REVIEW

Sample Part 1: Heading

* Name of Company

(Single-Step)
* Name of Financial Statement
* Date of Preparation

Part 2: Total Income

Part 3: Total Expenses

Part 4: Total Income–

Total Expense = NET
INCOME/NET LOSS
 Sample
(Single-Step)
 Sample Part 1: Heading
* Name of Company

(Single-Step)
* Name of Financial Statement
* Date of Preparation

Part 2: Total Income

Part 3: Total Expenses

Part 4: Total Income–

Total Expense = NET
INCOME/NET LOSS
 LESSON 1:
THE INCOME
STATEMENT
 LEARNING OBJECTIVES

• Identify the different components of a multi-step income

statement
• Prepare a multi-step income statement
 FINANCIAL
STATEMENTS

Financial statements are a structured representation of the

financial position and financial performance of an entity.
They are intended to be understandable by readers who have
"a reasonable knowledge of business and economic activities
and accounting and who are willing to study the information
diligently.
 MULTI-STEP INCOME STATEMENT

• Function of EXPENSE method/ COST OF SALES

method/Functional Form
• Merchandising Business
• a. Gross Profit = Net Sales - Cost of Goods Sold
b. Operating Income = Gross Profit - Operating Expenses
c. Net Income = Operating Income + Non-operating Items
 ACCOUNT TITLES
(MERCHANDISING BUSINESS)

Net sales (sales or revenue) - this is the value of a company's sales of goods and services to
its customers.
Gross Sales/Sales – (Sales Returns/Allowances + Sales Discount)

* Gross Sales/Sales - grand total of sale transactions within a certain time period for a
company
* Sales Returns/Allowances - merchandise returns from customers
* Sales Discounts – reduction of in the price of a product given to customers due to early
payment or good business relationship of customers to business owners; usually given by a
retail store
*BOTH ARE CONTRA-REVENUE ACCOUNTS
 ACCOUNT TITLES
(MERCHANDISING BUSINESS)

Cost of sales (cost of goods/products sold (COGS), and cost of services) - for a
manufacturer, the cost of sales is the expense incurred for labor, raw materials, and
manufacturing. MA JOR EXPENSE OF MERCHANDISING BUSINESS.
recorded cost of inventory in a company’s
accounting records at the start of an
accounting period; the ending inventory of the
last accounting period
cost of products or items that the business
bought during the accounting period

cost of products or items that can be sold in the

current accounting period
the value of goods still available for sale and
held by a company at the end of an accounting period
 ACCOUNT TITLES
(MERCHANDISING BUSINESS)

Cost of Goods Purchased - cost

of products or items that the business
bought during the accounting period
products/goods bought with intention
to resell by making a profit

merchandise returned to suppliers

reduction of in the price of a product by the

supplier

gross purchases of merchandise for resale

transportation costs of merchandise minus purchase returns, purchase
purchased by the company. Called freight in allowances, and purchase discounts
because this is recorded when goods are
transported INTO the company..
 ACCOUNT TITLES
(MERCHANDISING BUSINESS)

Gross profit (gross income or gross margin) - company's gross profit is not just the
difference between net sales and the cost of sales. Gross profit also provides the resources to
cover all of the company's other expenses

Other Income - sources other than the company's main line of businesses. Examples are
interest income, dividends income, commissions income, rent income, gain on sale of assets.

Operating Expenses - expense a business incurs through its normal business operations.
Distribution Expenses/Selling Expenses - those incurred directly selling (STORE) the
merchandise.

General/Administrative Expenses - expenses necessary in the management of the office.

Other Expenses - expenses are not connected to the operating activities.

DISTRIBUTION/SELLING EXPENSES VS.
GENERAL/ADMINISTRATIVE EXPENSES

DISTRIBUTION/
SELLING
EXPENSES

GENERAL/
ADMINISTRATIVE
EXPENSES
DISTRIBUTION/SELLING EXPENSES VS.
GENERAL/ADMINISTRATIVE EXPENSES
MULTI-STEP INCOME STATEMENT

1. Gross Profit = Net Sales - Cost of Goods Sold

2. Operating Income = Gross Profit - Operating Expenses
3. Net Income = Operating Income + Non-operating Items
GROSS PROFIT

1. Gross Profit = Net Sales - Cost of Goods Sold

1.1 Net Sales =
Gross Sales/Sales – (Sales Returns/Allowances + Sales Discount)

Note: Sales Returns/Allowances and Sales Discounts

are CONTRA-REVENUE ACCOUNT.
GROSS PROFIT

2. Gross Profit = Net Sales - Cost of Goods Sold

2. 2 Cost of Goods Sold =

2.2.a Cost of Goods Purchased/Net Purchases

GROSS PROFIT

2. Gross Profit = Net Sales - Cost of Goods Sold

2. 2 Cost of Goods Sold =
GROSS PROFIT

1. Gross Profit = Net Sales - Cost of Goods Sold

OPERATING INCOME

2. Operating Income =
Gross Profit - Operating Expenses
NET INCOME

3. Net Income = Operating Income + Non-operating Items

MULTI-STEP INCOME STATEMENT
MULTI-STEP INCOME STATEMENT
 MULTI-STEP INCOME STATEMENT

a. Gross Profit =
Net Sales - Cost of Goods Sold
b. Total Income =
Gross Profit + Non-Operating Income
c. Net Income =
Total Income – Total Expenses (Op/Non-OpExpenses)

Net Income
MULTI-STEP INCOME STATEMENT
 DRILL 1

for the month ended May 31, 2017

For the month ended May 31, 2017

DRILL 1

For the month ended May 31, 2017

DRILL 1
MULTI-STEP INCOME STATEMENT

ACTIVITY 1.3
1. Prepare the MULTI-STEP income statement of FIPELY OFFICE
SUPPLIES (Exercise 7 - without notes) and TEENA’S BUDDY
DEPOT (Exercise 8 – with notes) on page 20-21. (Similar format to
Activity 1.2). Save your work either as PDF or JPEG.
2. Take a picture using CamScanner.
3. Rename your file: SURNAME-GR.&SEC.-ACTIVITY1.2
Example: (ESCODERO-12BACON-ACTIVITY.1.3)
4. Upload in this google drive

SUBMISSION: