CHAPTER 2

Statement
of
Comprehensive Income
 LESSON TOPICS
• 2.1 Purpose of Income Statement
• 2.2 Elements of Income Statement
• 2.3 Elements of Statement of Comprehensive Income
• (Service Business)
• 2.4 Elements of Statement of Comprehensive Income
(Merchandising Business)
 Basic Financial Statements

Balance Sheet
Income Statement
Statement of Cash Flows
 Basic Financial Statements

Balance Sheet
Income Statement
Statement of Cash Flows
 Income Statement

 also known as the Profit and Loss Statement, reports the

company's financial performance and results of its operations
in terms of net profit or loss over a specified period.
 Net profit or loss is arrived by deducting expenses from
income.
 Purpose of Income Statement

Income Statement answers basic questions including:

• What is the company’s current financial status?
• What was the company’s operating results for the period?
• How did the company obtain and use cash during the
period?
 Parts of Income Statement

1. Heading
Answers the three W’s:
Who – the name of the business
What - the name of the statement
When – the date which is for a particular day
2. Body of the statement - states the various revenues generated and
expenses incurred by the business.
 “Statement of Allowance”

• Write down the amount of your school allowance.

• List down also the things/food that you buy with
corresponding amounts.
• How much do you save everyday, if any, from your school
allowance?
• Income accounts are presented before expenses. In the above
statement, the income account is Service Revenue. Other income
accounts for service type businesses include Professional Fees,
Rent Income, Tuition Fees, etc.
• Expenses are presented after the income accounts. It is a good
practice to arrange expenses according to amount (largest to
smallest). Some users who are interested in the company's
expenses are concerned about the size of each expense. Arranging
the expenses from largest to smallest results in a more useful and
organized report. Nonetheless, Miscellaneous Expense or Sundry
Expense is presented last.
• The income statement complies with the accrual basis
of accounting.

• Income is recognized when earned regardless of when

collected. Expenses are recognized when incurred
regardless of when paid.
What’s the Business?
 Statement of
Comprehensive Income
Service Business
 Income

• Professional fees - income derived in the practice of

profession for the professional services rendered.
• Fare Income - income derived from transportation
services provided to others.
 Expenses
• Salaries and Wages Expense – amount incurred or paid for the services rendered by the
employees and workers in the business.
• Advertising Expenses - payments made in the promotion of business merchandise,
goods and/or services.

• Office Supplies Expenses - office related materials used by the business.

• Rent Expense - amount incurred/paid for the use of space for the office, store and or
factory area
• Utilities Expense- amount incurred for the use of electricity,
water and telephone facilities.
• Taxes and license expenses - taxes, licenses and other fees paid
or incurred.
• SSS, Pag-ibig, Medicare Contribution- the employer’s share in
the payment of SSS, Pag-ibig and medicare for the welfare of
its employees and workers.
Guess the Company
 Statement of
Comprehensive Income
MERCHANDISING BUSINESS
 Merchandising Concern

- is a type of business organizations that buys goods and sells

the same good (without further processing) at a price higher
than its acquisition cost.
- The inventory or stocks consists of finished products awaiting
sales.
 Income Statement of Service and Merchandising Concern

- Similar in terms of content and forms

- Both types of concerns have revenue and expense section.
- Merchandising concern differ when it comes to account
names for revenues and cost of goods sold section of the said
statement.
The account names maintained in the accounting records
of Merchandising Concerns

• Merchandise Inventory – commodities or

goods acquired by the business intended for
sale but remain unsold.
• Delivery Expense/Freight out – amount
incurred/paid for transporting merchandise to
customers such as cost of fuel, gasoline and oil.
• Purchases – amount of commodities or goods acquired by the business intended for sale
at a profit.
+ Freight in – amount incurred or paid for merchandise
bought, the transportation expense of which was
shouldered by the buyer.
• Purchase returns and allowances – a contra account that accumulate the cost of
merchandise returned to suppliers
• Purchase Discount – a reduction in the purchase price due to payment of the buyer
to the seller before the day the discount period is over
• Sales – revenues derived from sale of goods either in cash or on account.
- Sales Returns and Allowances – a contra-sales account that
accumulates the amount of merchandise sold to customers but returned for
various reasons like errors in style, color, sizes
- Sales Discount – a reduction in the selling price due to
payment of the buyer to the seller before the day the discount period is
over.
 Expenses

Selling Expenses – pertain to expenses related to selling the products of the company.
Advertising expenses
Rent Expense of the store
Commission expense
Depreciation expense of the store
Depreciation expense of the delivery van
Freight out
And other selling related expenditures
Administrative Expenses - pertain to expenses related to office and administrative
work.

Salaries expense of employees

Rent of office
Utilities of the head office
Office supplies
And other office related expenditures
Other income – revenue from sources not directly related to the central operating
activities of the business.
Ex. Interest income and gains from sale of fixed assets

Other expenses – other expenses that are not directly associated with the operating
activities of the business.
Ex. Interest expense, loss from lawsuit, losses in the disposal of fixed assets,
discount loss
Net Sales
 Cost of Goods Sold or Cost of Sales

Merchandise Inventory, Beginning P XXX

Add: Net Cost of Purchases:
Purchases P XXX
Less: Purchases Discount P XXX
Purchase Returns and Allowances XXX XXX
Net Purchases XXX
Add: Freight-in XXX XXX
Total Goods Available for sale P XXX
Less: Merchandise Inventory, Ending XXX
Cost of Sales P XXX
Other Income
Selling Expenses
Other Expenses
 Statement of
Comprehensive Income
Exercises & Problems
Classify the following whether they are Income, Expense
and Other Comprehensive Income