LESSON2 FABM2 STATMENT OF COMPREHENSIVE

fabm2

1. STATEMENT OF COMPREHENSIVE INCOME

2. a. Identify and describe the elements of SCI for a Service Business and merchandising b. Prepare an SCI for a service business using single step approach OBJECTIVES

3. LESSON 1 IDENTIFY AND DESCRIBE THE ELEMENTS OF SCI FOR A SERVICE AND MERCHANDISING BUSINESS AND PREPARATION USING SINGLE STEP APPROACH FOR SERVICE BUSINESS

4. STATEMENT OF COMPREHENSIVE INCOME (INCOME STATEMENT) The Statement of Comprehensive Income informs the reader about the “performance” and activities of the company for a certain period (e.g., for the period ended December 31, 2019). It contains the revenues and expenses incurred by an entity for a specific period. It is also compared to a running video because it presents an entity’s activities form the start to the end of a period.

5. STATEMENT OF COMPREHENSIVE INCOME (INCOME STATEMENT) Another meaning is 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)

6. TEMPORARY ACCOUNTS Temporary accounts are 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)

7. TEMPORARY ACCOUNTS Examples of temporary accounts include revenues, sales, utilities expense, supplies, expense, salaries expense, depreciation expense, interest expense among others.

8. ELEMENTS OF THE SCI 1. The Title The Statement of Comprehensive Income is a financial report therefore it must be properly identified and dated. The title or the heading includes the name of the entity, the title of the report (i.e., Statement of Comprehensive Income and the period it covers.

9. ELEMENTS OF THE SCI 2. Revenue “Revenues arise in the course of the ordinary activities of an entity and is referred to by a variety of different names including sales, fees, interest, dividend, royalties, rent”. (The Conceptual Framework for Financial Reporting by the International Accounting Board 2010)

10. ELEMENTS OF THE SCI 2. Revenue Revenues are the first line item in the Statement of Comprehensive Income. They vary depending to the nature of the entity. A small retail store has sales as its main revenue. Revenues may also come from interest from time deposits and dividends earned from shares of stocks. Royalties from individuals who would like to use their established brand and technology. Owners of fixed properties (e.g. land and building) may charge third parties with rent.

11. ELEMENTS OF THE SCI 2. Revenue Entities engage in service business use service income as revenue account. Smaller and less complex entities may have one or two sources of revenues while larger and more complex entities have multiple sources of revenues, recorded when earned.

12. ELEMENTS OF THE SCI 3. Expenses “Expenses arise in the course of the ordinary activities of the entity include, for example, cost of sales, wages, and depreciation. They usually take the form of an outflow or depletion of asset such as cash and cash equivalent, inventory, property, plant, and equipment.” (The Conceptual Framework for Financial Reporting by the International Accounting Board 2010)

13. ELEMENTS OF THE SCI 3. Expenses Revenue earned by business are matched with expenses. For service entities, expenses are categorized as cost of service or operating expense. In a law firm, cost of service includes the salaries paid to lawyers who render services to legal clients in behalf of the law firm. Operating expenses include rent for office space, salaries for office staff, permits to local government chapters, depreciation of office equipment, and other similar expenses.

14. ELEMENTS OF THE SCI 3. Expenses For a merchandising concern, the expenses are classified as cost of sales, selling expenses and administrative (operating) expenses. The cost of sales is the direct cost of the products sold or the amount paid or payable by the business entity to its suppliers for the merchandise sold to the business then to then sold to the entity’s customers.

15. ELEMENTS OF THE SCI 4. Gain and losses “Gains represent other items that meet the definition of income and may not, arise in the course of the ordinary activities of an entity.” (The Conceptual Framework for Financial Reporting by the International Accounting 2010) Gains are incidental to the operation of the business.

16. ELEMENTS OF THE SCI 4. Gain and losses “Losses represent other items that meet the definition of expenses and may or may not arise in the course of the ordinary activities of the entity.”

17. ELEMENTS OF THE SCI 5. Other Items Other items included in the computation of the total comprehensive income are income taxes and items of other comprehensive income. Income tax is the sum of money payable to the government. Items of other comprehensive income are increases or decreases in economic benefit for a period.

18. THE TWO TYPES OF STATEMENT OF COMPREHENSIVE INCOME: 1. The Single-step Format of the SCI It is 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). This format of SCI is more commonly used by service companies.

19. THE SINGLE-STEP FORMAT OF THE SCI

20. THE TWO TYPES OF STATEMENT OF COMPREHENSIVE INCOME: 2. Multi-step format of the SCI It is called multi-step because there are several steps needed in order to arrive at the company’s net income. (Haddock, Price, & Farina, 2012) This format is more commonly used by merchandising companies

21. MULTI-STEP FORMAT OF THE SCI

22. DIFFERENCE BETWEEN THE SCI OF A SERVICE BUSINESS AND THE SCI OF A MERCHANDISING BUSINESS

23. 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.

24. 2. 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.

25. PREPARATION OF THE STATEMENT OF COMPREHENSIVE INCOME USING THE SIGNLE-STEP APPROACH

26. ABC COMPANY STATEMENT OF COMPREHENSIVE INCOME FOR THE MONTH OF JUNE 2023 Cost of Goods Sold: ₱300,000 Sales: ₱500,000 Salaries: ₱50,000 Rent Expense: ₱20,000 Interest Income: ₱10,000 Utilities: ₱10,000

27. ABC COMPANY Statement of Comprehensive Income For the Month Ended June 30, 2023 Revenue:     Sales ............................................. ₱500,000     Add: Interest Income .................. ₱10,000 Total Revenue ................................ ₱510,000 Less: Cost of Goods Sold ........... ₱300,000 Gross Profit ..................................... ₱210,000 Operating Expenses:     Salaries .......................................... ₱50,000     Rent Expense ................................. ₱20,000     Utilities ........................................... ₱10,000 Total Operating Expenses .......... ₱80,000 Net Income ........................................ ₱130,000

28. DEF COMPANY STATEMENT OF COMPREHENSIVE INCOME FOR THE MONTH OF JUNE 2023 Cost of Goods Sold: ₱600,000 Sales: ₱1,000,000 OPERATING expenses: 200,000

29. DEF COMPANY Statement of Comprehensive Income For the Month Ended June 30, 2023 Revenue:     Sales ................................................. ₱1,000,000 Less: Cost of Goods Sold ............ ₱600,000 Gross Profit ......................................... ₱400,000 Less: Operating Expenses ............. ₱200,000 Net Income ............................................ ₱200,000

30. HIJ COMPANY STATEMENT OF COMPREHENSIVE INCOME FOR THE MONTH OF JUNE 2023 Sales: ₱3,000,000 Salaries and Wages: ₱500,000 Sales Interest: ₱10,000 Gain on Sale of Equipment: ₱50,000 Cost of Goods Sold: ₱1,800,000 Other Income: ₱100,000 Rent Expense: ₱60,000 Utilities: ₱25,000 Maintenance: ₱15,000 Depreciation: ₱20,000 Advertising: ₱30,000 Travel Expenses: ₱50,000

31. KLM COMPANY STATEMENT OF COMPREHENSIVE INCOME FOR THE MONTH OF JUNE 2023 Sales: ₱800,000 Salaries and Wages: ₱100,000 Sales Interest: ₱10,000 Cost of Goods Sold: ₱500,000 Other Income: ₱10,000 Rent Expense: ₱25,000 Utilities: ₱15,000 Depreciation: ₱10,000 Advertising: ₱20,000 Intereset Income: ₱5,000

32. QRS COMPANY Statement of Comprehensive Income For the Month Ended June 30, 2023 Sales Revenue: ₱1,200,000 Cost of Goods Sold: ₱700,000 Rent Expense: ₱25,000 Utilities: ₱25,000 Depreciation: ₱30,000 Supplies : ₱25,000

33. ABM COMPANY Statement of Comprehensive Income For the Month Ended June 30, 2023 Sales Revenue: ₱ 900,000 Salaries: : ₱ 150,000 Cost of Goods Sold: ₱500,000 Rent Expense: ₱40,000 Utilities: ₱15,000 Depreciation: ₱25,000 Transportation : ₱10,000

34. WXY COMPANY Statement of Comprehensive Income For the Month Ended June 30, 2023 Sales Revenue: ₱1, 5 00,000 Salaries: : ₱ 300 ,000 Cost of Goods Sold: ₱900,000 Maintenance: ₱40,000 Utilities: ₱20,000 Supplies: ₱15,000 Advertising: ₱40,000

35. ZAB COMPANY Statement of Comprehensive Income For the Month Ended June 30, 2023 Sales Revenue: ₱2, 00,000 Salaries: : ₱ 350 ,000 Cost of Goods Sold: ₱1,300,000 Travel: ₱25,000 Utilities: ₱20,000 Supplies: ₱15,000 Depreciation: ₱35,000

36. Question Time

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