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Fabm 2 - Lesson 2 - SCI

Here are the solutions to the practice problems: 1. Revenues = Php 100,000 Expenses = Php 76,000 Net Income = Revenues - Expenses = Php 100,000 - Php 76,000 = Php 24,000 2. Beginning Inventory = Php 250,000 Net Purchases = Php 70,000 Freight In = Php 15,000 Cost of Goods Available for Sale = Beginning Inventory + Net Purchases + Freight In = Php 250,000 + Php 70,000 + Php 15,000 = Php 335,000 3. Gross Profit = Php 175,000

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2K views

Fabm 2 - Lesson 2 - SCI

Here are the solutions to the practice problems: 1. Revenues = Php 100,000 Expenses = Php 76,000 Net Income = Revenues - Expenses = Php 100,000 - Php 76,000 = Php 24,000 2. Beginning Inventory = Php 250,000 Net Purchases = Php 70,000 Freight In = Php 15,000 Cost of Goods Available for Sale = Beginning Inventory + Net Purchases + Freight In = Php 250,000 + Php 70,000 + Php 15,000 = Php 335,000 3. Gross Profit = Php 175,000

Uploaded by

wendell john mediana
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© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
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FUNDAMENTALS OF ACCOUNTANCY,

BUSINESS, AND MANAGEMENT 2


LESSON 2:

STATEMENT OF
COMPREHENSIVE INCOME
Learning Objectives:

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 multi-step approach
DO YOU STILL REMEMBER THE FOLLOWING TERMS?

1. Accrual
➢ Accrued Income- revenue earned but not yet collected

➢ Accrued Expenses- are expenses that are incurred but not


yet paid (salaries payable, taxes payable)
2. Revenues
➢ Service Income – generally used to describe revenue derived from
rendering of services.

➢ Sales Revenue - generally used to describe revenue derived from selling of


goods
3. Expenses
➢ Expense is the decrease in resources resulting from the operations of
Ex. Salaries expense, Rent Expense, Depreciation Expense
business.

4. Service business
➢ provides a needed service for a fee. service businesses actually have no physical product sold to
clients. Their services are designed to facilitate the work of clients and in return are paid.

Ex. School, salons or barbershops, laundry services, car repair, medical centers
and services of professionals like lawyers and doctors.
5.Merchandising business

➢ Enterprise that buys and sells goods to earn a profit.

Ex. Sari-Sari store, Vegetable vendor, Hardware Supply


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.
TWO FORMATS OF 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)

➢ single-step SCI is more commonly used by service


companies
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)

➢ multi-step format is more commonly used by


merchandising companies
Difference between Service Company and Merchandising
Company in making Statement of Comprehensive Income

The main difference of the Statements of the two types of business lies on how they generate
their revenue. A service company provide 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).
Type of Accounts in making Statement of
Comprehensive Income
Sales- this is the total amount of revenue that the company
was able to generate from selling products

Contra revenue- it is on the opposite side of the sales


account
Sales returns – this account is debited in order to record returns of
customers or allowances for such returns
Sales discount -this is where discounts given to customers who pay
early are recorded. This is where discounts given to customers
who pay early are recorded.
Cost of Goods Sold- This account represents the actual cost of
merchandise that the company was able to sell during the year

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.

Net Cost of Purchases = Purchases + Freight In

Net Purchases = Purchases – (Purchase discount and purchase returns)

Purchases – amount of goods bought during the current accounting period.


Contra Purchases –An account that is credited being “contrary” to the normal balance of
Purchases account.

Purchase discount – Account used to record early payments by the company


to the suppliers of merchandise. This is how buyers see a sales discount given to them by a
supplier.

Purchase returns – Account used to record merchandise returned by the


company to their suppliers. This is how buyers see a sales return recorded by their supplier
Freight In – This account is used to record transportation costs of merchandise
purchased by the company. It is called freight in because this is recorded when
goods are transported into the company.

Cost of Goods Available for Sale= Beginning inventory + Net cost of Purchases

Ending inventory – amount if inventory presented in the Statement of Financial


Position. Total cost of inventory unsold at the end of the accounting cycle.
Sales - Cost of Goods Sold is = Gross Profit

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

Selling Expenses – these expenses 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

Gross Profit less General and Administrative Expenses less Selling


Expenses is Net Income for a positive result while Net Loss for a
negative result.
Single- Step Format
Multi- Step Format
PRACTICE:
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 beginning inventory amounted to 250,000. Net


purchases amounted to 70,000. Freight In totaled 15,000.
Compute for the company’s cost of goods available for sale.

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 Selling’s Net Sales.

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