Lesson 2: Statement of Comprehensive

Income
At the end of the lesson, the students will be able to:
1. understand the purpose of the Statement of Comprehensive Income;
2. identify the elements of the SCI and describe each of these items for a service business and a merchandising
business;
3. describe the nature of accounts reported on the Statement of Comprehensive Income;
4. prepare an SCI for a service business using the single-step approach; and
5. prepare an SCI for a merchandising business using the multistep approach.

A statement of comprehensive income (new title for income statement) is a structured

financial statement that shows the financial performance of a business entity for a given
period. A period covered by an income statement may be monthly, quarterly,
semi-annually or annually. This statement contains the following information:
1. Revenue generated by operating the business;
2. Costs spent to generate the revenue; and
3. Income, which is the excess of revenue over costs.

STATEMENT OF COMPREHENSIVE INCOME – Also known as the income statement. It

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)

Differences Between Statement of Financial Position and Statement of

Comprehensive Income
Statement of Financial Statement of
Position Comprehensive Income
As to accounting elements Assets, liabilities and equity Income and expenses
presented
As to the nature of the Presents the financial Presents the result of
statement position operation
As to the financial data Liquidity, solvency, financial Profitability of the business
needed for decision structure and capacity for entity
making adaptation
As to the date of the As of a given date (one day) For a given period
financial statement
As to the nature of the Real accounts Nominal accounts
account in the statement

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.

Income refers to increases in economic benefits during the accounting period in

the form of inflows or enhancement of assets or decreases of liabilities that result in
increases in equity other than those relating to contributions from equity participants.

Expenses are decreases in economic benefits during the accounting period in the
form of outflows or depletion of assets or incurrences of liabilities that result in decrease
in equity other than those relating to distribution of equity participants.
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Accrual Concept of Accounting

Accrual is one of the fundamental concepts of financial accounting. Specifically, this

is the concept that dictates when an item must be reported on the SCI. Accrual 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.
Generally, revenue is earned upon delivery of goods and services, not when
payment is received from the customer. More specifically, sale of goods are reported on
the SCI on the period of delivery. On the other hand, revenues from services are counted
on the period when services are rendered. Neither order from a customer nor signed
contract of service count as sales. More importantly, cash collections are not revenue.
By following the concept of accrual, expense is recognized when an item is used to
generate revenue. Expenses are recognized in the income statement based on matching
costs with revenues, systematic and rational allocation, and immediate recognition.
Matching Principle - Expenses are matched and recognized in the same period
that the revenue it generated was recognized.
Rational Allocation – Requires the cost of long-term expenditure to be rationally
allocated over the period of usage on the expected pattern of usage. An example of
expenses estimated using rational allocation is the depreciation of equipment.
Immediate Recognition - In cases when accountants cannot determine how long
the expenditure will benefit the business or if there is any benefit at all, then conservatism
dictates that the cost of the expenditure should be charged to expense immediately. Why?
Because we cannot rationally estimate the “life” of the benefit. Hence, the cost is charged
to expense immediately, generally in the year it was spent. This method is used for costs
of advertising.
To summarize, 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 maybe direct one to one correspondence or indirect estimate based on rational
allocation. However, should there be no rational way to allocate, the costs is expensed
immediately.

Elements of the Statement of Comprehensive Income

I. Revenue
a. Service Income. The Service Income account is generally used to describe
revenue derived from rendering of services. A more specific account name
may be used to identify the services rendered such as Rental Income,
Professional Fee and Tuition Fee Revenue.

Example 1. Tuition fee revenue

Little Lab pre-school collected tuition fee of ₱1,250,000 and
₱1,455,000 for the school year 2011-2012 and 2012-2013,
respectively. The school closed in April and May. Determine the
tuition fee revenue to be reported on SCI for the calendar year
2012.

Answer:
School Year 2011-2012 ₱1,250,000
Number of months from January – March 2012 3
Number of months in one school year 10
Tuition fee revenue for calendar year 2012 ₱375,000

School Year 2012-2013 ₱1,455,000

Number of months from June-December 2012 7
Number of months in one school year 10
Tuition fee revenue for calendar year 2012 ₱1,018,500

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Total Tuition fee revenue for the year 2012 ₱1,393,500

b. 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 foods 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. 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. Also, accounting
practice does not deduct discount from sales revenue. Rather, use another
contra sales account called Sales Discount.

Only Net Sales is reported on the face of SCI. Net Sales refer to Gross Sales
less Sales Return and Allowances and Sales Discount.

Example 2. Friendly Convenience Store: Sales Revenue

Juana Dela Cruz, owner of friendly Convenience Store, sold 3

boxes of ballpoint pens to Mrs. Susan Gonzales on account at a
price of P150 per box or P15 per pen. Juana gave Mrs. Gonzales
two weeks to pay the account. Moreover, Juana told Mrs. Gonzales
that she will deduct 2% discount if she pays within a week.

Mrs. Gonzales return one week later. She returned five pens and
took advantage of the discount.

Determine the amount of Sales, Sales Return, Sales Discount and

Net Sales from the transaction with Mrs. Gonzales.

Answer:

Sales 150 x 3 ₱ 450.00

Sales Return 15 x 5 (75.00)
Amount to be paid by Mrs. Gonzales before discount 375.00
Sales discount (375 x 2%) 2% (7.50)
Amount paid by Mrs. Gonzales ₱367.50

Alternatively:

Sales ₱ 450.00
Less: Sales returns and allowances (75.00)
Less: Sales discount (7.50)
Net sales ₱367.50

II. Expenses
a. Cost of Goods Sold (Cost of Sales). This is an account used by companies
that sells goods instead of services. For trading operations, Cost of Sales
collects the cost of merchandise sold. This includes the purchase price
inventory, brokerage, and shipment cost to bring the goods to the premises
of the company. This shipment cost is called Freight-In.

Cost of sales is part of inventory accounting. Accountants have two ways of

keeping records of inventory – perpetual and periodic inventory system.
Perpetual means that the Inventory and Cost of Goods Sold accounts are
“perpetually” updated. The inventory account is increased when goods for

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sale are acquired and decreased when goods are sold. The Cost of Goods
Sold account is updated every time a sale is made.

The other method is called periodic inventory system. The Inventory account
is only periodically updated. “periodically” means that the inventory account
is updated only at end of the year or end of the month. Cost of merchandise
acquired is collected using the Purchases account. Returns of defective goods
are reported under Purchase Returns and Allowances. Discounts taken are
reported under Purchase Discounts. “Net Purchases” is equivalent to
Purchases plus Freight-In less Purchase Returns and Purchase Discount.

Cost of Sales under periodic inventory system is computed as follows:

Beginning Inventory
Add: Net Purchases (Purchases + Freight In- Purchase Returns –
Purchase Discount)
Cost of Goods Available for Sale
Less: ending Inventory
Cost of Goods Sold

Example 3. Friendly Convenience Store: Cost of Goods Sold

Juana Dela Cruz, owner of friendly convenience store, asked for your
help to determine the cost of sales of her store. This is the first year
of operations for Juana’s store. She provided the following data to
you.

Purchases (Based on supplier’s receipts) P55,344

Freight-In (based on receipts of taxi fares she 430
incurred when she shops for merchandise at Divisoria
Purchase returns 760

Based on the inventory count taken at the last day of the year, the ending
inventory is valued at P2,320. How much is cost of sales?

Answer:

Beginning inventory ₱0
Purchases ₱ 55,344
Add: Freight-in 430
Less: Purchase Returns (760)
Net purchases 55,014
Cost of Goods Available for Sale 55,014
Less: Ending inventory (2,320)
Cost of goods sold ₱52,694

b. Operating Expenses. Operating expenses refer to all other expenses

related to the operation of the business, other than cost of sales. These
include salaries of employees, supplies, utilities, gasoline expense,
representation, bad debts expense, depreciation and amortization.

Bad debt expense is an operating expense related to accounts receivable. It

is an estimated expense. Accounts Receivable is the right to collect payment
from customers. However, some accounts become uncollectible. The
accounting rule is (1) to periodically analyze the collectability of Accounts
Receivable and; (2) to immediately charge to expense the amount deemed
uncollectible. We will refer to this account as bad debts expense. We can
estimate bad debts expense using percentage of sales. This method requires
the determination of the historical relationship between bad debts and sales
(or credit sales).

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Example 4. Friendly Convenience Store: Bad Debts Expense

Current year sales of the store amounted to p128,865. Of this, only
p70,000 is cash sales. Based on the company’s experience, bad debts
is 3% of total sales of 6.5% of credit sales. Determine the bad debts
expense if the owner decided to use the following:
1. percentage of total sales method
2. percentage of credit sales method

Answer
3% of total sales 6.5% of credit sales
Total sales ₱128,865
Total credit sales ₱ 58,865
Historical experience 3% 6.5%
Bad debts expense ₱3,866 ₱3,826

III. 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 investment of excess cash, interest expense from borrowing and gain
or loss from sales of equipment (proceeds from sales less net book value of PPE on
date of sale).

Presentation of Statement of Comprehensive Income

Philippine Accounting Standard (PAS) 1 mentions two methods of presenting the

statement of comprehensive income:
1. Nature of expense method – expenses are aggregated according to their nature.
2. Function of expense / cost of sales method – expenses are classified according
to their function as part of cost of sales, distribution or administrative activities.
This method can provide more relevant information to users.

There are two format for SCI, namely, the single-step and the multi-step. The
single-step is closely related to the nature of expense format. On the other hand, the
multi-step approach is associated with the function of expense.

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)

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
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are classified as either administrative expenses or selling expenses (as seen in the
multi-step format).

Parts of the Statement of Comprehensive Income

Single-Step SCI

Multi-Step SCI

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EXERCISES
1. 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?
a. Paid Php1,200 for rent
b. Provided services for Php2,750 in cash
c. Paid Php250 for telephone service
d. Provided services for Php1,900 on credit
e. Paid salaries of Php1,675 to employees
f. Paid Php350 for office cleaning service

2. Compute for the Cost of Goods Sold using the following:

a. Sales – 15,000
b. Purchases – 2,000
c. Purchase returns – 200
d. Purchase discounts – 200
e. Freight in – 100
f. Beginning inventory – 1,000
g. Ending inventory – 500

3. Prepare a single-step Statement of Comprehensive Income using the following:

a. Revenues – 20,000
b. Rent expense – 3,000
c. Salaries expense – 4,000
d. Utilities expense – 2,000

4. Nena had the following expense accounts for the year ended December 31, 2016:
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

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Identify if the account is part of the general and administrative expenses or selling expenses

5. The Happy Toddles is a preparatory school for children three to five years old. Students are
enrolled for a school-year. Parents can pay the full tuition fee of P70,000 at the start of the
school year (June). There is also an option to pay two installments of P37000 each at the start
of the every semester (June 1 and November 1). Of the 150 students enrolled, 80 are paid in
full at the start of the year. The remaining students are on installment basis. One school year
runs from June 1 to March 31.

Determine the tuition fee revenue for the period December 31. This is the first year of
Happy Toddlers operations.

6. There are 10 teachers employed by The Happy Toddlers, 5 senior teachers with a salary of
P30,000 a month and 5 junior teachers at P18,000 a month. There are also 5 administrators
with average monthly salary of P35,000. Annual depreciation for furniture and fixtures
amounted to P100,000. Utilities expense for the year totals to P200,000.

Prepare a single-step SCI (CY December 31) for Happy Toddlers. Use the revenue
information in the previous problem.

7. The adjusted trial balance of Lopez Company shows the following data pertaining to sales at
the end of its fiscal year October 31, 1999: Sales $800,000, Freight-out $12,000, Sales
Returns and Allowances $24,000 and Sales Discounts $15,000. Prepare the sales revenues
section of the SCI.

8. Angel Company provided the following information for the year 2018:

What is the goods available for sale?

9. An analysis of the records of Princess Merchandising revealed the following information during
the current year:

a. Find the total purchases made during the year.

b. Find the cost of sales during the year.

10. On February 1, 2014, Mira Delamar opened a store that sells school supplies. Mira wanted to
know the results of operating the store. Mira knew you were studying accounting so she asked
for your help. The following were taken from the accounting records of Mira’s Store:

Additional information:
a. Physical inventory conducted at the end of the year revealed an ending inventory of
P15,345.
b. Depreciation is for shelves and cabinets used as display racks and storage in the store.

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c. Mira has a small office inside the store. Allocate 15% of rent and utilities to general and
administrative expense.
d. 25% of Emily’s salaries are allocated to General and Administrative expense. Aside from
tending the store, she was also tasked to file receipts and maintain some records.
Requirements:
1. Prepare the year ended SCI using the single step approach.
2. Prepare the year ended SCI using the multi-step approach.

11. Hyzel Company provided the following information for the year 2018:

Prepare the statement of comprehensive income for the year using

a. Nature of expense method
b. Function of expense method

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Performance Name Grade Level 12 Score

Task
No. 2 Section Learning Area Fundamentals of ABM 2
1st Semester
2020-2021
Date Topic Statement of
Comprehensive Income

Problem 1. The following are taken from the records of ABC Company for the year and ended
December 31, 2012.

Based on actual physical count, inventory balance are as follows:

January 1, 2012 P25,455
December 31, 2012 P20,765
Bad debts expense is 4% of net sales. Classify the bad debt expense as a general and
administrative expense.

a. Determine the following:

1. Net sales
2. Net purchases
3. Cost of goods sold
4. Bad debts expense
b. Prepare a nature of expense SCI
c. Prepare a function of expense SCI. Additional information:
1. Depreciation of P5,000 is for computer equipment used in the administrative office
2. Amortization is attributed to office leasehold improvements.
3. 40% of salaries are attributed to sales personnel.
4. Utilities for the store represent 35% of utilities expense.
5. Rent for the office space is P20,000.

Problem 2. The records of Izzy Trading showed the following data for the year 2018:

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Prepare the statement of comprehensive income for the year using

a. Nature of expense method
b. Function of expense method

Problem 3. The adjusted trial balance of Rowbuck Department Store contained the following
accounts at December 31, the end of the company’s fiscal year.

Analysis reveals the following additional data:

1. Salaries expense is 70% selling and 30% administrative.
2. Insurance expense is 50% selling and 50% administrative.
3. Rent expense, utilities expense and property tax expense are administrative expenses.
4. Notes payable are due in 2002.

Prepare a multiple-step statement of comprehensive income.

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