning Outcome(s):

At the end of the lesson, the learner is able to:

 1. Prepare Statement of Comprehensive Income of a Merchandising Business Using a Multi-Step
Approach

BRIEF INTRODUCTION

You already learned the single approach SCI for a single proprietorship business in module 2. This module will
discuss about the multi-step approach better for merchandising business. They termed it as multi-step
because there are several steps needed in order to arrive at the company’s net income.

According to Haddock, Price and Farina (2012), the elements of a multi-Step approach of a
merchandising company are as follows: First part is Sale, the total amount of revenue that the company
was able to generate from selling products. The second part is contra revenue. Sales Returns record
returns of customers or allowances for such returns. Sales returns occur when customers return their products
for reasons such as but not limited to defects or change of preference. Sales discount is discount given to
customers who pay early and is also known as cash discount. Sales discount is awarded to customers who pay
earlier or before the deadline

For the 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. Beginning Inventory is the amount of inventory at the
beginning of the accounting period. This is also the amount of ending inventory from the previous
period. Net Cost of Purchases is equal to Purchases plus Freight- In. Net Purchases is Purchases
minus the contra purchases account (Purchase discount and purchase returns). Purchases is an amount
of goods bought during the current accounting period. Contra Purchases is an account that is credited
being “contrary” to the normal balance of purchases account. Purchase discount is account used to
record early payments by the company to the suppliers of merchandise. Purchase returns is account
used to record merchandise returned by the company to their suppliers. Freight In is an account used
to record transportation costs of merchandise purchased by the company. This is called freight in
because this is recorded when goods are transported into the company. You have to add beginning
inventory and net cost of purchases for you to get the cost of goods available for sale. Ending
Inventory is the total cost of inventory unsold at the end of the accounting cycle. Sales less cost of
goods sold is Gross Profit.

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.
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. These do not include cost of goods
sold and contra revenue accounts. Gross Profit less general and administrative expenses and
selling expenses will yield a net income for a positive result while net Loss for a negative result.

An example of a Multi-Step Approach in a simpler format

THEONE JOY SELLING COMPANY

STATEMENT OF COMPREHENSIVE INCOME HEADING
For the year ended December 31, 2020
 SALES
NET SALES Php 460,000.00

COST OF SALES
Cost of Goods Sold (285,000.00)

Gross Profit Php 175,000.00 GROSS PROFIT

General & Administrative Expenses

Salaries Expense (Php 20,000.00)

Rent Expense (15,000.00)

Depreciation Expense (10,000.00)

Utilities Expense (5,000.00)

Miscellaneous Expense (1,000.00)

Total (51,000.00)

Selling Expenses

Salaries Expense (Php10,000.00)

Rent Expense (8,000.00)

Depreciation Expense (7,000.00)

Utilities Expense (6,000.00)

Total (31,000.00)

Net Income Php 93,000.00

Comprehensive Income 7,000.00

Total Net Income before Tax Php100,000.00

============

KEYPOINTS

The elements of a Comprehensive Income for a merchandising business are Net

Sales, Cost of Sales, and Expenses. Expenses are presented according to function of expense
method which is a Multi-Step Approach for a merchandising business. Other expenses under the
function of expense method are distribution cost, administrative expenses, other expenses, interest
expense and income tax expense.
 1.
Net Sales is equal to sales less contra sales account (sales returns and allowances and
sales discount )
2. Gross Profit is equal to n et Sales less Cost of Goods Sold (Cost of Sales)
3. To arrive at cost of sales, you have to deduct merchandise inventory end to the cost
of goods available for sales.
4. To get the amount of cost of goods available for sale, you have add net cost of
purchases to merchandise inventory beginning.
5. Add freight in to Net purchases to get the Net Cost of purchases
6. Net Purchases is equal to purchases less purchase discount and purchase
returns and allowances.
Referrences:
E-SITES

To further explore the concept learned today and if it possible to connect the
internet, you may visit the following links:
https://www.accountingcoach.com/onlineaccountingcourse

REFERENCES:
Ferrer, R & Millan, Z. V. (2017). Fundamentals of Accountancy, Business & Management Part
2. (1st Ed): Sto Tomas, Baguio City: Bandolin Enterprise Haddock, M., Price, J., & Farina, M.
(2012). College Accounting: A Contemporary Approach, Second Edition. New York: McGraw-
Hill/Irwin.

Valencia, E. G., & Roxas, G. F. (2010). Basic Accounting (3rd ed.) Mandaluyong City, Philippines:
Valencia Educational Supply.
Anastacio, V. ( 2011). Accounting Essentials 1, Centro Escolar University Publisher
Teaching Guide in Senior High School Fundamentals of Accountancy Business and Management
2, donated by the Commission on Higher Education in Collaboration with the Philippine Normal
University to Department of Education

Activity 1. Determine whether the account title is general or selling.

1. Salaries of administrative assistant

2. Salaries of utility staff
3. Salaries of sales agents
4. Light and water of home office
5. Rental of Sales office building
6. Depreciation of office equipment
7. Depreciation of delivery van
8. Advertising expenses
9. Commission expense
10. Sales Commission of Account Executive

Activity 2. Solve for the elements of Comprehensive Income for the following independent
Activity:
1. Joy Ride Company’s salaries to sales agents amounted to Php10,000. Salaries of
accountants amounted to Php20,000. No other expenses were incurred. How much is the
 company’s general and administrative expense?
2. Joy Ride’s beginning inventory amounted to Php250,000. Net purchases amounted to
Php70,000. Freight is 15,000. Compute for the company’s cost of goods available for sale.
3. Joy Ride’s purchases is Php100,000 while purchase returns and purchase discounts amounted
to Php20,000 and Php10,000 respectively. How much is the company’s purchases?
4. Company’s Cost of Goods Sold amounted to Php235,000. Net cost of purchases totaled
Php85,000. Beginning inventory amounted to Php250,000. Sales
amounted to Php500,000. Compute for the company’s Ending Inventory.
5. Gross profit of Happy Joy Ride amounted to Php175,000. Net Sales is Php300,000,
compute for cost of goods sold?

Activity 3. Prepare a multi-step Statement of Comprehensive Income for the following accounts taken from
Tin’s Ready to Wear Company for the period ended of December 31, 2019

Net Sales Php75, 000.00, Cost of Sales Php30, 000.00, General and
Administrative Expenses Php12,000.00 and Selling Expenses Php25, 000.00
CHECK YOUR UNDERSTANDING:
Prepare the Statement of Comprehensive income using a Multi-step Approach:

Sales Php80,000.00 Merchandise Inventory beg Php5,000.00

Sales Discount 5,000.00 Net Purchases 10, 500.00

Sales Returns 2,000.00 Freight In 8,000.00

Merchandise General Expenses 12,000.00

Inventory End 3,500.00 Selling Expenses 4,000.00

POST-TEST

Choose the letter corresponding to the correct answer for each of the questions provided below:
Marie Co Company’s accounts show the following balances as June 30, 2020.

Net Sales Php1,250,000.00

Cost of Sales 380,000.00
Rent Expense (3/4 pertains to the Sales Department) 20,000.00
Salaries Expense (2/5 pertains to General & Admin) 250,000.00
Sales Commission Expense 80,000.00
Freight Out 50,000.00
Insurance Expense 25,000.00
Interest Expense 10,000.00
Other comprehensive income 30,000.00
 1. What is the gross profit of Marie Co?
a. Php870,000 c. Php1,520,000
b. Php280.000 d. Php1,200,000

2. What is the amount of salaries attributable to non-sales personnel?

a. Php250,000 c. Php100,000
b. Php150,000 d. Php50,000

3. What is the rent expense attributable to Sales Department?

a. Php120,000 c. Php80,000
b. Php90,000 d. Php100,000

4. How much is the total General and Administrative Expenses?

a. Php250,000 c. Php155,000
b. Php125,000 d. Php165,000

5. How much is the total Selling Expenses?

a. Php370,000 c. Php365,000
b. Php320,000 d. Php300,00
6. How much is the comprehensive income of Marie Co?
a. Php315,000 c. Php365,000
b. Php380,000 d. Php120,000

7. How much is tax expense (hint: 35%)

a. P110, 000 c. P 145, 000
b. P109, 500 d. P 127, 750

8. How much is comprehensive income after tax?

a.Php230,000 c. Php240,000
b Php237,250 d. Php335,000