Module 02 (Q1-Week2-3): Statement of Comprehensive Income (SCI)

I. LEARNING COMPETENCIES
1. Identify the elements of the SCI and describe each of these items for a service
business and a merchandising business.
2. Prepare an SCI for a service business using the single-step approach.
3. Prepare an SCI for a merchandising business using the multistep approach.
4. Reflect on the importance of preparing the SCI.

II. LESSON PRESENTATION

Review
Give specific account titles for each of the terms below and give examples of service businesses
and merchandising businesses:
1. Accrual

2. Revenues

3. Expenses

4. Service Business

5. Merchandising Business

Statement of Comprehensive Income – Also known as the income statement. Contains the
results of the company’s operations for a specific period of time which is called net income if it
is a net positive result while a net loss if it is a net negative result. This can be prepared for a
month, a quarter or a year. (Haddock, Price, & Farina, 2012)
Temporary Accounts – Also known as nominal accounts are the accounts found under the SCI.
They are called such because at the end of the accounting period, balances under these
accounts are transferred to the capital account, thus having only temporary amounts and
resulting to zero beginning balances at the beginning of the following year. (Haddock, Price, &
Farina, 2012) Examples of temporary accounts include revenues, sales, utilities expense,
supplies expense, salaries expense, depreciation expense, interest expense among others.

Below is an example of a SCI of a service business:

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 LEARNING IS FUN COMPANY
STATEMENT OF COMPREHENSIVE INCOME
FOR THE YEAR ENDED DECEMBER 31, 2016

Image 2.1. Sample Statement of Comprehensive Income (Source: DepEd FABM 2 Teaching Guide)

Single-step and Multi-step Format of the SCI

Single-step – Called single-step because all revenues are listed down in one section while all
expenses are listed in another. Net income is computed using a “single-step” which is Total
Revenues minus Total Expenses. (Haddock, Price, & Farina, 2012)
Multi-step – Called multi-step because there are several steps needed in order to arrive at the
company’s net income. (Haddock, Price, & Farina, 2012)
The two formats will yield the same amount of net income/loss. The single-step SCI is
more commonly used by service companies while multi-step format is more commonly used by
merchandising companies

Difference of the Statement of Comprehensive Income of a Service Company and of a

Merchandising Company
The main difference of the Statements of the two types of business lies on how they
generate their revenue. A service company provides services in order to generate revenue and
the main cost associated with their service is the cost of labor which is presented under the
account Salaries Expense. On the other hand, a merchandising company sells goods to
customers and the main cost associated with the activity is the cost of the merchandise which is
presented under the line item Cost of Goods Sold. In presenting these items on the Statement
of Comprehensive Income, a service company will separate all revenues and expenses (as seen
in the single-step format) while a merchandising company will present total sales and cost of
goods sold on the first part of the statement which will net to the company’s gross profit before
presenting the other expenses which are classified as either administrative expenses or selling
expenses (as seen in the multi-step format).

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Parts of a Single-step Statement of Comprehensive Income

LEARNING IS FUN COMPANY

STATEMENT OF COMPREHENSIVE INCOME HEADING
FOR THE YEAR ENDED DECEMBER 31, 2016

Image 2.2. Parts of a Single-step SCI (Source: DepEd FABM 2 Teaching Guide)
Heading
i. Name of the Company
ii. Name of the Statement
iii. Date of preparation
To Note: The use of “for the” means that amounts in the SCI are temporary meaning that each period (month,
quarter, year) amounts go back to being zero to start all over.
Sample of a Single-step SCI – Refer to the one above
First part is revenues – This is the total amount of revenue that the company was able to
generate from providing services to customers.
Second part is expenses (can be broken down into General and Administrative and Selling
Expenses)
Please see the discussion in multi-step for general and administrative and selling expenses.
Revenues less Expenses. Net income for a positive result and net loss for a negative result.

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Parts of a Multi-step Statement of Comprehensive Income

Image 2.3. Parts of a Multi-step SCI (Source: DepEd FABM 2 Teaching Guide)

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i. First part is sales – This is the total amount of revenue that the company was able to
generate from selling products.
ii. Second part compose of contra revenue – called contra because it is on the opposite side of
the sales account. The sales account is on the credit side while the reductions to sales accounts
are on the debit side. This is “contrary” to the normal balance of the sales or revenue accounts.
(Haddock, Price, & Farina, 2012)
ii.i. Sales returns – This account is debited in order to record returns of customers or
allowances for such returns.(Haddock, Price, & Farina, 2012) Sales returns occur when
customers return their products for reasons such as but not limited to defects or change
of preference.
ii.ii.Sales discount – This is where discounts given to customers who pay early are
recorded. (Haddock, Price, & Farina, 2012) Also known as cash discount. This is different
from trade discounts which are given when customers buy in bulk. Sales discount is
awarded to customers who pay earlier or before the deadline.
iii. Sales less Sales returns and Sales discount is Net Sales
iv. 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. (Haddock, Price, & Farina, 2012)
iv.i. Beginning inventory – This is the amount of inventory at the beginning of the
accounting period. This is also the amount of ending inventory from the previous period.
iv.ii. Net Cost of Purchases = Purchases + Freight In
iv.ii.i.Net Purchases = Purchases – (Purchase discount and purchase returns)
iv.ii.i.i.Purchases – amount of goods bought during the current
accounting period.
iv.ii.i.ii.Contra Purchases –An account that is credited being “contrary” to
the normal balance of Purchases account.
iv.ii.i.ii.i.Purchase discount – Account used to record early
payments by the company to the suppliers of merchandise.
(Haddock, Price, & Farina, 2012) This is how buyers see a sales
discount given to them by a supplier.
iv.ii.i.ii.ii.Purchase returns – Account used to record merchandise
returned by the company to their suppliers. (Haddock, Price, &
Farina,2012) This is how buyers see a sales return recorded by their
supplier
iv.ii.ii.Freight In – This account is used to record transportation costs of
merchandise purchased by the company. (Haddock, Price, & Farina, 2012) Called
freight in because this is recorded when goods are transported into the
company.
iv.iii. Add Beginning inventory and Net cost of Purchases to get Cost of Goods
Available for Sale
iv.iv.Ending inventory – amount if inventory presented in the Statement of Financial
Position. Total cost of inventory unsold at the end of the accounting cycle.
v. Sales less Cost of Goods Sold is Gross Profit

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vi. 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. (Haddock, Price, & Farina, 2012)
vii. 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. This does not
include cost of goods sold and contra revenue accounts. (Haddock, Price, & Farina, 2012)
viii. Gross Profit less General and Administrative Expenses less Selling Expenses is Net Income
for a positive result while Net Loss for a negative result

Below is a simpler Multi-step SCI of merchandising company. Notice you will see the
total of Cost of Goods Sold right away. In some cases, for simplicity of SCI, it is suggested to
create a separate Statement of Cost of Goods Sold prior the SCI.

Image 2.4. Simpler Multi-step SCI (Source: DepEd FABM 2 Teaching Guide)

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III. SUMMARY OF LESSON
 Statement of Comprehensive Income is a financial statement that contains the results of the
company’s operations for a specific period of time which is called net income if it is a net
positive result while a net loss if it is a net negative result.
 Temporary Accounts or nominal accounts are the accounts found under the SCI. They
balances under these accounts are transferred to the capital account, thus having only
temporary amounts and resulting to zero beginning balances at the beginning of the
following year.
 Single-step SCI is where all revenues are listed down in one section while all expenses are
listed in another. Net income is computed using a “single-step” which is Total Revenues
minus Total Expenses. This is commonly used by service companies.
 Multi-step SCI is where there are several steps needed in order to arrive at the company’s
net income. This is commonly used by merchandising companies.
 The main difference of the SCIs of the service and merchandising business lies on how they
generate their revenue. A service company provides services in order to generate revenue
and the main cost associated with their service is the cost of labor which is presented under
the account Salaries Expense. On the other hand, a merchandising company sells goods to
customers and the main cost associated with the activity is the cost of the merchandise
which is presented under the line item Cost of Goods Sold.

IV. PRACTICE
A. Problem Solving
Direction: Solve the following problems. Show your solutions. Answer on a separate sheet.. (5
pts. each)
1. Learning is Fun Company generated revenues amounting to Php 100,000. Expenses for the
year totaled Php 76,000. How much is the company’s net income for the year?
2. Happy Selling’s Sales amounted to Php 500,000. Sales returns and sales discounts amounted
to Php 30,000 and Php 10,000 respectively. Purchases of the company totaled Php 100,000
while purchase returns and purchase discounts amounted to Php 20,000 and Php 10,000
respectively. How much is the company’s Net Sales? Net Purchases?
3. Gross profit of Happy Selling amounted to Php 175,000. Beginning Inventory totaled Php
250,000. Ending Inventory amounted to Php 50,000 while Net Cost of Purchases totaled Php
85,000. Compute for Happy’s Net Sales.

B. Preparation of Statement of Comprehensive Income

1. Direction: Prepare a single-step Statement of Comprehensive Income using the following
accounts below. You can use any business name and the end of the current year for the
heading. Answer on a separate sheet. (10 pts)
Revenues – 20,000
Rent expense – 3,000
Salaries expense – 4,000
Utilities expense – 2,000

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2. Direction: Prepare a multi-step Statement of Comprehensive Income using the following
accounts below. You can use any business name and the end of the current year for the
heading. Answer on a separate sheet. (10 pts)
Sales – 20,000
Cost of Goods Sold – 10,000
General and administrative expenses – 4,000
Selling expenses – 2,000

V. ENRICHMENT
Direction: Answer the following questions in 3-5 sentences. Answer on a separate sheet. (5 pts.
each; Correctness of Ideas - 3, Organization of Ideas - 2)
1. When the company has a lot of cash revenues, does it necessarily mean the company is
earning?
2. Why is single-step more often used in service companies? Why is multi-step more often used
in merchandising companies?

VI. EVALUATION
A. Problem Solving
Direction: Solve the following problems. Show your solutions. Answer on a separate sheet. (5
pts. each)
1. At the end of the first month of operations for Juan’s Service Company, the business had the
following accounts: Cash, Php19,000; Prepaid Rent, Php500; Equipment, Php5,000 and
Accounts Payable Php2,000. By the end of the month, Jackson's had earned Php20,000 of
Revenues, Php1,000 of Utilities Expenses and Php1,500 of Salaries Expenses. Calculate the net
income to be reported by the company for this first month.
2. During October, a sari-sari store had the following transactions involving revenue and
expenses. Did the firm earn a net income or incur a net loss for the period? What was the
amount?
Paid Php1,200 for rent
Provided services for Php2,750 in cash
Paid Php250 for telephone service
Provided services for Php1,900 on credit
Paid salaries of Php1,675 to employees
Paid Php350 for office cleaning service
3. Compute for the Cost of Goods Sold using the following:
Sales – 15,000
Purchases – 2,000
Purchase returns – 200
Purchase discounts – 200
Freight in – 100
Beginning inventory – 1,000
Ending inventory – 500

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B. General and Administrative Expenses or Selling Expenses
Direction: Nena had the following expense accounts for the year ended December 31, 2016.
Identify if the account is part of the general and administrative expenses or selling expenses.
Answer on a separate sheet. (1 pt. each)
A. Salaries of admin personnel
B. Salaries of janitors
C. Salaries of sales agents
D. Utilities of home office
E. Rent of office building
F. Depreciation of office equipment
G. Depreciation of delivery van
H. Advertising
I. Cost of merchandise sold during the year

C. Preparation of Statement of Financial Position

Direction: Prepare a multi-step Statement of Comprehensive Income using the following
accounts below. You can use any business name and the end of the current year for the
heading. Answer on a separate sheet.. (10 pts)
Sales - 700,000
Sales Returns - 40,000
Sales discounts - 15,000
Beginning Inventory - 150,000
Ending Inventory - 100,000
Purchases - 200,000
Purchase Returns - 30,000
Purchase Discounts - 10,000
Freight In - 20,000
Freight Out - 10,000
Salaries Expense (Admin Dept.) - 50,000
Rent Expense - 10,000
Depreciation Expense (Office Equip.) - 15,000
Utilities Expense (Water, Elec., Internet) - 20,000
Miscellaneous Expense - 5,000
Salaries Expense (Sales Dept.) - 20,000
Advertising Expense - 20,000

VII. RESOURCES
DepEd FABM 2 Teaching Guide