 STATEMENT OF COMPREHENSIVE
INCOME (SCI) method, it presents expenses according to
KEY FEATURES OF INCOME STATEMENT
 The Title
- The Statement of Comprehensive Income is a
financial report. As a financial report, it must be
properly identified and dated.
EXAMPLE:
UY LAW OFFICE
Statement of Comprehensive Income
For the Year Ended December 31, 2021
• Revenues
Revenues arises in the course of the ordinary
activities of an entity and is referred to by a
variety of different names including sales, fees,
interests, dividends royalties, and rent.
• Expenses
Arising in the course of the ordinary activities of
the entity include, cost of sales, wage, and
depreciation. They usually take the form of an
outflow or depletion of assets such as cash
and cash equivalents, inventory, property, plant
and equipment.
• Gains and Losses
It represents other items that meet the
definition of income and may or may not, arise
in the course of the ordinary activities of an
entity.
• Other Items
Other items included in the computation of the
total comprehensive are income taxes and
items of other comprehensive income.
FORMS OF INCOME STATEMENT
 Natural Form
It is otherwise called the nature of expense
method, it presents expenses according to
nature. This type of income statement is used
in a service business. It is also called the
single-step income statement since a single
step of deducting expenses from revenue is
performed to arrive at the net income or net
loss.
● Functional Form
It is otherwise known as the cost of sales
function. This type is used in a merchandising
business. It is also called the multi-step income
statement since a series of step is performed
to arrive at the net income or net loss.
COMPARISONS OF THE NATURAL FORM
AND FUNCTIONAL FORM
 Natural Form
- A single step income statement is a
financial statement format that lists all
expenses including cost of good sold in one
column. In other words, the single step
income statement presentation doesn't break
expenses out into categories like cost of
goods sold, operating, non-operating, and
other.
• Service Income
• Salaries Expense
• Utilities Expense
• Supplies Expense
• Insurance Expense
• Depreciation Expense
• Uncollectible Accounts
• Interest Expense
FORMS OF INCOME STATEMENT
Notice that in the natural form income
statement, a single-step of deducting total
expenses from total revenues was done to get
the net income/loss from operations. However,
in the functional form income statement, a
series of step was done showing several
activities of the business before finally arriving
at the net income/loss from operations
 STATEMENT OF CHANGES IN
EQUITY
BUSINESS ENTITY CONCEPT
The transactions must be distinguished and
differentiated from the transaction of the owners.
Business transactions → financial statements
Personal transactions → records of the owners
TYPES OF BUSINESS
1. SOLE PROPRIETORSHIP
 Single Proprietorship
 Relatively easy to manage
 Limited resources; unlimited liabilities
2. PARTNERSHIP
 Two or more persons contribute money
 Relatively easy to manage
 Larger source of capital and resources
 Unlimited liabilities
3. CORPORATION
 Independent owners
 Stock is the corporation’s unit of ownership
 Longer existence of 50 years
 Unlimited resources
 Stringent requirements for registration
 Double taxation
PREPARATION OF FINANCIAL
STATEMENTS
FINANCIAL STATEMENTS
 considered as the final output of the whole
accounting process
 financial position, financial performance,
and cash flows.
 Statement of financial position
 Statement of comprehensive income
 Statement of changes in equity
 Statement of cash flows
 Notes to the financial statements
 In the Philippines, the preparation of
financial statements is based on the
guidelines and directives issued by the
Financial Reporting Standard Council
(FRSC)
 The guidelines issued by the FRSC is
called Philippine Financial Reporting
Standards (PFRSs)
USERS OF FINANCIAL STATEMENT
EXTERNAL
 SEC
 BSP
 BIR
 Creditors, suppliers, customers,
prospect investors
INTERNAL
 Employees
 Management
STATEMENT OF FINANCIAL POSITION
ACCOUNTING EQUATION
Assets = Liabilities + Equity
ASSETS
CLASSIFICATION OF ASSETS
- The Conceptual Framework for Financial
Reporting (IASB 2010) defines an assets as a
resource controlled by the entity as result of
past events and from which future economic
benefits are expected to flow to the entity.
- refers to everything that a business owns
(IASB - International Accounting Standard
Board)
 CURRENT ASSETS
- Classified and presented according to liquidity
with the most liquid followed by those with
lesser liquidity.
- consumable within the year/12months
A Retail Entity’s Normal Operating Cycle
Buy inventories Sell inventories
Collect cash
1. CASH
- includes coins, currencies, checks, bank
deposits, and other cash items readily
available for use in the operations of the
business.
2. CASH EQUIVALENTS
- short-term investments that are readily
convertible to known amounts of cash which
are subject to an insignificant risk to changes in
value.
3. MARKETABLE SHARES
- stocks and bonds purchased by the
enterprise and are to be held for only a short
span of time or short duration. They are usually
purchased when a business has excess cash.
4. TRADES AND OTHER RECEIVABLES
a) ACCOUNTS RECEIVABLE
- amount collectible from the customer on
account or on credit.
b) NOTES RECEIVABLE
- promissory note issued by the client or the
customer
c) INTEREST RECEIVABLE
- interest collectible on promissory notes
d) ADVANCES TO EMPLOYEES
- money loaned to employees payable in cash
or through salary deductions
e) ACCRUED INCOME
- income already earned but not yet received
5. INVENTORIES
- unsold goods at the end of the accounting
period. This is applicable only to
merchandising business.
6. PREPAID EXPENSES
- supplies bought for use in the business or
services and benefits to be received by the
business in the future made in advance
 CONTRA-ASSET ACCOUNTS
- are accounts deducted from the related asset
accounts.
a) ALLOWANCE FOR BAD DEBTS
- losses due to uncollectible accounts.
(utang na hindi nababayadan or masingil)
b) ACCUMULATED DEPRECIATIONS
- Expired cost of property, plant, and
equipment as result of usage and passage of
time. (nawala yung value)
 NONCURRENT ASSETS
- Long term investments.
 PROPERTY, PLANT, AND EQUIPMENT
- are tangible assets that are held by the
enterprise for use in the production.
c) LAND
- Piece of lot or real estate owned by the
enterprise.
d) BUILDING
- Edifice or structure used to accommodate the
office, store, or factory
e) EQUIPMENT
f) FURNITURE AND FIXTURES
LIABILITIES
Improvements to International Accounting
Standards 1 (December 2003) classify a
liability as a current liability when it is:
a) Expected to be settled in the entity’s
normal operating cycle;(1 year -NOC)
b) Held primarily for the purpose of being
traded; and
c) Due to be settled within twelve months
after the balance sheet date; or the entity
does not have an unconditional right to
defer the settlement of the liability for at
least twelve months after the balance
sheet date.
CLASSIFICATION OF CURRENT LIABILITIES
TRADES AND OTHER PAYABLES:
a) ACCOUNTS PAYABLE
- includes debts arising from purchase of an
asset or acquisition of services on account.
b) NOTES PAYABLE
- includes debts arising from purchase of an
asset or acquisition of services on account
evidenced by a promissory note.
c) INTEREST PAYABLE
- Is the cost for borrowing money. Principal
amount multiplied by time factor and interest
rate.
d) UTILITIES PAYABLE
- is an obligations to pay utility companies for
services received from them.
e) ACCRUED LIABILITIES
- include amounts owed to others for expenses
already incurred but not yet paid.
f) INCOME TAX PAYABLE
- is computed at 30% of the corporate taxable
income.

NONCURRENT LIABILITIES
 MORTGAGE PAYABLE
- is the debt of the business with security of
collateral in the form of real properties.
 BONDS PAYABLE
- is a certificate of indebtedness under the seal
of a corporation, specifying the terms of
repayment and the rate of interest to be
charged.
 LOAN PAYABLE
(- if the business loans)