STATEMENT OF

COMPREHENSIVE
INCOME
 Learning Objectives
By the end of the chapter, the students should be able to:
1. understand the purpose of the Statement of Comprehensive
Income;
2. identify the elements of the Statement of Comprehensive Income;
3. Describe the nature of the accounts reported on the Statement of
Comprehensive income;
4. prepare single-step Statement of Comprehensive Income for
service company;
5. prepare a multi-step Statement of Comprehensive Income for a
merchandising company; and
6. determine the normal balances of the elements of the Statement of
Comprehensive Income.
 Results of the Company’s
Operations
The SCI is a statement that reports the results of
operations of the business for one accounting
period.This statement contains the following
information:
a. Revenue generated by operating the business;
b.Costs spent to generate the revenue; and
c. Income, which is the excess of revenue over
costs.
The SCI is describe as a “for the period” report.
This means that the amounts presented on the
report include only those that occurred within the
given period. For example, the SCI in Figure 1 is
described as “for the year ended December 13,Y.
“This means that the reported revenue of P 1.29
million was generated from January 1,Y to
December 31,Y. Revenues generated in 20X0 or
20x2 were not counted in this particular report.
ABC Company
Statement of Comprehensive Income
For the year ended December 31, 20X1

Revenues P 1,290,000
Less: Expenses 890,000
Net Income P 400,000
Figure 1. Statement of Comprehensive Income
Financial statements is a set of interconnected
reports. SCI is prepared first. The bottom line of the
SCI is net income. Net Income is transferred out to
the Statement of Changes in Equity to be included in
the determination of the Owner’s Capital balance as
of the end of the year. The capital balance is
transferred to the Statement of Financial
Position(SFP). If double entry accounting is
implemented correctly, the SFP will balance. This
means that the SFP will show total assets equal to
the sum of liabilities and owner’s equity.
 Components of the Statement of
Comprehensive Income
The SCI is an action-packed financial statement. In
contrast, the SFP is a still photograph.The SCI is a
statement that explains some of the changes that
occur between two SFPs taken one year apart.
What are the actions reported on
the SCI?
Income and Expenses are the general terms used to
describe the elements of the SCI. 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 owner’s
contribution. Expenses are transactions that decrease
assets and/or increase liabilities leading to decrease in
equity resulting from the operations of the business and
not because of distributions to owners.
Friendly Convenience Store: Income
1. Recall Maria Reyes, the regular customer of Juana Dela
Cruz. Maria purchased 3 small cans of sardines that juana
sells for P 25 each. Maria asked Juana to include it in her
account. Juana purchased the sardines from her
wholesale supplier at P 15 per can.
2. Recall Pedro Benitez who rented a small space on the
store’s countertop for his coffee vending machine. On
October 1, 20X1, he paid six months advance rental of P
500 per month.
3. Juana Dela Cruz, owner of the store, deposited P 1,000 to
the store’s savings account from her personal account.
Which of the above transactions will be reported as Income?
1. Analysis of the transaction with Maria Reyes:
Decreased in Inventory 3x5 P (45.00)
Increase in Accounts Receivable 3x5 75.00
Net effect on total assets P 30. 00

Conclusions:This transaction met the definition of

income.Asset increased by P 30.This increase resulted
from the operations of the store and not contribution
from the owner. Hence, this transaction should be
counted as income.
2. As December 31, 20X1, the unearned rent will
have a balance of P 1,500 (P 500x3). Its original
balance is P 3,000 (P 500x6) representing the 6
months advance rent paid by Pedro Benitez. Liability
decreased by P 1,500 which is the rent from October
to December. This met the definition of Income. A
decrease in liability from the operations of the
business.
3.The asset, specifically cash, will increase by P1,000.
However, this is a contribution from the owner and
therefore not reportable in income.
ACTIVITY - I N C O M E
1. Pedro Maglatang, the regular customer of Pepito
Manoloto. Pedro purchased 5 box of detergent powder
with 12 pcs per each box that Pepito sells for P 12.50 each
detergent. Pedro asked Pepito to include it in his account.
Pepito purchased the detergent from his wholesale
supplier at P
11.00 per detergent.
2. Hanz Montemayor who rented a small space on the store’s
countertop for his soimai stall. On June 1, 2017, he paid six
months advance rental of P 350.00 per month.
3. Maritez Hernandez, owner of the shop, deposited P 5,000
to the store’s savings account from her personal account.
There are two kinds of income – revenue and
gains. Revenues are income generated from the
primary operations of the business. Gains, on the
other hands are income derived from other
activities of the business. Sale merchandise to
Juana’s customers is an example of revenue. It is
because the primary operation of the store is to
sell its inventories. Interest income from the time
deposit is considered gains and other income and
not revenue.
It is because investment in time deposit is
not part of the primary operations of the
store. Classification of income as to
revenue and gains is dependent on the
nature of the business. For Juana’s store,
interest income is not revenue. However,
for a bank whose primary operation is to
give out loans, interest income is
considered revenue.
There are two kinds of expenses – expenses and
losses. Expenses are related to the primary
operations of the business. Losses are from other
activities of the business. The cost of the
merchandise sold by Juana’s is part of the store’s
selling activities. Therefore, it is classified as an
expense. Interest expense from notes payable is
not part of the selling activities of the store. It is
classified as losses and other expenses.
 Elements of the Statement of
Comprehensive Income
REVENUE
Service Income
The Service Income account is generally used to describe
revenue derived from rendering of services. A more
specific account name may be used identify the service
rendered such as Rental Income, Professional Fee and
Tuition Fee Revenue.
Revenue from services is recognized when they
have already been rendered. However, contract of
services may take a long time to complete. For
example, when you enrolled in high school
sometimes in May or June, you initially signed a
service contract for one school-year (June to
March). The revenue generated from this enrolment
contract may be reported as Tuition Fee Revenue. If
the school follows the calendar year of reporting,
then we will have a problem because of the
misaligned time period.
 SCHOOLYEAR
June 2016 – March 2017 April – May 2017 June 2017 – March 2018
2016 January 2017 – December 2018
2017
Figure 2. Misalignment of School Year and Calendar Year

Example:Tuition Fee Revenue

Twinkle-twinkle Pre-School collected tuition fee of
P 1,250,000.00 and P 1,455,000.00 for the school year
2016-2017 and 2017-2018, respectively.The school
closed in April and May. Determine the tuition fee
revenue to be reported on SCI for the calendar year
2017
 ANSWER
School Year 2016-2017 P 1,250,000.00
Number of months from January – March 2017 3
Number of months in one school year 10
Tuition fee revenue for calendar year 2017 P 375,000.00

School Year 2017-2018 P 1,455,000.00

Number of months from June – December 2017 7
Number of months in one school year 10
Tuition fee revenue for calendar year 2017 P 1,018,500.00
Total tuition fee revenue for the C Y 2017 P 1,393,500.00
Sales
The Sales Revenue account is generally used to describe
revenue derived from selling of goods. A more specific
account name may be used to identify the goods sold
such as Office Supplies Sales, Book Sales, Food Sales etc.
Revenue from sales of goods is recognized when
goods have been delivered. However, customers are
allowed to return goods that do not meet their quality
standards. When goods are returned, 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.
Accounts Payable, we mentioned that suppliers give
discounts to their customers to encourage early
payments. We delivered the goods to the buyer and
appropriately recorded Sales Revenue based on full
selling price. We gave the buyer the credit terms of 2/10,
n/30. The customer took advantage of the discount and
paid within the ten day discount period. Accounting
practice does not deduct the paid within the ten day
discount period. Accounting practice does not deduct
the discount from Sales Revenue. Rather, we use another
Contra-Sales account called Sales Discount.
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 Gonzales on account at a price of P 150.00
per box of P 15.00 per pen. Juana gave Mrs. Gonzales two weeks to pay
the account. Moreover, Juana told Mrs. Gonzales that she will deduct 2%
discount if she pays within a week.
Mrs. Gonzales returned one week later. She returned five pens and
took advantages of the discount.
Determine the amount of Sales, Sales Return, Sales Discount and Net
Sales from the Transaction with Mrs. Gonzales.
 ANSWER
Sales 150 x 3 P 450.00
Sales return 15 x 5 (75.00)
Amount to be paid by Mrs. Gonzales before discount 375.00
Sales discount (375 x 2%) 2% (7.50)
Amount paid by Mrs. Gonzales P 367.50

Alternatively:
Sales P 450.00
Less: Sales returns and allowances (75.00)
Less: Sales discount (7.50)
Net sales P 367.50
 SALES REVENUE
Q
Motorcycle Enterprise Inc. owned by Mr. Pedro Benitez
U sold 2 unit of Motorcycle to Mr. Edwin Gonzales on
I account at a price of P 65,450.00 per unit. Mr. P. Benitez
Z gave Mr. E.Gonzales three weeks to pay the account.
Moreover, Mr. P. Benitez told Mr. E. Gonzales that he will
deduct 2% discount if he pays within a week.
Mr. Gonzales returned one week later. He returned one
unit and took advantages of the discount.
Determine the amount of Sales, Sales Return, Sales
Discount and Net Sales from the Transaction with Mr.
Edwin Gonzales.
EXPENSES
Cost of Goods Sold (Cost of Sales)
This is an account used by companies that sells
goods instead of services. For trading operations,
Cost of Sales collects the cost of the merchandise
sold. This includes the purchase price of inventory,
brokerage and shipment cost to bring the goods
the premises of the company. This shipment cost is
called Freight-in.
Cost of sales is part of inventory accounting.
Accountants have two ways of keeping records of
inventory – perpetual and periodic inventory
system. Perpetual means that the Inventory and
Cost of Goods Sold accounts are “perpetually”
updated. The inventory account is increased when
goods for sale are acquired and decreased when
goods are sold. The Cos of Goods Sold account is
updated every time a sale is made.
The other method is called periodic inventory
system. The Inventory account is only
“periodically” updated. “Periodically” means that
the inventory account is updated only at end of
the year or end of the month.

What happens when merchandise are

acquired or sold?
Cost of merchandise acquired is collected using the
Purchases account. We also introduce two contra-
Purchase accounts: Purchase Returns and Allowances
and Purchase Discount. Returns of defective goods are
reported under Purchase Returns and Allowances.
Discounts taken are reported under Purchase Discount.
“Net purchases” is equivalent to Purchases plus Freight-
In less Purchase Returns and Purchase Discount (Net
Purchases = Purchases + Freight-In – Purchase Returns –
Purchase Discount). Observe that this is similar to the
accounting practice for sales.
How is cost of goods sold determined in a periodic
inventory system? Using the balances of the periodic
inventory system accounts, Cost of Sales is
computed as follows:
Beginning inventory
Add: Net purchases (Purchases + Freight-In – Purchase
Returns – Purchase Discount)
Cost of Goods available for sale
Less: Ending Inventory
Cost of goods sold
Beginning and ending inventory are determined
based on the physical count of the merchandise
owned by the company. The ending inventory of
the prior-period is also the beginning inventory
of the current period. The “periodic”
adjustment updates the inventory account to
bring it to the balance based on year-end
physical count.
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) P 55,344
Freight-In (based on receipts of taxi fares she 430
incurred when the shops 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 P 2,320. How much is cost of
 ANSWER
Beginning inventory (remember this is the store’s first P0
year of operations
Purchase (based on suppliers’ receipts) P 55,344
Add: Freight-In 430
Less: Purchase returns (760)
Net purchases 55,014
Cost of goods available for sale 55,014
Less: Ending inventory (based on physical (2,320)
count)
Cost of goods sold P 52,694
EXPENSES
Operating Expenses
It refers 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 expense, representation,
bad debts expense, depreciation and
amortization.
Bad debt expense is an operating expense related
to accounts receivable. It is an estimated expense.
Recall from Chapter 1, Accounts Receivable is the
right to collect payment from customers. However,
some accounts become uncollectible. The
accounting rule is:
1. To periodically analyze the collectability of
Account Receivable and;
2. To immediately charge to expense the amount
deemed uncollectible.
We will refer to this account as bad debts
expense. We will try our best to estimate bad
debts expense using percentage of sales. This
method requires the determination of the
historical relationship between bad debts and
sales (or credit sales). We now apply this
historical relationship to current year sales in
order to determine bad debts expense.
Friendly Convenience Store: Bad debts expense
Current year sales of the store amounted to P 128,865.
Of this, only P 70,000 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. Juana Dela Cruz, the manager-owner decided to use
percentage of credit sales method.
 ANSWER
3% of Total sales 6.5% of credit sales
Total sales P 128,865
Total credit sales P 58,865
Historical experience 3% 6.5%
Bad debts expense 3,866 3,826

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 sales).
There are two formats for the SCI, namely, the
Single-step and the Multi-step.The Single-step
is closely related to the nature of expense
format. On the other hand, the Multi-step
approach is also associated with the function
of expense.
 The single-step SCI 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 revenue. Subtotal are
not computed and presented on the SCI.This format is
generally used by small businesses and service businesses
because of its simplicity.
The single-step SCI is also closely linked to the nature of
expense format. It lists down the expenses based on the
sources of expenses such as salaries, purchases, supplies,
utilities, fuel and depreciation.
 Why is this important? Look at the list of
Let us focus on expenses. Included in this list is Net
the adjustment for Purchases which means it was fully
increase in deducted as an expenses.
inventory.

However, due to the

existence of ending inventory,
we know that not all current
year purchases were sold.
 Therefore, we need an inventory
adjustment to convert net purchases to
cost of goods sold.

When ending inventory is greater than beginning

inventory, not all of the current year purchases
were sold.This only means that the excess of
ending inventory over beginning inventory is
Let us analyse the from the unsold current year purchases.We
adjustment know that we have an over-deduction of
needed for this
expenses because all Net Purchases were
conversion:
deducted without taking into consideration the
unsold current year purchases.
 Fundamentals of Accountancy, Business, and Management 2
6/13/2017 46
Edmer M. Constantino