Senior High School

Fundamentals of Accountancy Business

and Management 2
Quarter I- Module 2: Lesson 1
Statement of Comprehensive Income

Writer:
VIENNAH MARIE M. BUSTOS
SST II San Vicente San Francisco HS,
Macabebe
Editors:
JANE P. VALENCIA, EdD – Math/ABM Supervisor
CHAIRMAN
BETHEL GRACE M. GUIAO- Teacher-III

NESSA B. DIMALANTA Teacher-II

 What I Need to Know

This module was designed and written with you in mind. It is here to help you master the
Statement of Comprehensive Income (SCI). The scope of this module permits it to be
used in many different learning situations. The language used recognizes the diverse
vocabulary level of students. The lessons are arranged to follow the standard sequence of the
course. But the order in which you read them can be changed to correspond with the
textbook you are now using.
The module is divided into two lessons, namely:
Lesson 1 – Identify and describe the elements of SCI for a Service Business and
merchandising business and preparation using single step approach for service
business
After going through this module, you are expected to:
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

What I Know

Pre-test. Choose the letter of the best answer. Write the chosen letter on a separate sheet of
paper.

1. Which of the following is an element of a statement of comprehensive income?

a. Cash c. Interest Pay
b. Interest Expense d. Prepaid Rent
2. Which of the following is the correct gross profit formula?
a. Sales – Gross Profit = Cost of Sales c. Sales + ross Profit = Cost of Sales
b. Sales + Cost of Sales = Gross Profit d. None of the above
3. Which of the following is an element of a statement of comprehensive income?
a. Bonds payable c. Notes payable
b. Capital d. Service Fee
4. Which of the following is classified as selling expense?
a. Depreciation of office equipment
b. Depreciation of the administrative building
c. Salaries of the sales executives
d. Salary of the president
5. This is a financial statement that informs the reader about the “performance” and
activities of the company for a certain period.
a. Statement of Cash Flow c. Statement of Comprehensive Income
b. Statement of Changes in Equity d. Statement of Financial Position
6. Which of the following is only ancillary to the entity’s operation?
a. Gain on sale of land
b. Professional fees charged by an auditing firm
c. Sales revenues earned by a convenience store
d. Sales revenues earned by a drug store
7. This is typically the date of the statement of comprehensive income?
a. “As of December 31, 2019,” c. Either a or b
b. “For the period ended December 31, 2019” d. None of the above
8. Which of the following is an element of a statement of comprehensive income?
a. Accounts Payable c. Notes Receivable
b. Capital d. None of the above

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 Identify and describe the elements of SCI for a
Service and Merchandising business and
Lesson 1: preparation using single step approach for
service business
The statement of comprehensive income or income statement reports an entiy’s
revenues, expenses, gains, losses, and the resulting net income(or net loss) for the period of
time specified in its heading.

What’s In

“My Personal SCI”

I want you to get a piece of paper and write how much is your monthly allowance
(computed by daily allowance x number of days in a month). Next, write the amount you
spend on food, transportation, phone load, etc. (make it monthly to match your
allowance). After that deduct the amount you spend from the amount from your
allowance.

Think of your allowance as your income or your revenue, the amount you spend as expense
and the difference that you got is the net income

Not es t o t he Teacher

There might be some cases that the result of the learner’s computation is
zero or even negative. Ask the learner to review the computation and if it
is negative, ask where the learner gets the difference (lending from
classmates, friends) and include them as part of the revenue. If the
learner does not have a regular allowance, the teacher can ask him/her to
give an estimate.

What’s New

This lesson aims to teach you the elements and details of the Statement of the
Comprehensive Income which reports the revenue, expenses and income/loss on an entity at
a given period. It also aims to teach you the different items for a service business and
merchandising business.

At the end of this lesson you are expected to identify the elements of the Statement of
Comprehensive Income and describe each of these items for a service business and
merchandising business.

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 What is it

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 December31, 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.

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)

Other books define the income statement as the profit and loss statement that
presents an entity’s result of operations for a period of time.

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)

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

ELEMENTS OF THE SCI

Elements and Key Features of a Statement of Comprehensive Income
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.

2. Revenues
“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)

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.

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.

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
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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)

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.

For a merchandising concern, the expenses are classified as cost of sales, selling
expenses and administrative (operating ) expense.

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.

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 Board 2010) Gains are
incidental to the operation of the business.

“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.”
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.

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.

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.

DIFFERENCE BETWEEN THE SCI OF A SERVICE BUSINESS AND THE SCI OF A

MERCHANDISING BUSINESS:

The main difference lies on how they generate their revenue.

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. On the other hand, 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.

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In presenting these items on the Statement of Comprehensive Income, a service
company will separate all revenues and expenses (as seen in the single-step format)
while a merchandising company will present total sales and cost of goods sold on the first
part of the statement which will net to the company’s gross profit before
presenting the other expenses which are classified as either administrative expenses or selling
expenses (as seen in the multi-step format).

PREPARATION OF THE STATEMENT OF COMPREHENSIVE INCOME USING THE SIGNLE-

STEP APPROACH

THE DIFFERENT PARTS OF THE STATEMENT OF COMPREHENSIVE INCOME FOR A

SERVICE BUSINESS USING THE SINGLE-STEP APPROACH:

I. Heading
a. Name of the Company

b. Name of the Statement

c. Date of preparation (emphasis on the wording – “for the”)

II. Sample of a Statement of Comprehensive Income (please refer
above)

a. First part is revenues This is the total amount of revenue that the company was
able to generate from providing services to customers

b. Second part is expenses (can be broken down into General and

Administrative and Selling Expenses) Please see the discussion in multi-step for
general and administrative and selling expenses.

c. Revenues less Expenses. Net income for a positive result and net loss for a
negative result

In the service industry, the account professional fee is the appropriate revenue
classification.

In presenting the operating expenses, it is customary for service

organization industries operated as sole proprietorships to omit the cost of service. A
supporting note is referred to in the statement of comprehensive income.
This supporting schedule shows the detailed composition of the operating
expenses as arranged according to recorded amount, from highest to lowest.
Other or miscellaneous expenses are presented last, no matter how much is the
balance.
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Operating income is determined by deducting the operating expenses from
professional fees.

After which, gains from ancillary transactions are presented. Such gains cannot
be presented as revenues as the gain is not normally incurred during operations.

After the gain, income taxes are presented. Income taxes are deducted from income.
After that the other comprehensive income is added to arrive at the total

comprehensive income.

What’s More

Activity 1
Identify each element or account if it can be found on a service or merchandising business. Complete the
table by putting a (√) check mark or (x) cross mark in the corresponding columns. Write your answers on
a separate sheet of paper.

Account Titles Service Business Merchandising Business

Sales
Consulting Revenue
Purchases
Cost of Sales
Inventory-Beginning
Referral Revenue
Freight-In
Purchase Returns and
Allowances
Advertising Revenue
Service Revenue

Assessment 1 – Kenneth Advertising Agency

The following are the accounts of Kenneth Advertising Agency for the year ended December 31, 2019
Professional Fees 1,300,000

Salaries Expense 130,000

Supplies Expense 192,500

Depreciation Expense 155,000

Utilities Expense 105,000

Insurance Expense 55,000

Rent Expense 230,000

Gain on Sale of Equipment 100,000

You are employed by the entity as its bookkeeper in its first year of operation. You will prepare the
necessary financial statement for the current year ended. Required:

1. Determine the net income

2. Prepare a Statement of Comprehensive Income
Write your answers on a separate sheet of paper.
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 Activity 2
TRUE OR FALSE: Write the word “True” if the statement is correct and “False” if it
is incorrect. Write your answers on a separate sheet of paper.
1. The Statement of Comprehensive Income is also called the
Income Statement and profit and loss statement.
2. Nominal accounts are also called temporary accounts because their balances are
being transferred to the capital account at the end of the accounting period.
3. For a service entity, the expenses are classified as cost of sales, selling expenses
and administrative (operating) expenses.
4. A merchandising business provides services in order to generate revenue
5. In a single-step comprehensive income statement, all revenues are listed down in one
section while all expenses are listed in another.

Assessment 2 Vivien Dental Clinic

The following are the accounts of Vivien Dental Clinic for the year ended December31, 2019
Professional Fees 900,000

Salaries Expense 205,000

Rent Expense 180,000

Office Supplies 105,000

Utilities Expense 95,000

Depreciation Expense 25,000

Miscellaneous Expense 20,000

Gain on Sale of Equipment 200,000

Provision for Income Tax 80,000

Other Comprehensive Income 20,000

Required: 1. Prepare a supporting note for the operating expenses

2. Determine the net income
3. Prepare a Statement of Comprehensive Income
Write your answers on a separate sheet of paper.

Activity 3 – Joshua Legal Office

The following are the accounts of Joshua Legal Office for December 31, 2019
Professional Fees 1,100,000

Salaries Expense 120,000

Supplies Expense 160,000

Depreciation Expense 130,000

Utilities Expense 90,000

Insurance Expense 40,000

Rent Expense 190,000

Required:
1. Determine the net income
2. Prepare a Statement of Comprehensive Income
Write your answers on a separate sheet of paper.
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Assessment 3 – Lordinel Architectural Services
The following are the accounts of Lordinel Architectural Services for December 31, 2019

Professional Fees 362,500

Salaries Expense 36,250
Supplies Expense 51,875
Depreciation Expense 42,500
Utilities Expense 29,000
Insurance Expense 15,500
Rent Expense 61,250

Required: 1. Determine the net income

2. Prepare a Statement of Comprehensive Income
Write your answers on a separate sheet of paper.

What I Have Learned

Kindly fill-in the blanks based on your understanding of the previous lessons:

What I Can Do

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 The following are the nominal accounts of Alex Medical Services for the year ended December 31, 2019

Required: 1. Compute for the net income.

2. Make a single step comprehensive income statement

Assessment

Multiple Choice. Choose the letter of the best answer. Write the chosen letter on a
separate sheet of paper.
1. Select the most appropriate description of the statement of comprehensive
income’s key features.
a. A statement of comprehensive income is like a picture that depicts a static image of an entity.
b. A statement of comprehensive income is like a moving video that depicts a moving scene of an entity.
c. A statement of comprehensive income contains assets, liabilities, and equity.
d. A statement of comprehensive income is dated “As of December 31,2016”
2. Which is an appropriate date for a statement of comprehensive income?
a. “As of December 31, 201” c. Either a or b
b. “For the period ended December 31, 2015” d. Neither a or b
3. Which of the following is an element of a statement of comprehensiveincome?
a. Cash c. revenue
b. Receivable d. interest receivable
4. Which of the following is an element of a statement of comprehensive income?
a. Cash equivalents c. Drawing
b. Capital d. Professional fee
5. Which of the following is an element of a statement of comprehensive income?
a. Note Payable c. Interest receivable
b. Note Receivable d. interest expense
6. Which of the following is an element of a statement of comprehensive income?
a. Interest Payable c. Rent Expense
b. Interest Expense d. Prepaid rent
7. Which of the following is only ancillary to the entity’s operation?
a. Professional fees charged by a law firm
b. Sales revenue earned by a variety store
c. Sales revenue earned by a department store
d. Gain on sale of property, plant, and equipment
8. Which of the following is classified as selling expense?
a. Salaries of corporate executive c. Depreciation of corporate headquarters
b. Salaries of salesman d. Depreciation of Automobile
9. Which of the following is correct gross profit formula?
a. Sales + Cost of Sales = Gross Profit
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 b. Sales + Gross Profit = Cost of Sales
c. Sales – Gross Profit = Cost of Sales
d. None of the Above
10. Which of the following is correct gross profit formula?
a. Sales + Cost of Sales = Gross Profit
b. Sales + Gross Profit = Cost of Sales
c. Sales – Gross Profit = Cost of Sales
d. None of the Above

Additional Activities

Answer Key

What I Know

1. b 5. c
2. a 6. a
3. d 7. b
4. c 8. d

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What’s More
Activity 1

Account Titles Service Business Merchandising Business

Sales x √
Consulting Revenue √ x
Purchases x √
Cost of Sales x √
Inventory-Beginning x √
Referral Revenue √ x
Freight-In x √
Purchase Returns and x √
Allowances
Advertising Revenue √ x
Service Revenue √ x
Assessment 1
1. Net Income Php532,500
2. Statement of Comprehensive Income – Kenneth Advertising Company

Activity 2
1. True 4. False
2. True 5. True
3. False
Assessment 2 – Vivien Dental Clinic

1. Note A – Operating Expenses

Salaries Expense 205,000
Rent Expense 180,000
Office Supplies 105,000
Utilities Expense 95,000
Depreciation Expense 25,000
Miscellaneous Expense 20,000
Total Operating Expenses 630,000

2. Total Comprehensive Income Php410,000

3. Statement of Comprehensive Income
Activity 3 – Joshua Legal Office
1. Net Income Php P370,000
2. Statement of Comprehensive income

Assessment 3 – Lordinel Architectural Services

1. Net Income P126,1256
2. Statement of Comprehensive Income – Lordinel Architectural Services

What have I learned?

1. gains or losses 5. losses

2. revenue 6. Other items
3. outflow 7. Single step format
4. gains 8. title

What Can I Do

1. Net Income Php283,000

2. Statement of Comprehensive Income Alex Medical Services

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Assessment
1. b 6. b/c
2. b 7. d
3. c 8. d
4. d 9.b
5. d 10. C
Additional Activities

Activity 1 – Edlyn Eye Specialist

1. Net Income Php66,000

2. Statement of Comprehensive Income –Edlyn Eye Specialist

Activity 2 – Jenel Nursing Clinic

1. Net Income Php264,000
2. Statement of Comprehensive Income – Jenel Nursing Clinic

References

Teaching Guide for Senior High School – Accountancy, Business and Management 2
Fundamentals of Accountancy, Business and Management Volume 1 By: Ma. Elenita Balatbat
Cabrera MBA MBA CPA CMA

Fundamentals of Accountancy, Business and Management: A Textbook in Basic

Accounting 2 By: Solita A. Frias Erlinda C. Pefianco, Ed. D (Project Director)
Fundamentals of Accountancy, Business and Management Volume 2 By: Josefina L. Beticon
James Cristopher D. Domingo Fermin Antonio D.
Yabut – Authors Ma. Gina T. Manaligod

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 Development Team of the Module

Writer: VIENNAH MARIE M. BUSTOS - SAN VICENTE SAN FRANCISCO HS

Editor: JANE P. VALENCIA, EdD – EPS – Mathematics
Reviewer: Bethel Grace M. Guiao/ Nessa B. Dimalanta
Illustrator: VIENNAH MARIE M. BUSTOS - SAN VICENTE SAN FRANCISCO HS
Layout Artist: VIENNAH MARIE M. BUSTOS - SAN VICENTE SAN FRANCISCO HS

Management Team

ZENIA G. MOSTOLES, EdD, CESO V, Schools Division Superintendent

LEONARDO C. CANLAS, EdD, CESE. Asst. Schools Division Superintendent
ROWENA T. QUIAMBAO, CESE, Asst. Schools Division Superintendent
CELIA R. LACNALALE, PhD, CID Chief
JANE P. VALENCIA, EdD, Education Program Supervisor, Mathematics
JUNE E. CUNANAN, Education Program Supervisor/ Language Editor
RUBY M. JIMENEZ, PhD., Education Program Supervisor, LRMDS

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