Fundamentals of

Accountancy, Business
and Management 2
Quarter 1 – Module 2:
Statement of Comprehensive
Income
Fundamentals of Accountancy, Business and Management 2
Alternative Delivery Mode
Quarter 1 – Module 2: Statement of Comprehensive Income
First Edition, 2020

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 Fundamentals of
Accountancy, Business
and Management 2
Quarter 1 – Module 2:
Statement of Comprehensive
Income
Introductory Message
For the facilitator:

Welcome to the Fundamentals of Accountancy, Business, and Management II

Alternative Delivery Mode (ADM) Module on Statement of Comprehensive Income
(SCI)!

This module was collaboratively designed, developed and reviewed by educators

both from public and private institutions to assist you, the teacher or facilitator in
helping the learners meet the standards set by the K to 12 Curriculum while
overcoming their personal, social, and economic constraints in schooling.

This learning resource hopes to engage the learners into guided and independent
learning activities at their own pace and time. Furthermore, this also aims to help
learners acquire the needed 21st century skills while taking into consideration
their needs and circumstances.

In addition to the material in the main text, you will also see this box in the body of
the module:

Notes to the Teacher

This contains helpful tips or strategies
that will help you in guiding the learners.

As a facilitator you are expected to orient the learners on how to use this module.
You also need to keep track of the learners' progress while allowing them to
manage their own learning. Furthermore, you are expected to encourage and assist
the learners as they do the tasks included in the module.

2
For the learner:

Welcome to the Fundamentals of Accountancy, Business, and Management II

Alternative Delivery Mode (ADM) Module on Statement of Comprehensive Income
(SCI)!

The hand is one of the most symbolized part of the human body. It is often used to
depict skill, action and purpose. Through our hands we may learn, create and
accomplish. Hence, the hand in this learning resource signifies that you as a
learner is capable and empowered to successfully achieve the relevant
competencies and skills at your own pace and time. Your academic success lies in
your own hands!

This module was designed to provide you with fun and meaningful opportunities
for guided and independent learning at your own pace and time. You will be
enabled to process the contents of the learning resource while being an active
learner.

This module has the following parts and corresponding icons:

What I Need to Know This will give you an idea of the skills or
competencies you are expected to learn in
the module.

What I Know This part includes an activity that aims to

check what you already know about the
lesson to take. If you get all the answers
correct (100%), you may decide to skip this
module.

What’s In This is a brief drill or review to help you link

the current lesson with the previous one.

What’s New In this portion, the new lesson will be

introduced to you in various ways such as a
story, a song, a poem, a problem opener, an
activity or a situation.

What is It This section provides a brief discussion of

the lesson. This aims to help you discover
and understand new concepts and skills.

What’s More This comprises activities for independent

practice to solidify your understanding and
skills of the topic. You may check the
answers to the exercises using the Answer
Key at the end of the module.

What I Have Learned This includes questions or blank

sentence/paragraph to be filled in to

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 process what you learned from the lesson.

What I Can Do This section provides an activity which will

help you transfer your new knowledge or
skill into real life situations or concerns.

Assessment This is a task which aims to evaluate your

level of mastery in achieving the learning
competency.

Additional Activities In this portion, another activity will be given

to you to enrich your knowledge or skill of
the lesson learned. This also tends retention
of learned concepts.

Answer Key This contains answers to all activities in the

module.

At the end of this module you will also find:

References This is a list of all sources used in

developing this module.

The following are some reminders in using this module:

1. Use the module with care. Do not put unnecessary mark/s on any part of
the module. Use a separate sheet of paper in answering the exercises.
2. Don’t forget to answer What I Know before moving on to the other activities
included in the module.
3. Read the instruction carefully before doing each task.
4. Observe honesty and integrity in doing the tasks and checking your
answers.
5. Finish the task at hand before proceeding to the next.
6. Return this module to your teacher/facilitator once you are through with it.
If you encounter any difficulty in answering the tasks in this module, do not
hesitate to consult your teacher or facilitator. Always bear in mind that you are
not alone.

We hope that through this material, you will experience meaningful learning
and gain deep understanding of the relevant competencies. You can do it!

4
 What I Need to Know

This module was designed and written to help you understand the purpose
of the Statement of Comprehensive Income (SCI). The lessons were designed to
equip you with knowledge and master the skills in preparing the SCI using the
single step approach in a service business and the multiple step approach in a
merchandising business.

The module is divided into three lessons, namely:

Lesson 1 – Identifying the Elements of the SCI and Describing Each of These Items
for a Service Business and a Merchandising Business
Lesson 2 – Preparing an SCI for a Service Business Using the Single-step Approach
Lesson 3 – Preparing an SCI for a Merchandising Business Using the Multi-step
Approach

After going through this module, you are expected to:

1. identify the elements of the SCI and describe each of them for a service
business and a merchandising business; (ABM_FABM12-Ic-d-5)
2. prepare an SCI for a service business using the single-step approach;
(ABM_FABM12-Ic-d-6) and
3. prepare an SCI for a merchandising business using the multi-step approach.
(ABM_FABM12-Ic-d-7)

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 What I Know

Read each item carefully and choose the letter of the best answer. Write your
answers on your answer sheet.

1. A statement that reports the results of the company’s operations for a specific
period of time is __________.
a. Statement of Comprehensive Income b. Statement of Cash Flows
c. Statement of Financial Position d. Statement of Changes in Equity

2. Transactions that increase assets and/ or decrease liabilities leading to increase

in equity resulting from the operations of the business and not from the owner’s
contribution.
a. Expenses b. Equity
c. Income d. Withdrawals

3. It refers to transactions that decrease assets and/ or increase liabilities that lead
to the decrease in equity as a result of the past operations of the business and
not because of distribution to owners.
a. Expenses b. Income
c. Equity d. Liabilities

4. Revenues and gains are two kinds of ___________.

a. Assets b. Liabilities
c. Income d. Expenses

5. Income account used by service operations is called ____________.

a. Sales Revenue b. Service Income
c. Cost of Sales d. Other Income

6. Losses are considered as ____________.

a. Income b. Capital
b. Payable d. Expenses

7. Element of SCI with credit normal balance is _________.

a. Income b. Expenses
c. Liabilities d. Equity

8. Income account used by trading or merchandising operations is called

____________.
a. Sales Revenue b. Service Income
c. Cost of Sales d. Other Income

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9. Mr. Sur Vivor paid the electricity bill of COVIDFREE Merchandising. Payment for
the electricity is considered _____________.
a. Income b. Expenses
c. Liability c. Capital

10. Income and Expenses as elements of SCI are also known as

___________________.
a. temporary accounts b. permanent accounts
c. ordinary accounts d. primary accounts

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 Elements of the SCI and
Lesson
Description of Each of These
1 Items for Service and
Merchandising Business
One of the Financial Statements (FS) that serves as an output of the
accounting process is the Statement of Comprehensive Income (SCI). This is also
known as the Income Statement. Recall that in Module 1, it is mentioned that
financial statement is a set of interconnected reports. SCI is the first financial
report being prepared. This statement contains the result of operations of the
business for a specific period and its bottom line is the net income.

In Fundamentals of Accountancy, Business, and Management 1, it was

discussed that businesses can also be classified according to activities. It can be a
service type, a merchandising or a manufacturing business. In this lesson, you will
identify the basic elements of the SCI and will describe them for service business
and merchandising business.

What’s In

Following is the Statement of Financial Position (SFP) of COVIDFREE

Merchandising as of December 31, 2019 in account format. In a separate sheet of
paper, complete the pro-forma SFP by filling in the blank parts with the correct
answer.

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 COVIDFREE Merchandising
Statement of Financial Position
As of December 31, 2019

1)_____________________________ 2)______________________________

3)_______________ 4)________________
Cash xxx Accounts Payable xxx
Accounts Receivable xxx Accrued Expenses xxx
Inventory xxx Unearned Income xxx
Supplies xxx 6)________________________ xxx
Prepaid Expenses xxx Noncurrent Liabilities
Notes Receivable xxx Mortgage Payable xxx
5)___________________ xxx Long-termed Notes payable xxx
7)___________________ Total Noncurrent Liabilities xxx
Property, Plant and Equipment xxx 8)________________________ xxx
Less: Accumulated Depreciation xxx xxx
Intangibles xxx
Total Noncurrent Assets xxx Owner, Capital xxx
9)____________________ xxx 10)___________________ xxx

What’s New

The financial performance of an entity is measured by the results of its

operations. This measurement involves the computation of the net income or net
loss. Net income or net loss is then forwarded to the equity section by increasing or
decreasing the capital account which is then reflected in the SFP. In coming up
with the net income or net loss you will deal with the two elements. These are:
Income and Expenses. In this lesson, you will describe Income and Expenses of
both service and merchandising type of business. The following illustration
describes SCI elements’ effect in the equity account.

EQUITY
Income Expenses

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 What is It

Statement of Comprehensive Income is a statement that provides

information as to the financial performance of the company by computing the net
income or net loss of the entity. SCI has two major elements namely: Income and
Expenses. Let us describe these elements and the examples under each to
understand better.

1. Income – refers to a transaction that increases assets and/ or decreases

liabilities leading to increase in equity resulting from the operations of the business
and not from the owner’s contribution. Income has a credit normal balance because it
increases Equity. There are two (2) kinds of Income, the Revenue and Gains.

a. Revenue – income coming from the primary operations of the business

Different account names under revenue are:
o Service Income – account generally used to describe revenue derived
from rendering of services and are recognized when services have already
been rendered.
Examples:
Rental Income from space rental, vehicle and equipment rental
Professional Fees received by Doctors, Lawyers, Dentists, CPA,
Engineers
Tuition Fees received by schools and universities
o Sales – account generally used to describe revenue derived from selling of
goods and are recognized when goods have been delivered
Examples:
Sales from office supplies, books, food, medicines, accessories and
clothing
Contra Sales accounts are reductions to sales. This includes:
- Sales Discounts are granted to customers who pay earlier or before
the deadline.
- Sales Returns and Allowances occur when customers return their
products for reasons such as but not limited to defects or change
of preference.
b. Gains are income coming from the non-primary activities of the business.
These are non-cash income that occur when the proceeds from the sale of
asset exceeds the net book value of the asset.
Example:
- Gains from sale of Delivery Van of a grocery store (The primary
activity of the grocery involves selling of grocery items,
therefore selling its delivery van is non-primary activity).

10
2. Expenses – are transactions that decrease assets and/ or increase liabilities
leading to the decrease in equity resulting from the operations of the business and
not because of distribution to owners. It has a debit normal balance because it
decreases Equity. Account under expenses are:
a. Cost of Goods Sold is an account used by merchandising and
manufacturing business that refers to the cost of merchandise sold. It
includes the purchase price and the shipment cost (freight in) to bring
goods to the premises of the business for merchandising business and the
cost of producing goods for sale for a manufacturing business.
b. Operating Expenses refers to all other expenses related to the operations of
the business other than the cost of sales.
Examples:
– salaries of employees
– supplies used
– utilities (such as electricity, gasoline, telephone, water)
– depreciation expense, amortization expense, and bad debts expense*
*estimated operating expense when accounts receivable become
uncollectible.
Operating expenses can be:
o General and Administrative are expenses that are not directly
related to the merchandising function of the company but are
necessary for the business to operate effectively. Examples of these
are salaries of office employees, office supplies, and office utilities
expenses.
o Selling Expenses are expenses that are directly related to the main
purpose of a merchandising business which is the sale and delivery of
merchandise.
c. Other Expenses and Losses are expenses which are not related to the major
operations of the business. They are presented after the operating section of the
SCI.
Examples:
– Interest expense
– Loss on sale of Equipment (these are non-cash expenses that occurs
when the proceeds from the sale of asset is less than the net book
value of the asset).

Income and Expenses are considered as temporary or nominal accounts.

The balances of these accounts are transferred to the capital account, thus their
balances become zero at the end of the accounting period.

11
 What’s More

Identify the elements of the SCI and the accounts under it. Copy the
graphics in a short bond paper and fill in the required answers. Choose your
answers from the word box.

SCI

1. 2.

1. 2. 1. 2. 3.

1. 2. 1. 2.

General and Administrative Expenses

Selling Sales

Cost of Goods Sold Revenue

Operating Expenses Income

Gains Other Expenses and Losses

Service Revenue

12
 What I Have Learned

• Statement of Comprehensive Income is a financial statement that provides the

results of the company’s operations for a specific period of time.
• There are two elements of SCI:
o Income - transactions that increase assets and/ or decrease liabilities
leading to increase in equity resulting from the operations of the business
and not from the owner’s contribution
o Expenses - transactions that decrease assets and/ or increase liabilities
leading to the decrease in equity resulting from the operations of the
business and not because of distribution to owners
• Income coming from the major operations of the business is considered Revenue
while income coming from other activities of the business is considered Gains.
• Revenue generated from by a service business is called Service Income while
revenue generated from a merchandising business is called Sales.
• Expenses include:
o Cost of Goods Sold refers to the cost of merchandise sold. It includes the
purchase price and the shipment cost to bring goods to the premise of the
business.
o Operating Expenses refer to all other expenses related to the operations of
the business other than the cost of sales. These expenses can be:
▪ General and Administrative – expenses not directly related to the
merchandising function of the company but are necessary for the
business to operate effectively
▪ Selling Expenses – expenses that are directly related to the main
purpose of a merchandising business which is to sell and deliver
merchandise
o Other expenses and losses are expenses which are not related to the major
operations of the business They are presented after the operating section of
the SCI.

13
 What I Can Do

Identify and describe the two elements of the SCI. Give one example for each
element. Follow the format provided and write your answers on your answer sheet.

Examples
SCI Element Description
Service Merchandising

1.

2.

14
 Assessment

Write I if the statement describes an Income and E if it describes an

Expense. Use a separate paper for your answers.

1. It increases assets and/ or decreases liabilities leading to

increase in equity resulting from the operations of the
business and not from the owners’ contribution.
2. It decreases assets and/ or increases liabilities leading to
the decrease in equity resulting from the operations of the
business and not because of distribution to owners.
3. One of the accounts under it is Cost of Goods Sold.
4. Sale of inventory is one of its sources.
5. It can be classified as Revenue or Gains.
6. It is an SCI element having a normal balance of debit.
7. Professional Fees is one of its examples.
8. It is an SCI element with credit normal balance.
9. Losses can be considered under this element.
10. It is earned by rendering services or selling of goods.

15
 Additional Activities

The following scrambled letters are part of the word which describes/ relates
to the elements of SCI. Arrange the letters to form the correct words and write a
brief description about it. Use a separate paper for your answers.

1. N P E S E E S X

2. M N O E I C

3. U E N R V E E

4. S I G N A

5. E A S S L

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 17
What I Know: What’s In: Assessment: Additional Activities:
1. a 1. Assets 1. I 1. Expenses
2. c 2. Liabilities and Owner’s Equity 2.E 2. Income
3. a 3. Current Assets 3. E 3. Revenue
4. c 4. Current Liabilities 4. I 4. Gains
5. b 5. Total Current Assets 5. I 5. Sales
6. d 6. Total Current Liabilities 6. E
7. a 7. Noncurrent Assets 7. I
8. a 8. Total Liabilities 8. I
9. b 9. Total Assets 9. E
10.a 10. Total Liabilities and Owner’s Equity 10. I
What’s more:
What I can do:
ELEMENT DESCRIPTION SERVICE MERCHANDISING
1. Income Transaction that increase 1. Rental Income from Sales from
assets and/ or decrease space, vehicle, and 1. sales of office supplies
liabilities leading to equipment 2. sales of books
increase in equity
2. Professional Fees 3. sales of food
resulting from the
operations of the business received by Doctors, 4. sales of medicines
and not from the owner’s Lawyers, Dentists, CPA, 5. sales of accessories & clothing
contribution. Engineers 6. sales of construction supplies
3. Tuition Fees received 7. sales of agricultural supplies.,
by schools and
universities
2. Expenses Expenses - are 1. salaries of employees 1. salaries of employees
transactions that decrease 2. office and store 2. office and store supplies
assets and/ or increase supplies 3. utilities expenses
liabilities leading to the
3. utilities expenses 4. interest expenses
decrease in equity
resulting from the 4. interest expenses 5. depreciation expense
operations of the business 5. depreciation expense 6. rent expense
and not because of 6. rent expense
distribution to owners.
Answer Key
 What I Know

D’BEST TUTORIAL CENTER, a single proprietorship business owned by Mrs.

Dee has the following data for the period covered January 1 – December 31, 2019.
Prepare a Statement of Comprehensive Income for the year ending December 31,
2019 using the Single-Step approach.

Tutorial Fees ₱ 450,000

Interest Income 15,000
Office Supplies Expense 12,000
Salaries Expenses 90,000
Electricity Expense 25,000
Rent Expenses 36,000
Depreciation Expense - Office Equipment 24,000
Interest Expense 9,000

18
Lesson
SCI for a Service Business Using
2 the Single-Step Approach

The Statement of Comprehensive Income (SCI) shows the performance of the

business for a specific period. In the previous lesson, you have recalled the different
types of business according to activities. These types are service business,
merchandising business and manufacturing business. Businesses prepare their
SCI using different approaches. In this lesson, you will focus on the preparation of
SCI for a service business using the single-step approach.

What’s In

Classify the following items as Income or Expenses. Write your answers on

your answer sheet.

1. Tuition fees
2. Interest received
3. Loss on sale of equipment
4. Office supplies used
5. Salaries paid to office employees
6. Monthly electricity paid
7. Space rental paid
8. Depreciation
9. Sales
10. Bad Debts

19
 What’s New

FOOD CHOW NA, a restaurant owned by Ms. Dieta is catering food orders for
delivery only. The business was newly opened due to the demand of food delivery
during the pandemic. The owner wanted to know the result of its business after
operating for three months so, she hired a bookkeeper to prepare a report. The
bookkeeper provided all documents to support the income earned and the expenses
paid. What kind of report do you think will the bookkeeper prepare for the
business?

What is It

SCI plays a very important role in financial reporting because without it the
business cannot truly know if it is earning. Companies prepare the SCI using
different approaches. A service company may use a different approach to a
merchandising company since they have different business activities. The main
difference between a service business and merchandising business is on how they
generate their revenue. A service business provides services in order to generate
income and the main cost associated with the activity is the cost of labor which is
presented under the account Salaries Expense. On the other hand, a
merchandising business 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. In this lesson, you will focus on the service type of
business.

You have learned that SCI has two elements, the Income and Expenses. Now
you will use these elements in preparing the actual SCI. There are two approaches
in preparing the SCI: the Single-step and the Multi-step. This lesson will only
introduce the preparation of the SCI of a service business, using the Single-step
approach.

A Single-step approach simply groups all revenue items together and all expenses
together. Net income is computed using a “single-step” which is deducting the total
expenses from the total revenues/ income. Subtotals are not computed in this
format. The format for the single-step SCI is as follows:

Total Revenue/ Income xxx

Less: Total Expenses xxx
Net Income/(loss) xxx

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 This approach is more often used in service business. They have simpler
transactions compared to merchandising business because service business does
not have inventories.

COVIDFREE SALON & SPA

STATEMENT OF COMPREHENSIVE INCOME
FOR THE YEAR ENDED DECEMBER 31, 2019

Service Revenue ₱1,250,000

Interest Income 22,000
Gain on Sale of Land TOTAL 110,000
REVENUE/
Total Revenues and Income ₱1,382,000
INCOME
Less: Expenses
Salaries Expense 640,000
Utilities Expense 96,000
Supplies Expense 72,000
Rent Expense TOTAL 90,000
Depreciation Expense EXPENSES 60,000
Insurance Expense 12,000
Interest Expense 18,000
Loss on Sale of Equipment 3,000
Total Expenses 991,000
Net Income ₱ 391,000

Figure 5. Single-Step – Statement of Comprehensive Income

Note that there are only two groups of items: 1) the total amount of revenue
earned by the business; and 2) the total expenses. The result after deducting the
total expenses from the total revenue is Net Income when it is positive and Net Loss
when it is negative.

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 What’s More

FACE MUST Beauty Center has been operating since 2018. On that year
(2018) the business earned a net income of ₱175,000. The business wants to know
if the year 2019 performed as profitable as in 2018. The following are the data
provided by FACE MUST.

Service Revenue ₱ 470,000

Interest Income 5,000
Loss on Sale of Facial Equipment 13,000
Salaries Expense 215,000
Supplies Expense 50,000
Electricity Expense 48,000
Water Expense 24,000
Telephone Expense 18,000
Rent Expense 60,000
Interest Expense 6,000
Depreciation Expense – Equipment 50,000

Requirement:

Prepare a single-step SCI for the year ended December 31, 2019.

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 What I Have Learned

• Statement of Comprehensive Income (SCI) shows the financial performance of

the business for a specific period.

• A service business uses a different approach in preparing the SCI compared

to a merchandising business.

• The two approaches in preparing for the SCI are Single-step and Multi-step. A
Single-step approach simply groups all revenue items together and all
expenses together. It computes net income using a “single-step” which is
deducting the total expenses from the total revenues/ income and no subtotal
is computed. This is often used by service type of business.

• Net income using the single-step approach can simply be computed as:
Total Revenue/ Income xxx
Less: Total Expenses xxx
Net Income/(loss) xxx

23
 What I Can Do

Now that you have learned how to prepare a single-step SCI, let us us help
the bookkeeper prepare the report needed by FOOD CHOW NA. The following data
are provided by the owner for the year ended December 31, 2019. Using a separate
sheet of paper, prepare the SCI using the single-step approach.

Food Service Income ₱ 850,000

Interest Income (earned from other Investments) 15,000

Gain on Sale of Old Delivery Equipment 20,000

Salaries Expense (delivery and office personnel) 350,000

Gasoline Expense 150,000

Electricity Expense 30,000

Communication Expense 8,000

Rent Expense 45,000

Insurance Expense 50,000

Interest Expense (for borrowed funds) 10,000

Depreciation Expense – Delivery Equipment 60,000

24
 Assessment

Prepare a Single-step SCI for STAYHOME LAUNDRY SHOP for the year
ended December 31, 2019 using the following data. Write your answers on a
separate answer sheet.

Laundry Fees ₱ 450,000

Interest Income 5,000

Loss on Sale of Old Laundry Equipment 3,000

Salaries Expense 120,000

Laundry Supplies Expense 90,000

Electricity Expense 50,000

Water Expense 30,000

Communication Expense 12,000

Rent Expense 60,000

Interest Expense (for borrowed funds) 4,000

Depreciation Expense – Laundry Equiment 40,000

25
 Additional Activities

The owner of LOCK IT UP SHOP, a key duplicating business, wanted to know

if they were having a net income or net loss for their first year of operations. The
following are the data provided by the shop. Prepare a Statement of Comprehensive
Income for the year ended December 31, 2019 using the single-step approach.

Service Revenue ₱ 150,000

Interest Income 5,000
Loss on Sale of Equipment 8,000
Store Supplies Expense 4,000
Salaries Expense 50,000
Electricity Expense 12,000
Rent Expense 10,000
Depreciation Expense 8,000
Interest Expense 2,500
Insurance Expense 1,500

26
Answer Key

27
28
 What I Know

On January 2, 2019, Mr. Negosyante opened COMPLETE GROCERY STORE.

At the end of the year, he wanted to know the result of the store’s operation. Using
the following data, prepare a multi-step SCI for the year ended December 31, 2019
and answer the following items. Write only the letter of your choice in your answer
sheet.

Sales ₱ 12,000,000
Sales Return 105,000
Sales Discount 120,000
Purchases 8,500,000
Purchase Return 60,000
Purchase Discount 42,000
Freight In 85,000
Rent Expense 120,000
Salaries Expense 720,000
Utilities Expense 600,000
Depreciation Expense 90,000
Income Tax Expense 110,000

Additional Information:
1. Ending Inventory is on December 31 – ₱ 1,850,000.
2. Rent expense is for the rental of the store.
3. 15% of the salaries expense is allocated to general and administrative
Expense and 10% of utilities expense is allocated to the office.
4. ₱ 30,000 depreciation expenses is for the office equipment.

1. The net sales of the company is ___________.

a. ₱ 12,000,000 b. ₱ 11,775,000
c. ₱ 9,925,000 d. ₱ 12,225,000

2. The total goods available for sale is ________.

a. ₱ 8,483,000 b. ₱ 5,142,000
c. ₱ 9,925,000 d. ₱ 10,333,000

3. How much is the cost of goods sold?

a. ₱ 3,612,000 b. ₱ 1,850,000
c. ₱ 5,142,000 d. ₱ 6,633,000

4. How much is the computed gross profit of the company?

a. ₱ 3,612,000 b. ₱ 1,850,000
c. ₱ 5,142,000 d. ₱ 6,633,000

29
5. The total operating expenses of the company is __________.
a. ₱ 1,530,000 b. ₱ 5,142,000
c. ₱ 3,612,000 d. ₱ 1,850,000

6. The company has an operating income of ____________.

a. ₱ 1,530,000 b. ₱ 5,142,000
c. ₱ 3,612,000 d. ₱ 1,850,000

7. The general and administrative expenses of the company is ______.

a. ₱ 1,212,000 b. ₱ 1,332,000
c. ₱ 318,000 d. ₱ 198,000

8. How much selling expenses does the company have?

a. ₱ 1,212,000 b. ₱ 1,332,000
c. ₱ 318,000 d. ₱ 198,000

9. Total income before tax is _____________.

a. ₱ 1,530,000 b. ₱ 5,142,000
c. ₱ 3,612,000 d. ₱ 1,850,000

10. The company has a _____________.

a. ₱ 3, 612,000 net income b. ₱ 3,612,000 net loss
c. ₱ 3, 502,000 net income d. ₱ 3,502,000 net loss

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Lesson
Multi-Step SCI for a
3 Merchandising Business

Consider yourself as the owner of a grocery store in your place. As the

owner, are you excited to know if you are earning profits or having losses? How will
you know that you are really earning or losing?

In business, it does not mean that because the company is receiving cash or
continues selling in volume, it is earning profits. Remember that depreciation does
not involve payment of cash but is still considered as expense. Business owners
will only know the true results of business operations through a financial
statement, specifically, the Statement of Comprehensive Income. This lesson will
introduce to you a different approach in determining the net income or net loss of a
merchandising business.

What’s In

The owner of EVENTMO, an event organizing company, would like to know if

the business is really earning at the end of its operation. Using the data provided,
prepare an SCI for the year ended December 31, 2019 using a single-step
approach.

Service Fees Earned ₱ 450,000

Interest Received 25,000
Payment for Rental 30,000
Payment for Utilities 84,000
Salaries paid to employees 200,000
Depreciation of Equipment 35,000
Interest paid for borrowed funds 15,000
Loss on sale of an old video equipment 2,000

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 What’s New

The main goal of business is to provide goods or services to its customers

with the intention to earn a profit. It is important that businesses know the results
of their operations. In the previous lesson, you have learned that business
performance can be measured by preparing a Statement of Comprehensive Income
(SCI) or previously known as Income Statement.

SCI presentation differs according to the activity of the business. One of the
business types according to its activity is the merchandising business. Its main
operation is buying and selling goods without changing its form to the customers.
This kind of business has more complex transactions compared to a service
business because it has inventories to account for. Since merchandising business
has more complex operations, you will also learn to prepare a more complex SCI
using a different approach.

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 What is It

A multi-step SCI is prepared with several steps in computing for the

company’s net income/loss. It is more commonly used by merchandising
businesses. A multi-step SCI classifies and presents revenue and expenses in
different sections. These section include:

1. Gross Profit section –The first step in multi-step SCI is the computation of the
gross profit. The components of the gross profit section are the following:

a. Sales is the total amount of revenue that the company is able to generate
from selling products.

Contra sales account is on the opposite side of the sales account which are
reductions to sales. Contra sales accounts include:

i. Sales returns – account debited in order to record returns of

customers or allowances for such returns. It occurs when
customers return goods purchased for reasons such as but not
limited to defects or change of preference.
ii. Sales discount – discounts given to customers for paying early or
before the deadline

Net Sales = Sales – Sales returns – Sales discount

b. Cost of Goods Sold – account that represents the actual cost of

merchandise sold during the year

i. Beginning inventory – amount of inventory at the beginning of the

accounting period and is also the amount of ending inventory from
the previous period
ii. Purchases – amount of goods bought during the current year

Contra Purchase account – an account on the opposite side of the

purchases
(a) Purchase discount – account used to record early payments made
by the company to the suppliers of merchandise
(b) Purchase returns – account used to record the cost of returned
merchandise by the company to their suppliers
iii. Freight In – refers to the cost of transporting merchandise purchased
form the seller to the premises of the company

Net Purchases = Purchases – Purchase discount – Purchase Returns

Cost of Goods Available for Sale = Beginning inventory + Net
Purchases

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 iv. Ending inventory – amount or total cost of unsold inventory at
the end of the accounting period. It is also the amount
presented in the Statement of Financial Position.

Cost of Goods Sold = Cost of Goods Available for sale – Ending

Inventory

c. Gross Profit – The amount can be computed by deducting the Cost of

Goods Sold from the Net Sales.

2. Operating Income Section – The next step in a multistep SCI is the

computation of the operating income. The components of this section are:

a. General and Administrative Expenses – expenses which are not

directly related to the merchandising function of the company but
are necessary to the operations of the business

b. Selling Expenses – expenses which are directly related to the main

purpose of a merchandising business which are the sale and
delivery of merchandise

c. Operating Income/(Loss) = From the Gross Profit, we deduct the

general and administrative expenses and the selling expenses to
arrive at the operating income/ (loss).

3. Net Income Section - This is the final section in a multi-step SCI, which are
reported after the operating section of the SCI. It includes:

a. Other Income/ Gains

b. Other Expenses/ Losses

c. Net Income/ (Net Loss) = This line item is the “bottom line” of the SCI.
Operating Income/(Loss) + Other Income/ Gains – Other Expenses/
Losses

Note that, the amount of net income/ (loss) obtained from the SCI is
forwarded to the Statement of Changes in Equity (will be discussed in the next
lesson) and will either increase or decrease the equity account.

34
The following illustrative problem shows the preparation of the SCI using a multi-
step approach.

On December 31, 2019, COVIDFREE Merchandising had provided the following

information.
Sales ₱ 1,340,000
Sales Returns and Allowances 35,000
Sales Discount 55,000
Purchases 925,000
Purchase Returns and Allowances 25,000
Purchase Discount 45,000
Freight In 65,000
Rent Expense 96,000
Salaries Expense 252,000
Utilities Expense 60,000
Depreciation Expense 50,000
Gain on sale of Old Equipment 8,000
Interest Expense from borrowings 12,000
Income Tax 35,000

Additional information:
1. Ending Inventory
December 2018 180,000
December 2019 250,000
2. 30% of the rent expense is attributed to selling
3. Salaries expense for office employees is 40% of the total
salaries paid
4. Office shares payment for utilities at 50%
5. Depreciation attributed to selling is 80%

35
 COVIDFREE MERCHANDISING
STATEMENT OF COMPREHENSIVE INCOME
FOR THE YEAR ENDED DECEMBER 31, 2019

Net Sales¹ ₱1,450,000

Less: Cost of Goods Sold² Gross profit 850,000
section
Gross Profit 600,000
Operating Expenses
General and Administrative Expenses³ (208,000)
Selling Expenses Operating (250,000)
Income section
Operating Income 142,000
Gain on Sale of Old Equipment 8,000
Interest Expense on Loans (12,000)
Net Income/
Income before tax Loss section 138,000
Income Tax 35,000
Net Income/(Loss) ₱ 103,000

Figure 6. Multi-step – Statement of Comprehensive Income

Additional Computations:

1. Net Sales

Sales ₱ 1,540,000
Less: Sales Discounts 55,000
Sales Returns and Allowances 35,000
Net Sales¹ ₱ 1,450,000

2. Cost of Goods Sold

Beginning Inventory ₱ 180,000

Add: Net Purchase
Purchases 925,000
Add: Freight In 65,000
Less: Purchase Returns & Allowances 25,000
Purchase Discounts 45,000
Total Goods Available for Sale 1,100,000
Less: Ending Inventory 250,000
Cost of Goods Sold² ₱ 850,000

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3. Operating Expenses

Allocation
Total General and Selling
Expenses
Amount Administrative Expense
Expense³

Rent Expense 30% selling ₱ 96,200 ₱ 67,200 ₱ 28,800

40% general &

Salaries Expense 252,000 100,800 151,200
Administrative
50% general &
Utilities Expense 60,000 30,000 30,000
administrative
Depreciation
80% selling 50,000 10,000 40,000
Expense
TOTAL ₱458,000 ₱208,000 ₱250,000

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 What’s More

FEEL AT HOME Appliance Center provided the following data. On a separate

answer sheet, compute for the required items.

Sales ₱ 3,000,000
Sales Returns and Allowances 48,000
Sales Discounts 60,000
Purchases 1,890,000
Purchase Returns and Allowances 55,000
Purchase Discount 72,000
Freight In 85,000
Salaries Expense (70% for Sales Personnel) 620,000
Supplies Expense (60% for Office) 35,000
Rent Expense (20% charged to Office) 120,000
Utilities Expense (80% allocated to Selling) 84,000
Advertising Expense 50,000
Depreciation Expense (70% of property are used for selling) 100,000
Interest Income from Other Investments 18,000
Interest Expense on Borrowings 4,500
Income Tax 29,550
Inventory, December 31 50,000

Required:
1. Net Sales
2. Cost of Goods Sold
3. Total General and Administrative Expenses
4. Total Selling Expenses
5. Gross Profit
6. Operating Income
7. Income before Tax
8. Net Income/ (Loss)

38
 What I Have Learned

• Merchandising business uses a multi-step SCI because it has inventory

to account for.
• A multi-step SCI classifies revenues and expenses in different sections
with subtotals at the end of each section.
• Revenue account used by merchandising business is called sales.
• Contra sales accounts such as sales returns and allowances and sales
discounts are deductions from sales.
• Purchases are amounts of goods bought during the current year.
• Contra purchase accounts such as purchase returns and allowances
and purchase discounts are deductions from purchases.
• The cost of transporting merchandise purchased from the seller to the
premises of the company is called Freight In.
• Cost of goods sold represents the actual cost of merchandise sold during
the year.
• Gross profit can be computed by deducting the cost of goods sold from
the net sales.
• Operating expenses are categorized into general and administrative and
selling expenses.
• Operating income can be computed by deducting the total operating
expenses from the gross profit.
• Net income is the final amount obtained from preparing an SCI.
• Revenue subtotals are presented in gross profit, operating income and
net income.

39
 What I Can Do

ABM Company’s general ledger has the following account balances as of

December 31, 2019. Prepare a Multi-step SCI to determine the Net Income/ (Loss)
of the company. Write your answers on a separate answer sheet.

Sales ₱ 2,860,000
Sales Returns and Allowances 48,000
Sales Discounts 60,000
Purchases 1,890,000
Purchase Returns and Allowances 55,000
Purchase Discount 72,000
Freight In 85,000
Salaries Expense 620,000
Rent Expense 120,000
Utilities Expense 84,000
Advertising Expense 50,000
Depreciation Expense 100,000
Interest Income from Other Investments 18,000
Loss on Sale of Equipment 4,500

Additional information:
1. The company has no beginning inventory. Ending Inventory
on December 2019 amounted to ₱150,000.
2. Rent expense attributed to selling is 60%.
3. Salaries expense for salesmen and other
sales personnel is 70% of the total salaries paid.
4. Utilities charged to selling is at 60% of the total bills.
5. Depreciation expense for property, plant and equipment
used for selling is 80%.
6. Income tax expense is 20% of the net income before tax

40
 Assessment

Read and analyze each item carefully and choose the letter of your choice.
Prepare a multi-step SCI to answer numbers 1-7. Write your answers on a separate
answer sheet.

The following information was provided by MASK FACE IT store for its first
year of operations ending December 31, 2019.

Sales ₱ 360,000
Sales Returns and Allowances 4,000
Sales Discounts 8,000
Purchases 180,000
Purchase Returns and Allowances 5,000
Purchase Discount 2,000
Freight In 12,000
Salaries Expense (80% for Sales Personnel) 70,000
Supplies Expense (30% for Office) 17,000
Rent Expense (25% charged to Office) 35,000
Utilities Expense (40% allocated to Selling) 25,000
Depreciation Expense (10% is for Office Equipment) 30,000
Interest Expense on Borrowings 6,500
Inventory, December 31 10,000
Income Tax Expense 10,000

1. The company has a net sales of ___________.

a. ₱ 356,000 b. ₱ 352,000
c. ₱ 348,000 d. ₱ 360,000

2. The store’s total goods available for sale is ________.

a. ₱ 175,000 b. ₱ 185,000
c. ₱ 173,000 d. ₱ 195,000

3. Cost of goods sold computed is _________?

a. ₱ 175,000 b. ₱ 185,000
c. ₱ 173,000 d. ₱ 195,000

4. How much is the store’s gross profit?

a. ₱ 175,000 b. ₱ 185,000
c. ₱ 173,000 d. ₱ 195,000

41
5. The general and administrative expenses amounted to ________.
a. ₱ 177,000 b. ₱ 45,850
c. ₱ 134,150 d. ₱ 131,150

6. The store’s selling expenses is _________.

a. ₱ 177,000 b. ₱ 45,850
c. ₱ 134,150 d. ₱ 131,150

7. MASK FACE IT net income/(loss) for the year is __________?

a. (₱ 9,500) b. ₱ 9,500
c. (₱ 500) d. ₱ 500

8. In preparing the multi-step SCI, which of the following statements is true?

a. It simply groups all revenue together and all expenses together.
b. It classifies and presents revenue and expenses in different sections.
c. It computes the operating income by deducting the cost of goods sold
section from the net sales.
d. Net income can be obtained by deducting the operating expenses from the
net sales.

9. The following are formulas in preparing the sections of a multi-step SCI. Which
is incorrect?
a. Gross Profit = Net Sales – COGS
b. Operating Income = Gross Profit – Operating Expenses
c. Net Income = Net Sales – COGS
d. Net Income = Operating income + Other income – Other expenses

10. Which of the following is the correct sequence in preparing sections of a multi-
step SCI?
I. Operating Income
II. Net Income
III. Cost of Goods Sold
IV. Gross Profit
V. Net Sales
VI. Operating Expenses
VII. Other income/ expenses

a. I, II, III, V, IV, VI, VII b. V, III, IV, I, VI, VII, II

c. V, III, IV, VI, I, VII, II d. V, III, I, VI, IV, VII, II

42
 Additional Activities

Prepare a multi-step SCI for ABC Company for the year ended December 31,
2019 by computing the missing amounts. Refer to the additional information for
your computation. Write your answers on a separate answer sheet.

Sales ₱ 340,000
Less: Sales Returns ?
Sales Discount ?
Net Sales ?
Less: Cost of Goods Sold ?
Gross Profit ?
Less: Operating Expenses
General and Administrative Expense ?
Selling Expenses ?
Operating Income ?
Other Income 15,000
Other Expenses 9,000
Income before tax ?
Income tax expense ?
Net Income ?

Additional information:
1. Sales returns is 10% of sales, while sales discount is 50% of sales returns.
3. Cost of goods sold is 60% of the Net Sales.
4. Total operating expenses is 20% of the gross profit, 25% of the amount is
allocated to general and administrative expenses.
5. Income tax expense is 10% of the income before tax.

43
Answer Key

44
45
46
References
K to 12 Curriculum Guide in Fundamentals of Accountancy, Business, and
Management 2

Teaching Guide for Senior High School, Fundamentals of Accountancy, Business, and
Management 2. CHED, 2016

Dani Rose C. Salazar. Fundamentals of Accountancy, Business, and Management 2.

Rex Bookstore

Jerry_Weygandt . Accounting Principles 12th Edition.

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 For inquiries or feedback, please write or call:

Department of Education - Bureau of Learning Resources (DepEd-BLR)

Ground Floor, Bonifacio Bldg., DepEd Complex

Meralco Avenue, Pasig City, Philippines 1600

Telefax: (632) 8634-1072; 8634-1054; 8631-4985

Email Address: [email protected] * [email protected]

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