FUNDAMENTALS OF ACCOUNTANCY BUSINESS AND MANAGEMENT

INSTRUCTOR: JOAN MAE A . VILLEGAS

Module 2 – Statement of Comprehensive Income

Definition and Elements of the Statement of Comprehensive Income
- In module 2, you will learn the nature of the SCI and how to prepare it. The SCI is a financial statement that
represents the success or failure of business operations of a company for a given period, in terms of
profitability. Its elements are revenues and expenses.
Revenue - refers to economic benefits that flow to the business in the form of increases in assets. It is also a reduction in liabilities
resulting from the business operations. Thus, the owner’s equity increases out of revenues, aside from contributions of owners. For
instance, a service business earns when it enders service to its customer who pays in cash.
Contrary to the nature of revenue, expense pertains to a decrease in economic benefits of the business due to reduction in assets or
addition to liabilities resulting from the business operations. Hence, the owner’s equity decreases as an effect of expenses, aside from
withdrawals of the owner. An example is reduction in cash due to payment for the salaries of employees of the business.
Unlike a service business, a merchandising business has to purchase merchandise that it will resell to earn revenues. Thus, the revenue
account of a merchandising business is sales and it has cost of sales aside from expenses. As in the service business, the revenue
concept remains the same, i.e., there is an increase in asset in the form of cash, accounts receivable or notes receivable. On the other
hand, expense and show a decrease in cash on the date the expense or cost is incurred, for cash terms; or on a future date, for credit
terms.
Nominal Accounts --- Revenues and Expenses
Nominal Accounts – are termed as such because these are temporary accounts containing the revenues and expenses of the
business during an accounting period. An accounting period is a time period such as month, a quarter, a semester or a year
that is covered by the report. Balances of revenues and expenses are used to determine the net income (loss) of the business
during an accounting period. Thus, their balances are not forwarded to the next accounting period. The net income or loss is
closed to the owner’s equity account at the end of an accounting period.
Booked under revenue accounts are the earnings of the business from sales of products or rendering of services to clients. The
typical revenue accounts are the following:
a. SALES INCOME to the sale of goods, on cash or credit terms, of a merchandising business.
b. SERVICE INCOME refers to earnings of a service business from services rendered to its clients on cash or credit basis.
c. PROFESSIONAL FEES are earnings derived by a professional or a professional servicing entity, which may be on cash or
credit terms.
d. INTEREST INCOME includes the yield on promissory notes, which can be received in cash or may be collectible on a
future date.
e. RENT INCOME represents the earnings of the owner or lessor from his or her property or facility received or collectible
from the occupant, called the tenant or lessee.
f. GAIN ON SALE OF ASSETS refers to income obtained from the sale of old, retired, or replaced assets, such as equipment,
investments in shares of stocks and land.

After familiarizing yourself with the revenue accounts, you may focus on the expenses. Expenses consists of cost of sales,
supplies expense, salaries and wages, insurance, and taxes and licenses, among others. There are also estimated expenses
like doubtful accounts expense and depreciation expense.
a. COST OF SALES pertains to the value given on the products sold. Its equivalent for a service business is direct cost of
service.
b. SUPPLIES EXPENSE refers to cost of consumed or used office supplies, store supplies, and shop supplies, among
others.
c. SALARIES AND WAGES EXPENSE refers to the total payroll for the employees and workers of the business.
d. INSURANCE EXPENSE means the amount of premiums paid for insurance policy coverage such as life insurance of
company officers and employees, fire insurance, and robbery insurance among others.
e. TAXES AND LICENSE refer to costs of permits to operate a business, and income and business taxes paid to the local
government unit, the Register of Deeds, and the Bureau of Internal Revenue, among others.
f. DOUBTFUL ACCOUNTS EXPENSE represents the estimated amount of customer’s debts to the company, which are
deemed to be uncollectible.
g. DEPRECIATION EXPENSE is the allocated cost of the plant property or equipment to the accounting period. It is
attributed to obsolescence, wear a tear, and passage of time.

Statement of Financial Position

Asset P120,00.00
Statement of Comprehensive Liabilities P48,00.00
Income Owner’s Equity:
Service Income P35,000.00 Mr. C.Capital 1 January P80,000.00
Add: Net Income P10,500.00
Less: Expenses 24,500.00
Total: P90,500.00
Net Income P10,500.00 Less:Mr.C,Drawing P18,500.00
Mr.C,Capital 31 Dec. P72,000.00
Total Liabilities&Capital P120,000.00
Fig. 2.1 Relationship between the SCI and SFP
Application of the Concept of Assets, Liabilities , Owner’s Equity, Revenue and Expense
The following table includes SFP and SCI elements. Put a check in the column where each account belongs
to.
Account Asset Liability Owner’s Equity Revenue Expense
Interest Receivable
Professional Fees 0
Service Income
Mr. A Drawing
Doubtful Accounts
Depreciation Expense
Accrued Interest Income
Unearned Interest Income
Prepaid Interest
Accumulated Depreciation
Mortgage Payable
Unused Supplies
Supplies Inventory
Supplies on Hand
SSS Premium Expense
Withholding Taxes Payable
Repairs and Maintenance
Petty Cash Fund
Allowance for Bad Debts
Cash in Bank
Accounts Payable
Prepaid Insurance
Unexpired Insurance
Salaries Payable
Utilities Expense

The Single-step and the Multi-step SCI Formats

You can apply your knowledge of the heading of the SFP to the SCI because the headings of the two statements are similar except
for the time period, which can be one year or less for the SCI. Another similarity is in having two formats. You may recall that the
SFP can be prepared in account form or report form. In the same manner, the SCI uses two formats---the single-step and the multi-
step.
Consider a single-step SCI. Its body three parts---the revenues earned, the costs and expenses incurred, and the net
income (loss). Due to its structure, it is normally used by a service business. On the other hand, a multi-step SCI
presents a functional format showing the nature of costs and expenses. The multi-step SCI format is preferred to be
used for a merchandising business.
Preparation of a Single-step SCI for a Service Business
Below is an illustrative example of a single-step SCI for a service business.
Highway Print
Statement of Comprehensive Income
For the year ended 31 December 2018
Account Debit Credit
Revenues:
Service Fess P105,000.00
Other Income 12,300.00
Operating Costs & Expenses: P117,300.00
Direct Cost of Services 10,000.00
Salary Expense 33,000.00
Rent Expense 5,500.00
Supplies Expense 1,300.00
Taxes and Licenses 2,500.00 53,800.00
Light and Water Expense 1,500.00
Net Income P63,500.00

Preparation of a Multi-step SCI for a Merchandising Business

Below is an illustrative example of multi-step SCI for a merchandising business.
Perry Dry Goods Store
Statement of Comprehensive Income
For the year ended 31 December 2018

Account Debit Credit

Sales P600,000.00
Less: Sale Discounts P11,000.00
Sales Returns and Allowances P20,000.00 31,000.00
Net Sales 569,000.00
Less: Cost of Sales 348,000.00
Gross Income 221,000.00
Less: Operating Expenses
Salary Expense 150,000.00
Rent Expense 37,500.00
Supplies Expense 8,750.00
Depreciation Expense 7,350.00 203,600.00
Operating Income 17,400.00
Less: Finance Cost 1,120.00
Net Income 16,280.00

What Have I Learned So Far?

Solve the following:
1. Raffy’s Beauty Salon disclosed the following SCI. Answer the questions that follow.

Raffy’s Beauty Parlor

Statement of Comprehensive Income
As of 31 December 2018
Account Debit credit
Service Income P120,000.00
Less: Operating Expenses
Taxes and Licenses P8,200.00
Salaries Expense 24,000.00
Rent Expense 12,000.00
Light and Water Expense 7,000.00
Supplies Expense 10,000.00 61,200
58,800.00

a. How much is the gross income of the business?

b. How much expenses were incurred by the business?
c. How do you call the item amounting to P58,800.00?
d. Assume that instead of P120,000.00 the service income is only P50,000.00 while the expenses
remain the same. What is the result of operations of the business for the year?

2. The adjusted trial balance of Raon Electronic Company as of 30 September 2018 is given below.
Prepare the SFP using report form and the SCI using the single-step-format.

Raon Electronics Company

Trial Balance – Adjusted
30 September 2018
(In Peso Amount)
Account Debit credit
Cash 21,700.00
Accounts Receivable 4,200.00
Supplies 1,800.00
Prepaid Insurance 6,300.00
Land 43,500.00
Buildings 132,000.00
Accumulated Depreciation-buildings 25,000.00
Accounts Payable 3,700.00
Notes Payable 10,300.00
Salaries Payable 2,500.00
Property Taxes Payable 4,100.00
Unearned Revenue 2,600.00
Loans Payable (due in 4 years) 100,000.00
Mr.L, Capital
Service Revenue 78,600.00
Wages Expense 14,800.00
Utilities Expense 4,600.00
Property Tax Expense 3,500.00
Insurance Expense 6,700.00
Supplies Expense 5,100.00
Depreciation Expense 8,800.00
Interest Expense 13,200.00
Miscellaneous Expense 1,200.00

Total 267,400.00 267,400.00

For Mr. L,Capital squeeze in the figure, i.e., total credits P267,400.00 less total of accumulated
depreciation down to service revenue.
 Get the net profit or net loss based on the difference of revenues and expenses. Present it an an
addition to Mr.L, Capital in SFP

3. Using the multi-steo format of the SCI, fill in the missing amounts in the table below.

Case A Case B Case C Case D

Sales P200,000.00 P300,000.00 g._____________ P500,000.00
Beginning Inventory 50,000.00 50,000.00 h._____________ 150,000.00
Purchases 150,000.00 d.__________ 100,000.00 350,000.00
Freight-in 5,000.00 5,000.00 10,000.00 10,000.00
Purchase Discount 2,000.00 2,000.00 5,000.00 5,000.00
Goods Available for Sale a._________ 253,000.00 110,000.00 j.__________
_
Ending Inventory 53,000.00 e.___________ 75,000.00 k._________
Gross Profit b._________ 83,0000.00 50,000.00 l.__________
_
Operating Expenses 20,0000.00 f.____________ i._______________ 60,000.00
Net Operating c._________ (27,000.00) 25,000.00 (40,000.00)
Income/Losss _

4. Jasmine School Supplies is in its second year of operation. Information on its operation is given
below. Prepare a multi-step SCI.
Jasmin School Supplies
Trial Balance
31 December 2018
(In Peso Amount)
Account Debit credit
Sales 304 650.00
Sales Returns and Allowances 2 800.00
Sales Discounts 3 500.00
Merchandise Inventory, Beginning 173 800.00
Purchases 76 010.00
Freight-in 1 105.00
Purchase Discounts 1 550.00
Purchase Returns and Allowances 3 000.00
Merchandise Inventory, End 60 865.00
Rent 52 000.00
Commission Expense 14 500.00
Salaries 43 230.00
Utilities 1 770.00
Gas and Oil 300.00
Repairs and Maintenance 4 255.00
Interests Income 1 305.00
Interests Expense 5 00.00
Taxes and Licenses 3 000.00

Total 442 135.00 310 505.00

5. The trial balance of Elegant Interiors Company is shown below. Prepare the SCI (single-step format)
and the SFP (report form).
Elegant Interiors Company
Trial Balance – Adjusted
31 December 2018
(In Peso Amount)
Account Debit Credit
Cash 186 000.00
Account Receivables 71 200.00
Prepaid Rent 12 000.00
Equipment 177 500.00
Accumulated Depreciation- Equipment 12 625.00
Accounts Payable 18 000.00
Notes Payable 12 000.00
Mr.M, Capital 300 000.00
Mr.M, Drawing 19 000.00
Professional Fees 276 300.00
Salaries Expense 96 100.00
Supplies Expense 12 000.00
Utilities Expense 37 800.00
Rent Expense 7 200.00
Depreciation Expense 7 125.00
Salaries Payable 12 000.00
 Interest Expense 80.00
Interest Payable 80.00
Bad Debts Expense 3 560.00
Allowance for Bad Debts 3 560.00
Supplies Inventory 5 000.00

TOTAL 634 565.00 634 565.00

6. Gilmore Computer Enterprises began operations in. A disorganized trial balance as of end , is given
of second year, 2018, is given below. Prepare the SCI (multi-step format) and the SFP (report form)

Gilmore Computer Enterprises

Trial Balance
31 December 2018
(In Peso Amount)

Account Debit Credit

Office Rent 20 000.00
Cash on Hand 60 000.00
Cash in Bank 309 000.00
Merchandise Inventory, 1 January 137 500.00
VAT Payable 54 500.00
Supplies Inventory 6 000.00
Accumulated Depreciation- Office Furniture and Equipment 49 000.00
Equipment
Office Salaries and Wages 130 000.00
Notes Payable (due 2021) 140 000.00
Sales 1 257 500.00
Purchases 500 000.00
Salaries and Wages – store 40 500.00
Purchase Discount 15 000.00
Office Furniture and Equipment 214 500.00
Depreciation Expense-Office Furniture & Equipment 25 000.00
Accounts Receivable 38 000.00
Bad Debts Expense 2 800.00
Interests Expense 67 500.00
Store Supplies Used 5 500.00
Depreciation Expense- Store Furniture & Equipment 20 000.00
Accounts Payable 26 400.00
Rent Income 3 700.00
Sales Return and Allowances 14 000.00
Freight-in 5 000.00
Store Rent Expense 40 000.00
Allowance for Bad Debts 4 800.00
Mr. G, Capital 790 400.00
Prepaid Insurance 54 000.00
Accumulated Depreciation-Store Furniture&Equipment 56 000.00
Merchandise Invemtory, 31 December 175 000.00
Income Summary 175 000.00
Taxes and Licenses 77 500.00
Insurance Expense 55 000.00
Mr.G, Drawing 110 000.00
Store Furniture and Equipment 209 000.00
Office Supplies Used 6 500.00
Advertising and Promotion 250 000.00

TOTALS 2 572 300.00 2 572 300.00

Essential Learning
A financial statement that is equally important as the SFP is the statement of comprehensive income
(SCI). the SCI shows the success or failure of a business, in terms of profitability. There are two formats of an
SCI----the single-step and the multi-step formats. You can choose the format applicable to an entity based on
business type service or merchandising.
 Module 3 – Statement of Changes in Equity

Forms of Business Organization

In this module, you will learn about the different forms of business organizations, namely the single proprietorship,
partnership, and corporation. Each type differs in its structure and has its own advantages and disadvantages.

Single Proprietorship

The simplest form of a business organization is a single proprietorship whose owner is only one person. This is common for
small service businesses and retail stores.

In a single proprietorship, the owner commonly acts as the manager. Being the only owner of the business, he or she enjoys
all the profits and has the exclusive right of making decisions. Examples of single proprietorship are salons, dress shops, and
bakeries. These businesses require minimal capital, and the owner can handle the services and management with ease.

In addition, the operation of a single proprietorship can be started easily. One only has to register the trade name with the
Department of Trade and Industry (DTI) and get business permits form the local governments.

However, a disadvantage if a sole proprietorship is limited resources (capital and skills). It is relatively difficult for a sole
proprietor to expand his or her business. In terms of liabilities, all losses in the business are borne by the owner. Thus, single
proprietors are liable for the debts of their businesses up to their personal assets in the event of business closure.

In the aspect of taxation, a single proprietor is entitled to personal exemptions and the choice of either optional standard
deduction or itemized deductions.

Partnership

A partnership is a business entity composed of two or more individuals who agree to contribute money, property, skills,
labor, or other resources into a common fund and divide the resulting profits among themselves. Large-scale service firms of
professionals such as CPAs, lawyers, and architects are commonly put up through partnership.

In a partnership, partners share in the management of the business, and divide profits and losses among themselves. Profit
distribution can be based on capital contribution or an arbitrary ratio agreed upon by the partners. Professionals such as
architects, engineers, physicians and lawyers prefer the partnership form of business organization.

Comparatively, partnerships have a higher source of capital and skills than a single proprietorship due to the joint resources
of the partners. Partners may also have varied lines of specialization. Positions such as managers of production, marketing,
finance, sales and human resources can be filled up easily.

Partnership also have disadvantages. Partners share any losses that are incurred. They may be liable up their personal assets if
they are general partners. However, if they are limited partners, they will be responsible for unpaid liabilities of the
partnership only up to the extent of their investment in the partnership. It should be noted that disagreements and conflicts
among partners can bear a negative impact on the business. Furthermore, instances such as withdrawal, insolvency, and death
of a partner can cause the liquidation of the partnership.

A general professional partnership is tax-exempt. Partners shall report their shares in the net income of the general
professional partnership as part of their taxable income. These will be presented as operating taxable income in the income
tax rate 30%. The shares of the partners in the net income of the trading partnership are subject to final tax of 10% withheld
by the partnership.

Corporation

- aside from sole proprietorship and partnership, another form of organization that is bigger in size of resources
and capital is the corporation. When you read business periodicals, you will find corporations as transnational,
multinationals, and publicly listed companies. These large entities, which are engaged in diversifies and
complex operations, take the form of a corporation. Legal capacity, continuity of existence, and greater capacity
to acquire funds are the major benefits of a corporation.

- Corporations are organized as legal entities separate from the owners. Corporations have the rights, duties and
responsibilities as an artificial person. Being a legal entity, a corporation can sign and commit itself to contracts
such as purchase and sale of property and stocks. Ownership of a corporation is divided into shares of stocks,
evidenced by certificates. Oversight of a corporation is vested in the board of directors. The directors are elected
by the stockholders during annual stockholders’ meeting. The board of directors appoints the key officers of the
corporation such as chief executive officer or president and the vice president for the major areas such as
 finance, marketing, sales, treasury, and administration. Corporation comes as the form of organization for
banks, hotels, hospitals, manufacturers, real property developers, and other large businesses.

- Generally, corporations are more costly to organize than sole proprietorship and partnership due to the
numerous documentation needed.

- Corporations, in contrast to the previous two forms of business organizations, are superior in terms of a greater
source of resources though issuance of shares of stocks. Decision-making is done by top management and
confirmed by the board of directors. Moreover, shareholders are not personally liable for corporate liabilities.
Losses are accumulated in the retained earnings account and any losses in case of liquidation are not transferred
to shareholders.

- As for taxation, corporations are taxed at 30% of taxable income. In terms of regulator’s supervision,
corporations are at a disadvantage because they are subject to the most stringent forms of a supervision and
restrictions. They have to follow the requirements of the Securities and Exchange Commission (SEC), including
capital and structure requirements and reportorial requirements such as the general information sheet and annual
reports.

Preparation of Statement of Changes in Equity for a Single Proprietorship

The Statement of Changes in Equity (SCE) is the financial statement that represents the movements of the owner’s equity
(capital) account during the reporting period. It reflects the ending balance of the owner’s equity. The owner’s equity
pertains to the residual amount after subtracting liabilities from assets. Breakdown of owner’s equity consists of capital
(capital only for sole proprietorship) and withdrawals of cash, merchandise, or any form of asset by the owner. Owner’s
equity is augmented by capital contributions of the owner and net income of the business. On the contrary, it is reduced by
withdrawals of the owner and net losses of the business. For a sole proprietorship, owner’s equity is referred to as owner’s
capital. In a partnership, it is the partner’s capital. In the corporation it us the shareholders equity.

Drawing or withdrawals of the owner is a temporary account to record whatever asset was withdrawn from the business. At the end
of the accounting period, a drawing or withdrawals account is closed to owner’s capital account.

Below is an illustrative example of debits and credits under owner’s drawing and owner’s capital accounts.

Owner’s Drawing
Debit Credit
(Increases) (Decreases)
1. Temporary Withdrawals 1.Periodic owner’s salaries
2. Owner’s personal debts 2.Business debts assumed or paid by the owner
3. Funds or claims of the business collected 3.Personal funds or claims of owner collected and
and retained by the owner retained by the business.
4. Share in the business losses 4.Share in business profits
Debit Credit
(Decreases) (Increases)
1. Permanent withdrawals of capital 1. Original Investment
2. Closing of the net debit balance of the 2. Additional Investment
drawing account 3. Closing of the net credit balance of the
3. Closing of the net debit balance of the income summary account
income summary account
Meanwhile, below is an illustrative example of the SCE for a single proprietorship.

Sunburst Resorts
Statement of Changes in Equity
For the year ended 31 December 2018
Alanis, Capital – January 2018 P250 000.00
Add: Net income for the year 35 760.00
Total 285 760.00
Less: Alanis, Withdrawals 13 400.00
Alanis, Capital – 31 December 2018 272 360. 00

Application
a. Owner’s Equity
Consider what you have learned and answer the following:

Case 1. The owner’s initial capital to the business is P50 000.00. If the business has P15 000.00 revenue
and P110 000.00 expenses, how much is owner’s equity?

Case 2. Initial capital of the owner to the business is P80 000.00. At the end of the year, the total assets
of the business amounted to P90 000.00, P40 000.00 of which is cash and P50 0000.00 is total cost of
equipment. By then, the only obligation of the business is the outstanding balance for the equipment
 amounting to P25 000.00. How much is the owner’s equity at year end?
b. SCE Concept

Exercise 1: compute the missing amounts in the SCE of the owner. Write your answers on the blanks.

Amount I II III IV V
Beginning Capital P200 000.00 P150 000.00 P325 000.00 P400 000.00 5.__________
Additional
Investment 50 000.00 20 000.00 40 000.00 4._________ 25 000.00
Net Income 30 000.00 18 000.00 3._________ 50 000.00 50 000.00
Drawing 25 000.00 2.__________ 30 000.00 16 000.00 20 000.00
Ending Capital 1.________ 140 000.00 390 000.00 458 000.00 230 000.00

Amount VI VII VIII IX X

Beginning Capital P140 000.00 P240 000.00 P125 000.00 P50 000.00 P24 000.00
Additional
Investment 60 000.00 0.00 8.__________ 16 000.00 4 000.00
Net Income 30 000.00 7._________ 40 000.00 20 000.00 30 000.00
Drawing 20 000.00 50 000.00 0.00 9._________ 2 000.00
Ending Capital 6._________ 1300.00 110 000.00 24 000.00 10._________
_

Exercise 2: The information below is extracted from the general ledger of two businesses on 31 March 2018, the
end of their accounting periods. For each case below, compute the SCE of the owner as of 31 March 2018.

Case 1 Cash ---------------------------------------------------------------------------------------P24 200.00

Notes Payable ---------------------------------------------------------------------------12 000.00
Due from Customers -------------------------------------------------------------------13 450.00
Delivery Van ----------------------------------------------------------------------------200 000.00
Office Equipment ----------------------------------------------------------------------48 000.00
Loan Payable ---------------------------------------------------------------------------40 000.00
Notes Receivable ------------------------------------------------------------------------8 000.00
Due to Suppliers ------------------------------------------------------------------------21 000.00
Furniture and Fixtures ----------------------------------------------------------------28 000.00
Owner’s Equity

Case 2 Cash --------------------------------------------------------------------------------------68 900.00

Accounts Receivable -------------------------------------------------------------------36 500.00
Allowances for Impairment Loss ----------------------------------------------------1 200.00
Unused Office Supplies ---------------------------------------------------------------2 350.00
Prepaid Advertising -------------------------------------------------------------------12 000.00
Unexpired Insurance ------------------------------------------------------------------6 500.00
Furniture and Equipment -----------------------------------------------------------76 000.00
Accumulated Depreciation ----------------------------------------------------------7 600.00
Accounts Payable ---------------------------------------------------------------------32 000.00
Notes Payable --------------------------------------------------------------------------16 500.00
Accrued Interest Expense -----------------------------------------------------------1 200.00
Accrued Interest Income ------------------------------------------------------------2 340.00
Unearned Commission --------------------------------------------------------------11 000.00
Salaries Payable ---------------------------------------------------------------------8 000.00
Rental Receivable -------------------------------------------------------------------15 000.00
Repair Supplies Inventory --------------------------------------------------------4 000.00
Owner’s Equity

Hint: Accrued Interest Expense is a current liability.

Accrued Interest Income is a current asset
Allowance for impairment loss and accumulated depreciation are contra-asset accounts, which should be
deducted from the assets.

Exercise 3: The information below is available from the books of Quijano Hauling Company as of 31 March
2018, the end of its accounting period. Prepare the SCE of the owner.

Mr. Q, Capital, 1 April 2017--------------------------------------------P500 000.00

Mr. Q, Personal-------------------------------------------------------------25 000.00
Hauling Income-----------------------------------------------------------267 000.00
Rent--------------------------------------------------------------------------48 000.00
Repairs and Maintenance-------------------------------------------------36 000.00
Utilities----------------------------------------------------------------------12 450.00
Gas and Oil-----------------------------------------------------------------76 000.00
Insurance-------------------------------------------------------------------25 000.00
Rental Income-------------------------------------------------------------12 000.00
Taxes and Licenses---------------------------------------------------------8 450.00

Note: Mr. Q gave an additional investment P20 000.00 during the year.
Fundamental Relationship among the Financial Statements: SFP, SCI, and SCE

The SCI shows the net income of the business. Net income is then reflected in the SCE as an addition to beginning balance of
capital. From the total of beginning capital and net income, withdrawals of the owner are deducted to arrive at ending balance
of capital. The ending balance of capital is then transferred to the SFP.

Application on the SFP, SCI and SCE

Exercise 1: Below is the preliminary trial balance of Jayar’s Service Center for the calendar
year 2018. Prepare the SCI, SCE and SFP.

Mr. J, Capital P85 000.00 Notes Receivable P1 200.00

Office Equipment 12 000.00 Notes Payable 8 000.00
Accounts Payable 16 600.00 Interest Income 360.00
Cash 18 540.00 Communications Expense 1 250.00
Tools 21 500.00 Interest Expense 220.00
Mr.J, Drawing 10 000.00 Postage&Stamps Expense 50.00
Accounts Receivable 21 460.00 Insurance Expense 4 100.00
Mortgage Payable 30 000.00 Service Vehicle 84 700.00
Loan Payable (short-term) 20 000.00 Utilities Expense 160.00
Service Income 78 560.00 Supplies Expense 3 150.00
Furniture and Fixtures 8 900.00 Shop Equipment 36 290.00
Salaries Expense 21 000.00 Rental Income 6 000.00

Exercise 2: Below is the adjusted trial balance of Bolhok Hardware for the year ending 31 December 2018.
Prepare the SCI, SCE and SFP.
Cash P130 115.00 Purchases P1 320.00
Notes Receivable 30 000.00 Freight-in 30 875.00
Accounts Receivable 98 750.00 Purchase Returns and 2 585.00
Allowance for Impairment loss 4 835.00 Allowances
Merchandise Inventory,1/1 Purchase Discount 20 000.00
Prepaid Insurance 785 345.00 Sales Salaries 115 600.00
Unused Supplies 6 000.00 Advertising Expense 18 000.00
Store Equipment 3 750.00 Freight-out 12 260.00
12 000.00 Depreciation-store 12 000.00
Accumulated Depreciation- Equipment
Store Equipment 36 000.00 Miscellaneous Selling 17 650.00
Office Equipment Expenses
Accumulated Depreciation- 60 000.00 Office Salaries 65 900.00
Office Equipment 18 000.00 Rent Expense 48 00.00
Accounts Payable Insurance Expense 9 000.00
Notes Payable 371 535.00 Supplies Expense 8 650.00
Mr. Z, Capital 50 000.00 Depreciation- Office 6 000.00
Mr. Z, Drawing 527 030.00 Equipment
Sales 48 000.00 Impairment Loss 2 515.00
Sales Returns 1 950 345.00 Miscellaneous General 1 800.00
Sales Discount 4 020.00 Expenses
20 800.00 Interest Income 1 200.00
Interest Expense 6 000.00

What Have I Learned So Far?

1. Analyze the interrelationship among the three financial statements---SFP, SCI and SCE.
2. Using the same data of Elegant Interiors Company in module 2, page 35, prepare the SCE as of 31
December 2018 for this service company.

Extend Your Knowledge

Navigate the Web, Visit http://businesstips.ph/how-to-make-a-statement-of-changes-in-owners-equity/.
Read about the preparation of the SCE.