4
53 12 7. 802
%
THE STATEMENT OF
5.76
COMPREHENSIVE
53
INCOME %
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4 53 4 2
0. 3
12 % 5
4
36 4. 3 7 4
12
%
LEARNING OBJECTIVES:
At the end of the chapter, students are expected to:
• Identify the elements of the Statement of Comprehensive Income.
5 . 7 6 • Describe each element of the Statement of Comprehensive Income for
service business and merchandise business.
• Differentiate the single-step approach from multi-step approach in
preparing the Statement of Comprehensive Income.
• Prepare a Statement of Comprehensive Income for a service business
using the single-step approach.
2 • Prepare a Statement of Comprehensive Income for a merchandising
16 • business using the multi-step approach. Solve exercises and problems 53
that require the preparation of Statement of Comprehensive Income
for a service and merchandising business.
%
. 8 0 2 97
4 ??
4
36 4. 3 7 4
12
%
7 6 The Statement of Income, also known as
5 .
the Income Statement or Profit and Loss
Statement, reports the company's financial
performance in terms of net profit or loss over a
specified period.
2
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%
4 ??
. 8 0 2 97
4
36 4. 3 7 4
12
%
If we speak about a business, you can only assess its performance if
5 . 7 6 you take into account certain period as coverage, a beginning and an
end, so that you will be able to draw conclusions and decisions. That is
why the date of an Income Statement is expressed as "FOR THE PERIOD
COVERED or FOR THE PERIOD ENDED or FOR THE
MONTH/QUARTER/YEAR ENDED" and followed by a certain date- e.g.
For the Period Covered January to June 30, 2016 or For the Quarter Ended
2 June 30, 2016 or For Six Months Ended June 30, 2016 or For the Period
16 Ended June 30, 2016".
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4
%
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4
36 4. 3 7 4
12
%
The Income Statement is composed of the following two elements:
1. Income - what the business has earned over a period (e.g. sales or
service revenue, dividend income, interest income, etc)
5 . 7 6
2. Expenses and Losses - the cost incurred by the business over a
period (e.g salaries and wages, depreciation, rental charges, etc), and
losses incurred due to inventory obsolescence or due to fire/calamities or
lawsuits.
A third item is added when a Statement of Comprehensive Income is
2 prepared. These are: other non-operating income and expenses that
16 changes the capital or equity structure through the added valuation of
53
assets of the company like cash, investments or properties.
%
4 ??
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4
36 4. 3 7 4
12
%
A net profit or loss is arrived at by deducting expenses from income.
A net profit results when income exceeds over the expenses and a net
loss results when income is less than the expenses.
5 . 7 6
The Statement of Comprehensive Income on the other hand combines
the income from the Income Statement or Profit and Loss Statement and
other income which are not reflected in profits and losses. Total
comprehensive income is the change in capital during a period resulting
from regular transactions of the business and some other events which
2 changes the capital due to the following:
a. Foreign currency translation adjustments.
16 53
b. Actuarial gains and losses arising on a defined benefit pension plan.
c. Revaluations of property, plant and equipment %
4 ??
. 8 0 2 97
4
36 7 4
%
THE ELEMENTS OF INCOME STATEMENT
4. 3 12
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Revenues or Income Account
The income or revenue account comprises the actual money earned
5 . 7 6
over a period of time from a job, sale of goods or products and services,
either in cash or on account. Generally these are:
a. Revenue or income generated from the sale of a commodity or
rendering of services.
b. Interests received on a bank deposits.
2 c. Gain on the sale of fixed assets.
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d. Rental received on a leased property.
e. Professional fees earned. %
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4
36 4. 3 7 4
12
%
Service Revenue - these are amounts earned by performing or
delivering services to customers, either in cash or on account. This
includes professional or consultancy fees.
The service revenue account is used in a service business.
5 . 7 6
Rental Revenue - these are amounts earned by lessors for properties
that are rented by the lessees.
Interest Income - these are the amount of interests earned from bank
deposits or other form of investments.
Gain on Sale of Fixed Assets - these are gains in selling shares held as
investment or gains in selling equipment, vehicles, furniture, etc.
2 Sales - these are amounts earned for the sale of goods or merchandises
16 to customers, either in cash or on account. 53
Sales Returns & Allowances - these represent goods or merchandises
%
that are returned by customers due to defect or other reasons
4 ??
. 8 0 2 97
4
36 4. 3 7 4
12
%
Sales Discounts - these are discounts extended to customers by either
buying in bulk or being loyal to the business.
The sales, sales returns and allowances and sales discounts are
accounts used in a merchandising business.
5 . 7 6
THE EXPENSES ACCOUNT
An expense is a cost incurred as part of a company's operating
activities during an accounting period which are necessary in the conduct
of the trade or business.
2 Generally these are:
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a. The cost of goods sold in a merchandising business.
b. Commissions earned by the sales employees. %
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36 4. 3 7 4
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%
c. Rent expense for the office space.
d. The cost of the electricity and water used.
e. Advertising that took place.
5 . 7 6 f. Wages and salaries that were incurred
g. Depreciation expenses for the amortization
h. Losses
Cost of Goods Sold
The cost of goods sold which are:
2 Purchases - this account is used for various purchases of goods or
16 merchandises that are intended for sale by a merchandising business. 53
Purchase Returns & Allowances - this account is used for goods or
merchandises that are returned to the suppliers for various reasons, like
%
defect. 4 ??
. 8 0 2 97
4
36 4. 3 7 4
12
%
Purchase Discounts - these are discounts extended by the suppliers by
either buying in bulk or by being loyal to the products.
Freight In - this account is an inventoriable cost, which means that
5 . 7 6 it will become part of the cost of the products/goods that are being
purchased. These are expenses paid in the delivery of the goods being
purchased and shouldered by the buyer.
Advertising expenses - these are the costs of advertising, promotion
and marketing of the business.
Taxes and licenses - these are permits, licenses and other taxes paid to
2 the government in the course of the business operations.
Rent expense - this is the rental cost of the space occupied by the
16 business. 53
Insurance expenses - these are insurance cost premiums paid for the %
coverage of losses of equipment, building, furniture and one of the
4 ??
.80 2
benefits of employees to cover deaths or 97
accidents.
4
36 4. 3 7 4
12
%
Light and water expenses - this account is used for the amounts of
electricity and water used in the operations.
Office supplies expenses - these are the costs of office supplies
5 . 7 6 consumed during the period.
Salaries, Wages & Benefits - these are the amounts of salaries and
benefits incurred by employees during the period.
Gasoline expenses - these are the amounts of gasoline consumed by
officers and employees during official business travels/trips and gasoline
incurred by delivery trucks and service vehicles.
2 Interest expenses or Finance costs - these are interest expenses
charged by banks or other financial institutions or creditors for the loans
16 53
or credits.
Representation expenses - these are costs of entertaining clients in %
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relation to business functions.
4
. 8 0 2 97
4
36 4. 3 7 4
12
%
Repairs and maintenance - these are expenses incurred for the repairs
and maintenance of transportation, furniture and equipment of the
company
Depreciation expenses - these are the amortization costs of capitalized
5 . 7 6 non-current assets over the estimated useful life of the assets.
Communication expenses - these are telephone, cellfone, internet and
other form of communication expenses incurred by the company.
Transportation expenses - these are fares or transportation costs
incurred by employees in line with business activities.
Freight Out or Delivery Expenses - these are expenses incurred by
2 the seller in the delivery of goods to the customers.
Miscellaneous expenses - this account will be used for expenses that
16 53
cannot be classified in the above accounts.
%
4 ??
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4
36 4. 3 7 4
12
%
FORMS OF AN INCOME STATEMENT
Like the Balance Sheet, the Income Statement has also two forms,
namely: (a) the Single-Step Income Statement, and (b) the Multi-
5 . 7 6 Step Income Statement.
The Single-Step Income Statement
This format of an income statement uses extremely a condensed
presentation. There is a single subtotal for all revenues and a single
subtotal for all expenses, with a net income or loss appearing at the
bottom of the report. This format is commonly used by businesses that
2 have simple operations, like a service business.
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%
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36 4. 3 7 4
12
%
Very few businesses use the single-step format because the readers of an
5 . 7 6
income statement normally wanted to separately summarize information
for subsets of information within the income statement, like the cost of
goods sold and the operating expenses. In this format, there is no gross
margin calculation, nor any expense breakdowns by department- the
selling and general/administrative expenses.
2
16 53
%
4 ??
. 8 0 2 97
53 2
27 0. 34 2 39
% 5 %
7. 802
4
12 Thank you!
4
4.721 12
12
9
%