STATEMENT OF COMPREHENSIVE INCOME DATA ENTRY

SCI stands for Statement of Comprehensive Income. It is a financial statement that shows a company’s total income, including both net income and other comprehensive income, over a specific period. The SCI provides a broader view of a company’s profitability by including items that are not part of the regular profit and loss statement but still affect equity.

The key components of an SCI include:

Income/Revenue – Earnings from the company's operations (e.g., sales, services).
Expenses – Costs incurred during the period (e.g., wages, rent, utilities).
Net Income – The difference between income and expenses.
Other Comprehensive Income – Items that do not go through the income statement but affect equity (e.g., foreign currency translation adjustments, unrealized gains or losses on certain investments).
It provides a comprehensive view of the company's financial performance during the reporting period.

1. STATEMENT OF COMPREHENSIVE INCOME (Income Statements) Niejay Arcullo Llagas

2. What is the Statement of Comprehensive Income (SCI)? Statement of Comprehensive Income (also known as the Income Statement) shows the financial performance of a business over a period of time by summarizing its revenues and expenses, ultimately reflecting whether the business made a profit or loss.

3. Key Points It provides insight into a business’s ability to generate income and manage expenses. The SCI helps stakeholders understand how well the business is doing financially.

4. What is the single-step approach, and how is it different from the multi-step approach?

5. Single-step approach: o The single-step SCI is simpler and more straightforward. All revenues are grouped together at the top, and all expenses are grouped together below. The difference between total revenue and total expenses gives the net income. o Example for Service Businesses: In a service business, revenue from providing services would be listed, and then all operating expenses (like salaries, rent, and utilities) would be subtracted.

6. Multi-step approach: o The multi-step SCI is more detailed and separates operating income from non-operating income. This approach is common in merchandising or manufacturing businesses where you need to show the gross profit (revenue minus cost of goods sold) before subtracting operating expenses. o Example for Merchandising Businesses: A retail store would first list its sales revenue and subtract the cost of goods sold (COGS) to determine the gross profit. Then, operating expenses (like salaries, rent, and advertising) would be subtracted, followed by any non-operating revenues and expenses, resulting in the final net income.

7. Differences between Service Businesses and Merchandising/Manufacturing Businesses: o In service businesses, like consulting or law firms, the SCI usually follows a simpler structure since there are no cost of goods sold (COGS) involved—just revenue from services and related expenses. o In merchandising businesses (like retail stores) and manufacturing businesses, there is a need to account for the cost of products sold (COGS), which is a major expense and affects the gross profit. This makes the multi-step format more suitable, as it highlights gross profit, operating profit, and net income in separate sections.

8. Scenario: Service Business – Consulting Firm Mr. Cruz runs a small consulting firm that provides business strategy advice to local companies. Over the past month, he has completed several consulting projects for his clients, and he wants to assess how his business is performing. He has recorded the following transactions:

9. 1. Consulting Fees Earned: Mr. Cruz earned a total of PHP15,000 in fees from different clients for the consulting services he provided. 2. Expenses Incurred: o Office Rent: PHP2,000 o Employee Salaries: PHP5,000 o Utilities: PHP300 o Supplies (e.g., office materials): PHP200 o Advertising and Marketing: PHP500 Now, Mr. Cruz wants to know his total income and total expenses to evaluate whether his business was profitable for the month.

10. How should Mr. Cruz calculate his total income and total expenses?

11. How should Mr. Cruz use this information to evaluate his business performance?

12. Which approach to the Statement of Comprehensive Income should Mr. Cruz use for his service business?

13. Activity: Prepare a simple Statement of Comprehensive Income using the single-step approach based on Mr. Cruz’s data. Calculate the total income, list all expenses, and determine whether Mr. Cruz’s business was profitable for the month.

14. Preparing a Statement of Comprehensive Income (SCI) using the single-step approach simplifies the understanding of a business’s profitability because it provides a straightforward and easy-to-follow layout. Here's how:

15. 1. Simple Structure: • The single-step approach groups all revenues together at the top and all expenses below, making it easy to see the total income and the total costs at a glance. • There’s no need to break down or classify revenues and expenses into different categories, which reduces complexity.

16. 2. Quick Profitability Assessment: • By simply subtracting total expenses from total revenues, the business can quickly see whether it is profitable or operating at a loss. This calculation is easy to perform and understand, even for those with limited accounting knowledge.

17. 3. Focus on the Bottom Line: • The single-step SCI puts the focus directly on the net income, making it clear how much money the business made (or lost) over a given period. For a small service business, this is often the primary measure of performance.

18. 4. Ideal for Service Businesses: • Since service businesses typically have fewer complex transactions (no need to account for inventory or cost of goods sold), the single-step approach is efficient and provides all the key information without overwhelming the business owner with too much detail.

19. In summary, the single-step approach simplifies the process by providing a clear, concise view of a business’s profitability, allowing owners like Mr. Cruz to easily assess how well the business is performing financially.

20. Understanding the Single-Step Approach Definition: The single-step approach is a straightforward method used to prepare the Statement of Comprehensive Income (SCI) . In this approach, all revenues are grouped together and totaled at the top. Then, all expenses are grouped together and subtracted from the total revenues. The result of this subtraction gives the net income (or net loss) for the period. FORMULA  

21. 𝑵𝒆𝒕 𝑰𝒏𝒄𝒐𝒎𝒆 (𝒐𝒓 𝑳𝒐𝒔𝒔)= 𝑻𝒐𝒕𝒂𝒍 𝑹𝒆𝒗𝒆𝒏𝒖𝒆𝒔− 𝑻𝒐𝒕𝒂𝒍 𝑬𝒙𝒑𝒆𝒏𝒔𝒆𝒔 Example: If a business has revenues of PHP20,000 and total expenses of PHP15,000, the net income would be: This PHP5,000 represents the business’s profit for the period.  

22. Advantages 1. Simplicity: o The single-step approach is simple to understand and easy to prepare. It doesn't require detailed breakdowns of operating vs. non-operating income or expenses. o For small businesses, especially service-based businesses, this approach is ideal because it provides a clear picture of the business’s overall financial performance without unnecessary complexity.

23. 2. Ease of Use: o By grouping all revenues and expenses together, this method minimizes the time needed to prepare the SCI, making it accessible even for business owners with limited accounting knowledge. o It provides a quick and direct way to see whether the business is profitable, which is often the main focus for small business owners.

24. In summary, the single-step approach is an efficient and user-friendly way of calculating and presenting net income. Its simplicity makes it a popular choice for service businesses and those who want a clear view of profitability without needing to dive into more detailed classifications of income and expenses.

25. Parts of a Single-Step Statement of Comprehensive Income (SCI) The Single-Step SCI is divided into three main parts: Revenues Expenses Net Income

26. 1. Revenues: Definition: This section includes all income generated by the business during the reporting period. In a service business, this typically consists of total service income from the services provided to clients. Example: For a consulting firm, the revenue could be the fees earned from consulting projects. Example Entries: Consulting fees: PHP15,000 Service revenue: PHP12,000 Total Revenues = PHP27,000

27. 2. Expenses: Definition: This section lists all operating expenses the business incurs to keep running. These are the costs of doing business, and they usually include items such as rent, salaries, utilities, and supplies. Example: For a small service business, expenses could include office rent, employee salaries, and utility bills. Example Entries: Rent: PHP2,000 Salaries: PHP5,000 Utilities: PHP300 Supplies: PHP200 Advertising: PHP500 Total Expenses = PHP8,000

28. 3. Net Income: Definition: This is the bottom line and represents the business's profit (or loss) for the period. It is calculated by subtracting Total Expenses from Total Revenues. Formula: Example Calculation: Net Income=27,000−8,000=19,000 The business has a net income of PHP19,000, meaning it was profitable over the period.  

29. Preparing the SCI for a Service Business Steps in Preparing the Single-Step Statement of Comprehensive Income (SCI): 1. Gather Financial Data: Collect all relevant financial information for the period, including total revenues and all operating expenses. 2. Calculate Total Revenues: Add up all income from services provided during the reporting period. This could include fees, commissions, and any other service-related income.

30. 3. Calculate Total Expenses: Sum up all operating expenses, such as rent, salaries, utilities, and other costs incurred during the period. 4. Calculate Net Income: Subtract total expenses from total revenues to determine net income or loss. 5. Format the SCI: Present the information clearly and concisely, following the single-step format.

31. Sample Layout of a Single-Step SCI for a Service Business Here’s a sample layout for a Single-Step Statement of Comprehensive Income for a consulting firm:

32. Sweet Treats Consulting Statement of Comprehensive Income For the Month Ended [Date] Revenues Total Service Income PHP15,000 Total Revenues PHP15,000 Expenses Rent PHP2,000 Salaries PHP5,000 Utilities PHP300 Supplies PHP200 Advertising PHP500 Total Expenses PHP8,000 | Net Income | PHP 7,000 |

33. What is a Merchandising Business? A merchandising business is a type of business that buys and sells goods. Instead of providing services like a service business, a merchandising business purchases inventory (products) from suppliers and sells them to customers at a higher price. Examples include retail stores, supermarkets, and online shops. The primary revenue for these businesses comes from selling products.

34. Key Elements of a Multistep SCI Compared to a Single-Step SCI An income statement (Statement of Comprehensive Income, or SCI) shows a company’s revenues and expenses over a period of time. There are two types of income statements:

35. Single-Step SCI: All revenues are listed at the top. All expenses are listed below revenues. The difference between total revenues and total expenses gives you the net income. Simple and straightforward but does not provide detailed breakdowns of a company’s operations.

36. Multistep SCI: Breaks down the income statement into more detailed sections. It separates operating activities (like sales and cost of goods sold) from non-operating activities (like interest and taxes). Key sections include: 1. Gross Profit (Net Sales - Cost of Goods Sold) 2. Operating Income (Gross Profit - Operating Expenses) 3. Non-operating Revenues/Expenses (Interest, taxes, etc.) 4. Net Income (Total profit after all expenses)

37. Gross Profit and Operating Income as Key Components • Gross Profit: This is the first key component in a multistep income statement. It’s calculated by subtracting Cost of Goods Sold (COGS) from Net Sales. Gross Profit shows how efficiently the business produces or buys its products compared to the revenue it earns from selling them. • Operating Income: The second key component, also called Operating Profit, is calculated by subtracting Operating Expenses (like salaries, rent, utilities) from Gross Profit. Operating Income reflects how well the business manages its regular, day-to-day operations after covering the costs of making or purchasing its products.

38. Scenario: Imagine you own a retail business called "Gadgets Hub", where you sell electronics like phones, headphones, and smartwatches. You purchase these items from suppliers and then resell them to customers at a higher price. Recently, you’ve been thinking about how much profit your business is actually making. To understand this, you need to calculate two key things: 1. Gross Profit (the profit you make after accounting for the cost of the products you sold). 2. Operating Income (the profit you make after covering all the other operating expenses, like rent, salaries, and utilities).

39. Let’s break it down. 1. Net Sales: Last month, your total sales were ₱500,000 from selling various electronic gadgets. 2. Cost of Goods Sold (COGS): You bought these products from your supplier for a total of ₱300,000. This is your COGS – the cost you incurred to get the products you sold. o To calculate your Gross Profit, you subtract your COGS from your Net Sales: Gross Profit = Net Sales - COGS Gross Profit = ₱500,000 - ₱300,000 = ₱200,000

40. 3. This ₱200,000 is your Gross Profit, showing how much profit you made just from selling products before considering other expenses. 4. Operating Expenses: Now, to keep your business running, you have other costs like: Rent for your store: ₱50,000 Salaries for employees: ₱30,000 Utilities and other expenses: ₱20,000 Total operating expenses: ₱100,000 To calculate your Operating Income, you subtract these operating expenses from your Gross Profit: Operating Income = Gross Profit - Operating Expenses Operating Income = ₱200,000 - ₱100,000 = ₱100,000

41. 5. Conclusion: After accounting for all operating expenses, you are left with an Operating Income of ₱100,000. This shows how much profit you made after covering the cost of your products and all the other day-to-day expenses of running your business. Understanding this breakdown helps you see how well your business is doing and where you might need to make adjustments. For example, if your operating expenses are too high, your Operating Income will be lower, even if your sales are strong.

42. Merchandising businesses need a more detailed approach to their income statement compared to service businesses for several important reasons: 1. Inclusion of Inventory and Cost of Goods Sold (COGS) • Unlike service businesses, which typically do not deal with physical products, merchandising businesses purchase and resell inventory. • They must account for Cost of Goods Sold (COGS), which represents the direct costs of purchasing the products they sell. COGS has a direct impact on Gross Profit and overall profitability. • A detailed income statement separates Net Sales and COGS to calculate Gross Profit, which helps businesses understand how well they are managing their product costs.

43. 2. Gross Profit as a Key Metric • Merchandising businesses rely heavily on understanding Gross Profit (Net Sales - COGS). This is crucial to evaluating how efficiently they’re buying and selling products. • By separating out COGS, a merchandising business can focus on maximizing Gross Profit, which wouldn’t be relevant in a service business that doesn’t have inventory costs.

44. 3. Operating Expenses Linked to Sales Activities • In merchandising businesses, the expenses involved in running the business (like store operations, marketing, distribution) are directly linked to the sale of physical products. • The Operating Income section is detailed to separate out operating expenses from the Gross Profit. This helps the business assess if it is controlling costs efficiently in the selling process.

45. 4. More Complex Revenue Streams • A merchandising business may have multiple sources of revenue, such as in-store sales, online sales, or even wholesale deals, requiring a more complex breakdown of sales. A detailed income statement captures these nuances. • Service businesses typically have simpler revenue streams, usually from providing specific services, and don’t need the same level of breakdown.

46. 5. Managing Shrinkage and Obsolescence • Merchandising businesses face additional challenges like inventory shrinkage (loss due to theft or damage) and obsolescence (products losing value over time). • A detailed income statement allows for adjustments related to inventory write-downs, which service businesses don’t typically encounter.

47. 6. Financial Analysis and Decision-Making • Investors and management often need to analyze financial performance in more depth in merchandising businesses because the ability to control inventory costs, manage operating expenses, and increase sales directly affects profitability. • Detailed financial statements enable better decision-making about pricing strategies, inventory turnover, and operational efficiency.

48. Conclusion: Merchandising businesses require a more detailed income statement to track the cost of goods sold, gross profit, and operating expenses accurately. These components are essential for evaluating performance, controlling costs, and ensuring profitability, whereas service businesses primarily focus on revenue and operating expenses. This added complexity demands a breakdown in the multistep format to provide meaningful insights into the business's financial health.

49. Understanding the Multistep Approach Definition: Begin by defining the multistep approach in the income statement: • "A multistep income statement is used to provide a more detailed breakdown of a business’s financial performance by separating operating revenues and expenses from non-operating items. It also calculates gross profit before arriving at the net income, offering a more insightful look into how a business makes money and where costs arise."**

50. Key Components 1. Net Sales: "Net Sales refers to the total sales of a company after deducting sales returns, allowances, and discounts. It’s important because it shows the true revenue from sales after adjustments."** Example: If a company had ₱500,000 in sales but provided ₱20,000 in discounts and had ₱10,000 in returns, the Net Sales would be ₱470,000.

51. 2. Cost of Goods Sold (COGS): "COGS represents the direct costs of producing or purchasing the goods that were sold during the period. This includes materials and labor used to produce the goods."** Example: If your retail store spent ₱300,000 to purchase the products you sold, this would be your COGS.

52. 3. Gross Profit: "Gross Profit is the amount of money left after subtracting the COGS from the Net Sales. It shows how efficiently a business is selling its products."** Formula: Gross Profit = Net Sales - COGS. Example: If Net Sales are ₱470,000 and COGS is ₱300,000, the Gross Profit would be ₱170,000.

53. 4. Operating Expenses: "Operating Expenses are the costs directly related to running the day-to-day operations of the business, like selling expenses (marketing, salaries of sales staff) and administrative expenses (rent, office supplies)."** Example: If a business has ₱50,000 in selling expenses and ₱30,000 in administrative expenses, total Operating Expenses would be ₱80,000.

54. 5. Operating Income: "Operating Income is the profit made from a company’s regular business operations. It is calculated by subtracting Operating Expenses from Gross Profit."** Formula: Operating Income = Gross Profit - Operating Expenses. o Example: If Gross Profit is ₱170,000 and Operating Expenses are ₱80,000, the Operating Income would be ₱90,000.

55. 6. Non-Operating Items: "Non-operating items include revenues and expenses that are not related to the company’s core operations, such as interest income, interest expense, or gains and losses from investments."** Example: If a company has an interest expense of ₱10,000, this would be listed here.

56. 7. Net Income: "Net Income is the final profit a company makes after accounting for both Operating Income and Non-Operating Items. It’s the total profit left after all expenses have been deducted."** Formula: Example: If Operating Income is ₱90,000 and there is an interest expense of ₱10,000, the Net Income would be ₱80,000.  

57. Summarizing the Multistep Approach: • The multistep income statement provides a more detailed and informative breakdown of how a business generates profits by separating operating activities from non-operating items. • It highlights important metrics like Gross Profit and Operating Income, which offer deeper insights into the company’s core business operations.

58. Preparing the Statement of Comprehensive Income (SCI) for a Merchandising Business

59. Step-by-Step Preparation of the Multistep SCI for a Merchandising Business Start with the Company Name and Title: o At the top of the statement, include the business name, the title of the report (Statement of Comprehensive Income), and the reporting period (e.g., “For the Year Ended December 31, 2023”).

60. Step 1: Calculate Net Sales Formula: Net Sales = Sales Revenue - (Sales Returns + Allowances + Discounts) Example: Sales Revenue = ₱500,000 Sales Returns = ₱10,000 Sales Discounts = ₱5,000 Net Sales = ₱500,000 - (₱10,000 + ₱5,000) = ₱485,000

61. Step 2: Calculate Cost of Goods Sold (COGS) Formula: COGS = Beginning Inventory + Purchases - Ending Inventory Example: Beginning Inventory = ₱200,000 Purchases = ₱300,000 Ending Inventory = ₱150,000 COGS = ₱200,000 + ₱300,000 - ₱150,000 = ₱350,000

62. Step 3: Calculate Gross Profit Formula: Gross Profit = Net Sales - COGS Example: Net Sales = ₱485,000 COGS = ₱350,000 Gross Profit = ₱485,000 - ₱350,000 = ₱135,000

63. Step 4: Deduct Operating Expenses Operating Expenses: Include Selling Expenses and Administrative Expenses. Selling Expenses : Expenses related to selling the products, such as advertising, sales commissions, or store utilities. Administrative Expenses : Overhead costs such as rent, office salaries, and office supplies. Example: Selling Expenses = ₱30,000 Administrative Expenses = ₱40,000 Total Operating Expenses = ₱30,000 + ₱40,000 = ₱70,000

64. Step 5: Calculate Operating Income Formula: Example: Gross Profit = ₱135,000 Operating Expenses = ₱70,000 Operating Income = ₱135,000 - ₱70,000 = ₱65,000  

65. Step 6: Include Non-Operating Items These include other income and expenses not related to core operations, such as interest income, interest expense, or gains/losses from investments. Example: Interest Expense = ₱5,000 Net Non-Operating Items = -₱5,000

66. 8. Step 7: Calculate Net Income Formula: Example: Operating Income = ₱65,000 Non-Operating Items = -₱5,000 Net Income = ₱65,000 - ₱5,000 = ₱60,000  

67. Example Layout of a Multistep SCI: Particulars Amount (₱) Net Sales 485,000 Less: Cost of Goods Sold (350,000) Gross Profit 135,000 Operating Expenses - Selling Expenses 30,000 - Administrative Expenses 40,000 Total Operating Expenses (70,000) Operating Income 65,000 Non-Operating Items - Interest Expense (5,000) Net Non-Operating Items (5,000) Net Income 60,000 Company Name Statement of Comprehensive Income For the Year Ended December 31, 2023

68. Conclusion: • Highlight to students that this multistep SCI provides more clarity than a single-step approach by distinguishing between core business operations and other financial activities. • This breakdown allows business owners and stakeholders to understand how much profit is coming from regular operations and how much is affected by external factors like interest or investments.

69. Example Walkthrough Here’s a list of transactions for a retail business: 1. Net Sales: Php 500,000 2. Cost of Goods Sold (COGS): Php 300,000 3. Salaries Expense: Php 50,000 4. Rent Expense: Php 20,000

70. The Importance of Accurate Financial Statements in Business

71. 1. Assessing Profitability: Accurate financial statements are crucial for businesses to understand their true financial health. Profitability: By preparing the Statement of Comprehensive Income (SCI) correctly, businesses can assess whether their operations are profitable or if adjustments are needed. Example: Knowing the exact gross profit and net income helps business owners evaluate the performance of their operations and make decisions about expanding, cutting costs, or investing in new opportunities. Key Insight: If a business overestimates its profits due to incorrect financial statements, it may make poor decisions like overspending or expanding too fast, leading to financial trouble.

72. 2. Informed Decision-Making: Financial statements are essential for making informed business decisions: Budgeting: Accurate figures help businesses plan for future expenditures, investments, and growth. Investment: Investors rely on the transparency and accuracy of financial statements to decide whether to invest in a company. Creditworthiness: Lenders use financial reports to evaluate whether a company is a good risk for a loan. Strategy: Owners can adjust business strategies based on financial performance, determining whether to focus on cost-cutting or exploring new revenue streams.

73. 3. Ethical Responsibility in Accounting: Accountants have an ethical responsibility to ensure that financial statements are: Reliable: Financial data must reflect the true financial position of the business without manipulation or errors. Transparent: Financial reports should present information clearly, allowing stakeholders to trust that the company is being honest about its performance. Compliant: Reports should adhere to accounting standards (like GAAP or IFRS), ensuring consistency and fairness across the industry. Ethical Considerations: Misrepresenting financial information can have serious consequences—misleading stakeholders, damaging reputations, and leading to legal consequences. Example: Major accounting scandals (like Enron) resulted from unethical accounting practices, leading to loss of trust and the eventual collapse of the companies involved.

74. Encouraging Ethical Behavior: Encourage students to think about the ethical side of being an accountant. Beyond just preparing accurate reports, accountants are stewards of truth and trust in business. Question for Discussion : How do you think inaccurate or unethical financial reporting can affect not only the business but also employees, investors, and the broader economy? Emphasize : Ethical accountants help maintain the integrity of financial markets and protect the interests of all stakeholders.

75. To Summarize Key Components of the Multistep Statement of Comprehensive Income (SCI) for a Merchandising Business

76. 1. Net Sales: Total sales after deducting returns, allowances, and discounts. Formula: Net Sales = Sales - (Sales Returns + Allowances + Discounts) 2. Cost of Goods Sold (COGS): Direct costs related to producing or purchasing the goods sold. Formula: COGS = Beginning Inventory + Purchases - Ending Inventory 3. Gross Profit: The difference between net sales and COGS, showing how much the business made from selling goods before considering other expenses. Formula: Gross Profit = Net Sales - COGS

77. 4. Operating Expenses: The costs of running the business, split into: Selling Expenses: Costs related to selling the product (e.g., advertising, sales salaries). Administrative Expenses : General overhead costs (e.g., office salaries, rent). 5. Operating Income: The profit from core business operations after deducting operating expenses from gross profit. Formula: Operating Income = Gross Profit - Operating Expenses

78. 6. Non-Operating Items: Income and expenses not related to core business activities (e.g., interest income or expense, gains/losses on investments). 7. Net Income: The final profit after accounting for all operating and non-operating items. Formula:  

79. Why the Multistep Approach Provides More Insights: Detailed Breakdown: Unlike the single-step approach, which lumps all revenues and expenses together, the multistep SCI breaks down the elements, providing a clearer view of a business’s operational efficiency. Gross Profit: Shows how profitable a business is at its core function—selling products. Operating Income: Highlights the impact of operating expenses on profitability. Non-Operating Items: Isolates income or expenses not related to day-to-day operations, helping businesses evaluate the impact of peripheral activities (like interest or investments).

80. Better Analysis: By separating operating and non-operating items, the multistep approach allows owners, investors, and managers to: Analyze operating performance more accurately. Understand cost structure, pinpointing where efficiencies or inefficiencies lie. Make more informed financial decisions about managing costs, pricing strategies, and investment opportunities.

81. In summary, the multistep SCI provides a more transparent, structured, and informative view of business performance than the single-step approach, making it particularly valuable for merchandising businesses.