FUNDAMENTALS OF

ACCOUNTANCY,
BUSINESS, AND
MANAGEMENT
Val Lawrence V. Flores, CPA

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LEARNING OBJECTIVES

• To understand the purpose of the Statement of Comprehensive

Income
• To identify the elements of the SCI
• To describe the nature of the accounts reported on the SCI
• To prepare a single-step SCI for a service company
• To prepare a multi-step SCI for a merchandising company
• To determine the normal balances of the elements of the SCI

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STATEMENT OF
COMPREHENSIVE
INCOME

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Results of the Company’s Operations

What is the STATEMENT OF

COMPREHENSIVE INCOME or SCI?

• It is a statement that reports the results of operations of the business for one
reporting period.

• It contains the following information:

 Revenue generated by operating the business
 Costs spent to generate the revenue
 Income, which is the excess of revenue over costs
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Results of the Company’s Operations

The SCI is described as a “for the period” report. This

means that the amounts presented on the report include
only those that occurred within the given period.

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Statement of Comprehensive Income
Components of the Statement of Comprehensive Income

INCOME and EXPENSE 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 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.
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Components of the Statement of Comprehensive Income

What are the TWO KINDS OF EXPENSES?

• Expenses are related to the primary operations of the

business.
• Losses are from other activities of the business.

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Accrual Concept of Accounting

What is ACCRUAL?

• Accrual, which is one of the fundamental concepts of financial

accounting, is the concept that dictates when an item must be reported on
the SCI.

• It states that revenue must be reported on the accounting period that it

was earned. Similarly, expenses must be reported during the same
reporting period they were incurred. 8
Accrual Concept of Accounting

When are revenues earned and expenses

incurred?

Revenue is recognized on the period of delivery. Expense, on the other hand, is

recorded in the same period of the revenue it was able to generate. The allocation
may be a direct one to one correspondence or an indirect estimate based on
rational allocation. However, should there be no rational way to allocate, the costs
are expensed on the period they were incurred.

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Elements of the Statement of Comprehensive Income

Revenue

Misalignment of School Year and Calendar Year

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Elements of the Statement of Comprehensive Income

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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. Recall that we already counted the goods
delivered as Sales on the date of delivery. 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.

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 Elements of the Statement of Comprehensive Income

Expenses

Cost of Goods Sold (Cost of Sales)

For trading operations, Cost of Sales
collects the cost of the merchandise
sold including the purchase price of
inventory, brokerage, and shipment cost
to bring the goods to the premises of the
company. This shipment cost is called
freight-in.
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 Elements of the Statement of Comprehensive Income

Cost of Goods Sold (Cost of Sales)

Cost of sales is part of inventory accounting. Accountants have
two ways of keeping records of inventory – perpetual inventory
system and periodic inventory system.
Perpetual means that the Periodic means the
Inventory and Cost of Goods Sold Inventory account is only
accounts are “perpetually” “periodically” updated,
updated. The inventory account is meaning the inventory
increased when goods for sale are account is updated only
acquired and decreased when at end of the year or end
goods are sold. The Cost of of the month.
Goods Sold account is updated
every time a sale is made.
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 Elements of the Statement of Comprehensive Income

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:

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Elements of the Statement of Comprehensive Income

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Elements of the Statement of Comprehensive Income

Operating Expenses
Operating expenses refer to all other
expenses related to the operation of the
business, other than cost of sales including
salaries of employees, supplies, utilities
(electricity, telephone and water bills),
gasoline expense, representation, bad debts
expense, depreciation and amortization.
Bad debts expense, which is an estimated expense, is
an operating expense related to accounts receivable.
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Elements of the Statement of Comprehensive Income

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 Elements of the Statement of Comprehensive Income

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
borrowings and gain or loss from sale of PPE
(proceeds from sale less net book value of PPE
on date of sale).

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 Formats in Presenting the Statement of Comprehensive Income

Single-Step Statement of Comprehensive Income

• It groups all revenue items together and all expense items together.
• It is called as such because net income is computed through only one step, deducting total
expenses from total revenues, while subtotals are not computed and presented on the SCI.
• It is generally used by small businesses and service businesses because of its simplicity.
• It is also closely linked to the nature of expense format by listing down the expenses based on
the source of expenses such as salaries, purchases, supplies, utilities, fuel and depreciation.

Single-Step Statement of Comprehensive Income 20

 Formats in Presenting the Statement of Comprehensive Income

Single-Step Statement of Comprehensive Income

• It groups all revenue items together and all expense items together.
• It is called as such because net income is computed through only one step, deducting total
expenses from total revenues, while subtotals are not computed and presented on the SCI.
• It is generally used by small businesses and service businesses because of its simplicity.
• It is also closely linked to the nature of expense format by listing down the expenses based on
the source of expenses such as salaries, purchases, supplies, utilities, fuel and depreciation.

Single-Step Statement of Comprehensive Income 21

 Formats in Presenting the Statement of Comprehensive Income

Multi-Step Statement of Comprehensive Income

• It is characterized by the presentation of several subtotals until net income is determined.

• It is more popularly used in business.
• The subtotals are additional information that give the readers more understanding of the
operations of the business.
 The first subtotal is gross profit which is computed as Net Sales less Cost of Goods Sold
(Net Sales – Cost of Goods Sold).
 The next subtotal, Income from Operations, is computed by deducting Operating
Expenses from Gross Profit (Gross Profit-Operating Expenses).
 Net Income is next determined by adding Other Income (i.e. interest income) and
deducting Other Expenses (i.e. interest expenses) from Income from Operations.

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 Formats in Presenting the Statement of Comprehensive Income

Multi-Step Statement of Comprehensive Income

• It is also associated with as the function of expense format, which classifies operating expenses
into three categories based on usage. The categories are: Cost of Sales, General and
Administrative Expenses and Selling Expenses.

 General and Administrative Expenses refer to those incurred in the daily operations and
management of the business.
 Selling Expenses are costs related to marketing, selling and distributing the company’s
merchandise.

Multi-Step Statement of Comprehensive Income

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Normal Balances

 An account is increased by an entry on the side of its normal balance.

Similarly, it is decreased by an entry on the opposite side of its normal
balance. The normal balance of equity accounts is credit.
 Income increases equity and expenses decreases equity. Combined
together, income increases equity and equity is increased by credit.
Therefore, the normal balance of all income accounts is credit.
 The same analysis is true for expenses. Expenses decrease equity and
equity is decreased by debit. Therefore, the normal balance of all expense
accounts is debit.

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Normal Balances

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Normal Balances

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THANK YOU!

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