Department of Education

SCHOOLS DIVISION OF CITY OF MEYCAUAYAN

Pag-asa St., Malhacan, City of Meycauayan, Bulacan

Senior High School

Activity Sheet 12
in
Fundamentals of
Accountancy, Business
and Management 2
Statement of Comprehensive
Income-Multiple Step
ABM_FABM12- Ic-d-7
 STATEMENT OF COMPREHENSIVE INCOME -MULTI- STEP

Let Us Know

On our previous activity of Statement of Comprehensive Income, we define it as

financial statement that measures performance and reports entity’s profitability. To continue
our lesson, we will study another format of Statement of Comprehensive Income used for
merchandising type of business Statement of Comprehensive Income- multi step. It
shows the various stages such as the gross profit, the total income, the net operating
income, expenses, and net income.

Let Us Review

Activity : Lesson Alphabet

Summarize our previous lesson Statement of Comprehensive Income -Single Step
using the letters of the alphabet as the sentence beginning .

https://www.needpix.com/photo/download/650313/alphabet-environmental-ecological-green-
letters-3d-capitals-education-text

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 Let Us Study

On our previous lesson we learned a business that generate income by rendering

business to client. This includes, professional services such as accounting, law firm, tutorial
services, dental and medical services, salon, and repair shop. In this module we will give an
emphasis on another type of business which engaged in buying and selling of goods or
merchandise, the merchandising business. It purchased merchandise and sold higher than
the price of acquisition cost to generate an income. Among the examples of merchandising
businesses are sari-sari store, bookstores, home appliance stores and furniture stores.
Nowadays, online shop can be considered also as part of merchandising business. To
illustrate the business flow of merchandise business.

Example of Merchandising business, Victor Basa is an owner of Basa Bookstore

Trading Company, he purchases accounting books at ₱150.00 pesos and sell it at a price of
₱250.00 online and through his bookshop located in City of Meycauayan, Bulacan.

Merchandising Account Titles added to the Statement of Comprehensive Income –

Merchandising Concern

Table 1: Merchandising Account Titles

Accounts Titles Description

Merchandise Inventory Product or goods purchase by business intended for sale but
unsold in a period of time.
Freight out or The cost incurred by seller for delivering merchandise to
Transportation out or customers.
delivery expense
Freight in or The cost incurred by buyer for picking up of merchandise
Transaportation in purchased from the supplier to the place of buyer. This
cost is shouldered by the buyer
Purchase Return or A contra-expense account accumulated in the cost of
Allowances product purchased return to the supplier for various
reasons such as,defective products, errors in product
specifications. This is only applicable with products
acquired not with building, land or machineries. This was
deducted to buyers total amount of purchases.
Purchase Discount A reduction in purchase price due to on time payment
of the buyer within the discount period to the seller. This is
only used for merchandise only.
Sales A revenue derived in selling product or goods either cash
or on account.
Sales Return and A contra-revenue account, an amount returned to buyer
Allowances due to the returned of merchandise with defect and errors
in product specifications. Deducted to the total amount of
sales.
Sales Discount A reduction in the selling price due to early payment of
the buyer to the seller within the discount period.
Pro-forma of Statement of Comprehensive Income Service Entity vs. Statement of
Comprehensive Income Merchandising Concern

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 Kutingting Repair Shop
Income Statement
For the Year Ending December 31,2019

Income
Repair Income ₱120,000.00
Other Income
Rent Income 2,000.00
Interest Income 1,000.00 3,000.00
Total Income ₱123,000.00

Less : Operating Expenses

Salaries Expense ₱25,000.00
Rent Expense 10,000.00
Office Supplies Expense 1,000.00
Utilities Expense 5,000.00
Communication Expense 2,500.00
Gas and oil 4,500.00
Interest Expense 3,000.00
Total Operating Expenses ₱51,000.00

Net Income (Loss) ₱72,000.00

Figure 1. Statement of Comprehensive Income Service Entity

Figure 2. Statement of Comprehensive Income Merchandising Concern

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 Merchandising Statement of Comprehensive Income uses a multi-step pro-
forma, wherein various stages should be done in able to arrive at its net income. Its show
the flow of how was a product acquired, sold to get the net income which is an addition on
our owner’s equity. Merchandising Statement of Comprehensive Income was supported by a
note to financial statements which indicates the detail of the total amount reported in the
financial statement.

Step by Step Preparation

1. Determine the Revenue or Net Sales.

2. Determine the Net Purchases, Cost of Sales and Gross Profit.Note that Freight in
and Freight out has a difference .Freight out is a selling expenses while Freight in
is accounted as an additional cost in a acquiring a merchandise.Now that we
already computed and determined the the Net Sales and Cost of Sale of Erwin’s
Auto Trading we will compute on the Gross profit earned by the business.In
computing the gross profit we will deduct the cost of sale to the computed net
sales.
3. Determine the selling and administrative expenses. Some of the merchandising
entity allocates their expenses for administration and selling department. In the
actual practice management accountant can create charts of account for each
department instead of allocation. It will be easy for them to monitor the performance
of this department in the operation and make decisions for budgeting, cost cutting
and improvements.
4. Compute for the Net Income. We cannot complete the elements of Statement of
Comprehensive Income in total after completing the all the necessary schedules as
basis for the detail of the element of Statement of Comprehensive Income.

Example of Multi-Step Statement of Comprehensive Income with Notes to Financial

Statement

Erwin's Auto Trading

Statement of Comprehensive Income
For the Year Ended December 31,2019

Net Sales (Note 1) ₱1,468,000.00

Less: Cost of Sales ( Note 3) 693,000.00
Gross Profit ₱775,000.00

Operating Expenses
Less: Selling Expense (Note 4) 152,500.00
Administrative Expense (Note 5) 122,500.00
Total Operating Expense ₱275,000.00

Net Income ₱500,000.00

Figure 3. Statement of Comprehensive Income with Notes to Financial Statement

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Note 1 Net Sales

Sale s ₱1,500,000.00
Le ss Sale s Discount 12,000.00
Sale s Re turn and Allowance s 20,000.00
Net Sales ₱1,468,000.00

Note 2 Net Purchases

Purchase s ₱300,000.00
Add : Fre ight-in 25,000.00
Total Purchases ₱325,000.00
Le ss Purchase Discounts 50,000.00
Purchase Re turn and Allowance s 82,000.00
Net Purchases ₱193,000.00

Note 3. Cost of Sales

Me rchandise Inve ntory (1/1/2019) ₱1,000,000.00

Add Ne t Purchase s (Note 2) 193,000.00
Total Goods Available for Sale ₱1,193,000.00
Le ss: Me rchnadise Inve ntory (12/31/2019) 500,000.00
Cost of Sales ₱693,000.00

Notes 4. Selling Expenses

Salarie s Expe nse s ₱9,000.00
Re nt Expe nse s 15,000.00
Utilitie s Expe nse s 3,000.00
Taxe s and Lice nse s 4,500.00
Re pairs and Maite nance 7,500.00
De pre ciation Expe nse s 4,500.00
Commission Expe nse s 60,000.00
Fre igh Out 40,000.00
Re pre se ntation Expe nse s 9,000.00
Selling Expenses ₱152,500.00

Notes 5 Administrative Expenses

Salarie s Expe nse s ₱21,000.00
Re nt Expe nse s 35,000.00
Utilitie s Expe nse s 7,000.00
Taxe s and Lice nse s 10,500.00
Re pairs and Maite nance 17,500.00
De pre ciation Expe nse s 10,500.00
Re pre se ntation Expe nse s 21,000.00
Administrative Expenses ₱122,500.00

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 Let Us Practice

I. Write True if the statement is true and write False if the statement is false. Write your
answer on a separate sheet of paper.

______________1. The Chart of Accounts for merchandising entity differs from that of a service
entity.

______________2. The difference between revenues from sales and cost of sales is operating
income.

______________3. Retailers and wholesalers are both considered merchandisers.

______________4. The steps in the accounting cycle are different for a merchandising company
than for a service company.

______________5. Sales minus operating expenses equals gross profit.

______________6. The multiple-step form of income statement is easier to read than the single-
step form.

______________7. The gross profit section for a merchandising company appears on both the
multiple-step and single-step forms of an income statement.

______________8 Sales Allowances and Sales Discounts are both designed to encourage
customers to pay their accounts promptly.

______________9. A multiple-step income statement provides users with more information

about a company’s income performance.

______________10. If a merchandising company sells land at more than its cost, the gain
should be reported in the sales revenue section of the income statement.

II. Supply the missing elements of Statement of Comprehensive Income.Write your answer
on separate sheet of paper.

Sale s ₱120,000.00 6. ? 11. ?

Me rchandise Be ginning
Inve ntory ₱20,000.00 7. ? 12. ?
Purchase s 1. ? ₱6,000.00 ₱23,400.00
Purchase Discount ₱5,000.00 ₱600.00 ₱2,400.00
Total Goods Available
for Sale 2. ? ₱7,800.00 ₱95,000.00
Me rchandise Inve ntory,
End ₱20,000.00 8. ? 13. ?
Cost of Sale s ₱70,000.00 ₱3,500.00 ₱78,000.00
Gross Profit 3. ? 9. ? ₱37,000.00
Se lling Expe nse s ₱1,500.00 10 ? ₱7,000.00
Ge ne ral Administrative
Expe nse s 4. ? ₱2,500.00 14 ?
Total Ope rating Expe nse ₱40,000.00 ₱3,125.00 15 ?
Ne t Income (Loss) 5. ? -₱1,000.00 ₱16,400.00

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 Let Us Remember

1. Merchandising Statement of Comprehensive Income uses a multi-step pro-

forma, wherein various stages should be done in able to arrive at its Net income. Its
show the flow of how was a product acquired, sold to get the net income which is
an addition on our owner’s equity. Merchandising Statement of Comprehensive
Income was supported by a note to financial statements which indicates the detail of
the total amount reported in the financial statement.

2. Multi-Step Statement of Comprehensive Income is characterized by presentation

or several sub-total until net income is determined.

3. Gross Profit is computed as net sales less cost of sales or cost of goods sold.

4. Operating Expenses adding all the expenses incurred during the operation.

5. Net Income or Net Loss is computed as gross profit less operating expenses

Let Us Appreciate

Use the Venn Diagram to present the difference and similarities between a Statement
of Comprehensive Income-Single Step with Statement of Comprehensive Income–Multi-Step.
Write your naswer on separate sheet of paper.

Statement of Statement of
Comprehensive Comprehensive Income-
Income-Single Step Multi-Step

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 Let Us Practice More

I. Assume that you are a company financial accounting practitioner.Prepare an example of

Statement of Comprehensive Income-Multi-Step with a note to financial statement as of
December 31, 2019. Use an m.s excel application in presenting your report.

Rubrics
10 pts. Correct format and all key feature of SCI-Multi-Step was
presented very well. Elements was presented completely
and with correct computation. Double ruling of final
answer was also executed.
7 pts. Correct format and all key features of SCI-Multi-Step was
presented however double ruling was not executed and
presentation of elements is not organized.
5 pts. Incorrect format of SCI-Multi-Step. Lacks key feature or
element, double ruling was not executed yet it was neatly
presented
3 pts. Presented output does not comply with correct format,
miss out key features and report was unorganized.

II. Prepare the Statement of Comprehensive Income with notes to financial statement for
December 31, 2019 of Jai-Jai’s Boutique & Merchandise, 20% of rent, depreciation and utility
expenses is allocated to the sales office while the rest is for administrative operation. Refer to
the details below. Use m.s. excel to presenting your financial report.

Jai -Jai's Boutique & Merchandise

Sales ₱ 5,000,000.00
Salaries & Expense ₱100,000.00
Supplies Expense ₱150,000.00
Depreciation Expense ₱120,000.00
Utilities Expense ₱80,000.00
Insurance Expense ₱40,000.00
Rent Expense ₱180,000.00
Merchandise Inventory, Beginning ₱100,000.00
Purchases ₱3,000,000.00
Merchandise Inventory, End ₱200,000.00
Sales Discount ₱10,000.00

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 Evaluation

I. Choose the letter of the correct answer.Write your answer on on separate sheet of paper.

1. Income from operations is gross profit less _____________________.

a. administrative expenses.
b. operating expenses.
c. other expenses and losses.
d. selling expenses

2. An enterprise which sells goods to customers is known as a __________________.

a. proprietorship b. corporation c. retailer d. service firm

3. Which of the following would not be considered a merchandising company?

a. retailer b. wholesaler c. service firm d. dot com firm
4. A merchandising company that sells directly to consumers is a ______________.
a. retailer b. wholesaler c. broker d. service company
5. The Sales Returns and Allowances account is classified as a(n)_______________.
a. asset b. contra asset c. expense d. contra revenue

6. Which of the following would not be classified as a contra account?

a. Sales
b. Sales Returns and Allowances
c. Accumulated Depreciation Sales Discounts
d. Sales Discount

7. The operating cycle of a merchandising business is _____________________.

a. always one year in length.
b. generally, longer than it is for a service company.
c. about the same as for a service company.
d. generally shorter than it is for a service company.

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Problem 1. During 2008, Barbie Salon Enterprises generated revenues of ₱ 60,000. The
company’s expenses were as follows, cost of goods sold of ₱ 30,000, operating expenses of
₱ 12,000 and a loss on the sale of equipment of ₱ 2,000.

8. How much is the salon’s gross profit?

a. ₱ 60,000 b. ₱30,000 c. ₱18,000 d. ₱6,000

9. How much is the salon’s income from operations?

a. ₱ 60,000 b. ₱ 30,000 c. ₱ 18,000 d. ₱ 2,000.

10. How much is the salon’s net income?

a. ₱ 60,000 b. ₱ 30,000 c. ₱ 18,000 d. ₱ 6,000

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 All Rights Reserved
2020

ACKNOWLEDGEMENT
CAROLINA S. VIOLETA EdD
Schools Division Superintendent

CECILIA E. VALDERAMA PhD

Asst. Schools Division Superintendent

DOMINADOR M. CABRERA PhD

Chief, Curriculum Implementation Division

EDWARD C. JIMENEZ PhD

Education Program Supervisor- LR Manager

JOCELYN A. MANALAYSAY PhD

Education Program Supervisor-Mathematics

CHARMAINE S. TUMANGAN
Developer/Writer

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