FABM FINALS TEST 2

ELEMENTS OF SCI
1. REVENUE
• SERVICE INCOME
- derived from rendering of services.
- used to identify the services rendered such as Rental Income, Professional fee, and Tuition Fee Revenue:
- from services recognized.

• SALES
- derived from selling of goods.
- used to identify the goods such as Office Supplies sales, Book sales, Food sales, etc.
- recognized when goods have been delivered.
- However, customers are allowed to return goods that do not meet their quality standards.
Recall that we already counted the goods delivered as Sales on the date of delivery. 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.

2. EXPENSES
• COST OF GOODS SOLD (COST OF SALES)
- an account used by companies that sells goods instead of services.
- (trading operation) collects the cost of the merchandise sold; includes purchase price of inventory, brokerage,
and shipment Cost to bring the goods to the premises of the company. this shipment Cost is called Freight in.
- part of inventory accounting.

• OPERATING EXPENSES
- refer to all other expenses related to the operation of the business, other than Cost of sales.
- include salaries of employees, Supplies, utilities (electricity, telephone and water bills), gasoline expense,
representation, bad debt expense, depreciation and amortization.

PRESENTATION OF SCI
TWO FORMATS FOR THE SCI
1. SINGLE-STEP STATEMENT OF COMPREHENSIVE INCOME
- groups all revenue item together and all expense items together.
- net income is computed using only the step, deducting total expenses from total revenues. Subtotal are not
Computed and presented on the SCI.
- used by small business and services business because of its simplicity.
- closely linked to the nature of expense format.
- it lists down the expenses based on the Source
2. MULTI-STEP STATEMENT OF COMPREHENSIVE INCOME
- is also associated with the function of expense.
- characterized by the Presentation of several subtotals until net income is determined.
- more popularly used in business.
• Gross Profit (Net sales - Cost of Goods Sold)
• Income from overations (Gross Profit operating Expenses)
• Net Income (Income from operations + Interest Income - Interest Expense)

COMPREHENSIVE ILLUSTRATIVE PROBLEM UNDER SCI

3. COST OF GOODS SOLD 4. GROSS PROFIT

1. NET SALES
Inventory, beginning Net Sales
Sales
+ Net Purchase - Cost of Goods Sold
- Sales Returns and Allowances
- Sales Discounts Cost of Goods Available for sale
2. NET PURCHASES - Inventory, end 5. NET INCOME
Purchases Gross Profit
- Purchases Returns and Allowances - Total Operating Expenses
- Purchases Discounts