11 SENIOR HIGH SCHOOL

FABM 2
Quarter 3 - Module 2
Statement of Comprehensive Income
for Service & Merchandising Business
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FABM 2
Quarter 3 – Module 2
Statement of Comprehensive
Income for Service &
Merchandising Business
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LEARNING COMPETENCIES:
• Identify the elements of the SCI and describe each of these items for a
service business and a merchandising business
(ABM_FABM12- Ic-d-5)
• Prepare an SCI for a service business using the single-step approach
(ABM_FABM12- Ic-d-6)
• Prepare an SCI for a merchandising business using the multistep
approach (ABM_FABM12- Ic-d-7)

OBJECTIVES:
K: Identify and differentiate the elements of the Statement of
Comprehensive Income in both single step & multi-step format
for service and merchandising business;
S: Prepare statement of comprehensive income for a service &
merchandising business using single step & multi-step;
A: Demonstrate better perception of the difference between
single-step and multi-step format in the Statement of
Comprehensive income.

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Pre-assessment:
Directions: Identify what is asked in each item. Write the letter of the correct answer in your
notebook.
1. A kind of business or company where it focuses on selling goods like school supplies,
vegetables and etc.
A. Service B. Merchandising
C. Corporation D. None of these are correct
2. It is the total income returned by an investment / business.
A. Expenses B. Capital C. Revenue D. Equity
3. It is an expenditure.
A. Expenses B. Capital C. Revenue D. Equity
4. These are goods which was given back to the you(as the seller) because it is damaged.
A. Sales Return B. Purchase returns
C. Sales discount D. Purchase discount
5. It is a price reduction for the goods being sold.
A. Sales Return B. Purchase returns
C. Sales discount D. Purchase discount
6. A kind of business or company which is focused on providing work like offering repairs and
maintenance.
A. Servicing B. Merchandising
C. Corporation D. None of these are correct
7. It is a decrease which is unrecoverable and unanticipated in a resource or asset outside of
normal business operations.
A. Expenses B. Profit
C. Loss D. None of these are correct
8. The difference between what a merchant invests into business and what he receives in return.
A. Expenses B. Profit
C. Loss D. None of these are correct
9. It is the net amount of funds invested in a business by its owners, plus any retained earnings
(Bragg, S. 2020).
A. Expenses B. Sales C. Revenue D. Equity
10. It is an expense which refers to the total cost of using rental property for each reporting period.
A. Utilities Expense B. Rent expense
C. Salaries expense D. Interest expense
11. It refers to all the items, goods, merchandise, and materials held by a business for selling in the
market to earn a profit.
A. Sales B. Purchases
C. Inventory D. None of these are correct

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12. It is the cost incurred by using utilities such as electricity, water, waste disposal, heating, and
sewage.
A. Utilities Expense B. Rent expense
C. Salaries expense D. Interest expense
13. It is the business entity’s Net sales minus cost of goods sold, and expenses. This is usually
represented as a positive increase resulted from the business operations for a given accounting
period.
A. Gross profit B. Operating profit
C. Net loss D. Net income
14. It is a negative result in the statement of comprehensive income.
A. Gross profit B. Operating profit
C. Net loss D. Net income
15. It is one of the formats used in making the statement of comprehensive income which uses three
different accounting formulas to arrive at the net income.
A. Single-step B. Multi-step
C. Periodic inventory system D. Perpetual inventory system

’s In

Task 1
Direction: This is a sample statement of comprehensive income for service business. Use the
words found in the box to label the unlabeled items in the statement below.

Net Income Operating Expenses

Service Revenue Heading

Statement of Comprehensive income of a service business

1. _________
LEARNING IS FUN COMPANY
STATEMENT OF FINANCIAL POSITION
For the year ended DECEMBER 31, 2016
2. ______________ ₱ 100,000.00

Less:
Salaries Expense (40,000.00)
Rent Expense (20,000.00)
Depreciation Expense (10,000.00)
Utilities Expense (5,000.00) 3. _________
Miscellaneous Expense (1,000.00)
Total Expenses (76,000.00)
4. _________ ₱ 24,000.00

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 ’s New

Task 2
Your family owns a merchandising store which is now currently managed by your sister. Since
it is her first time managing the store, she is struggling and is very busy preparing the book of accounts
for her to prepare the financial statements which will be used to prepare documents used in renewing
the business license. Since you are already knowledgeable on the preparation of financial statements
your sister asked you which accounts are necessary to create a statement of comprehensive income.
Enumerate a few elements you can name to prepare this financial statement:

Elements of a statement of comprehensive income for a merchandising business

1.

2.

3.

4.

is It

Since we already reviewed the definition of the Statement of Comprehensive Income (SCI)
also known as the income statement, let us now identify the elements of each statements on both
service and merchandising business using the single step and multi-step format.

Elements of Sci in Both Service & Merchandising Business Using Single Step
and Multi-Step Format

In the presentation of the statement of comprehensive income, two formats are being used
depending on the type business (service or either merchandising) and the type of needs the company
wants to know in these statements which will be useful in decision making. These formats are the
following:

1. Single-step – 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). These are the following elements:

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A. Heading
i. Name of the Company
ii. Name of the Statement
iii. Date of preparation (emphasis on the wording – “for the”)

B. Service Revenue - This is the total amount of income that the company was able to generate from
providing services to customers.

C. Operating Expenses – these are expenses directly related to the production of services that is
incurred during the business operation. It includes rent, salaries of employees, utilities and other
miscellaneous expenses including supplies.

D. Net income / net loss – this is the revenue less expenses. If the result is positive, it means that we
have a net income, or the company gained for this accounting period. If the result is negative, it means
that we have a net loss.

Figure 1. Sample statement of comprehensive income of a service business using single step.

Heading or Title
Revenue LEARNING IS FUN COMPANY
STATEMENT OF COMPREHENSIVE INCOME
For the year ended DECEMBER 31, 2016

Service Revenue ₱ 100,000.00

Less:
Salaries Expense (40,000.00) Operating Expenses
Rent Expense (20,000.00)
Depreciation Expense (10,000.00)
Utilities Expense (5,000.00)
Miscellaneous Expense (1,000.00)
Total Expenses (76,000.00)
Net Income ₱ 24,000.00

2. Multi-step – 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). These are the following elements:

A. Heading
i. Name of the Company
ii. Name of the Statement
iii. Date of preparation (emphasis on the wording – “for the”)

B. Sales Revenue - This is the total amount of income that the company was able to generate from
selling to customers.

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C. Net sales – is the total amount after the sales return (returns due to damaged goods) and sales
discount (discounts given to customers) are deducted to the sales revenue.

D. The multi-step income statement uses three different accounting formulas to arrive at the
net income:

1. GROSS PROFIT = NET SALES – COST OF GOODS SOLD

Cost of goods sold is subtracted from net sales. This gives the gross profit.
2. OPERATING PROFIT = GROSS PROFIT – OPERATING EXPENSES
Operating expenses are subtracted from gross profit. This gives you the operating income.
3. NET INCOME = OPERATING INCOME + NON-OPERATING
REVENUES – OTHER EXPENSES
Operating profit or income is added to the net non-operating revenues, gains, and other
expenses and losses are deducted. This final figure gives the net income or net loss of the business
for the reporting period.

Figure 2. Semi-detailed sample of statement of comprehensive income of a merchandising business

(perpetual inventory system).

Heading or Title
LEARNING IS FUN COMPANY
STATEMENT OF COMPREHENSIVE INCOME
For the year ended DECEMBER 31, 2016
Sales Revenue ₱ 200,000.00
Less: Sales Return (5,000.00)
Sales Discounts (3,000.00) (8,000.00)
Net Sales 192,000.00
Less: Cost of Goods Sold (40,000.00)
Gross profit 152,000.00
Operating expenses
Less: Salaries Expense (20,000.00)
Sales Commission Expense (8,000.00)
Traveling Expense (7,000.00)
Miscellaneous Expense (5,000.00) (40,000.00)
Operating Profit 112,000.00
Other Non-operating income & other expenses
Add: Interest Income 2,000.00
Less: Interest Expense (1,000.00) (3,000.00)
Net Income ₱ 109,000.00

Note: Don’t forget that expenses in both formats whether for service and merchandising business
must be arranged from figures highest to lowest. Figures in the statement if represented as deduction
is marked with a parenthesis.

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Figure 3. Detailed sample of statement of comprehensive income of a merchandising business
(periodic inventory system).
Heading or Title
LEARNING IS FUN COMPANY
STATEMENT OF COMPREHENSIVE INCOME
For the year ended DECEMBER 31, 2016
Sales Revenue ₱ 200,000.00
Less: Sales Return and allowances (5,000.00)
Sales Discounts (3,000.00) (8,000.00)
Net Sales 192,000.00
Cost of good sold
Merchandise inventory, beginning 30,000.00
Add: Purchases 20,000.00
Freight in 500.00
Less: Purchases returns (3,000.00)
Purchase discounts (1,000.00)
Merchandise inventory, end (10,000.00)
Less: Total Cost of Goods Sold (36,500.00)
Gross profit 155,500.00
Operating expenses
Less: Salaries Expense (20,000.00)
Sales Commission Expense (8,000.00)
Traveling Expense (7,000.00)
Miscellaneous Expense (5,000.00) (40,000.00)
Operating Profit 115,500.00
Other Non-operating income & other expenses
Add: Interest Income 2,000.00
Less: Interest Expense (1,000.00) 1,000.00
Net Income ₱ 114,500.00

Note: Periodic and perpetual inventory systems used in merchandising business are two contrasting
accounting methods that businesses use to track the number of products they have available. The
periodic inventory system uses an occasional physical count to measure the level of inventory
and the cost of goods sold (COGS). While the perpetual inventory system keeps track of
inventory balances continuously, with updates made automatically whenever a product is received
or sold. That is why we can see in Figure 2, Cost of goods sold is already given since in it is already
recorded continuously thereby, we can get the end total of the inventory automatically. However, in
the periodic inventory system as displayed in Figure 3, Cost of goods Sold is being computed since
the inventory system does not continuously count / deduct the inventory each time there is a
transaction, that is why we will conduct physical count usually at the end of the period to compute
the Cost of good sold.

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 Periodic inventory accounting systems are normally better suited to small businesses, while
businesses with high sales volume and multiple retail outlets (like grocery stores or pharmacies)
need perpetual inventory systems.

Differentiate Single-Step and Multi-Step Format of the Sci

Single step format is best suited for statement of comprehensive income for service business
since it only requires simple data and requires one equation [Net Income = (Revenues + Gains) –
(Expenses + Losses)]. While multi-step format income statement reports much of the same general
information included in a single-step income statement, but it uses multiple equations to determine
the net income, or profit, of the company which is best suited for a merchandising business.

A single-step income statement gives a simple accounting of a business’s net income, whereas
a multi-step income statement follows a three-step process to calculate net income, separating
operational from non-operational revenues and expenses.

Small businesses with a simple operating structure, including sole-proprietorships and

partnerships, can choose between creating single-step or multi-step income statements.

Single-step income statements are easier to prepare and require less calculations. For many
small businesses, the single-step income statement provides all the details you’ll need to assess the
financial health of your company.

However, if your small business is seeking a bank loan or looking to attract new investment,
a multi-step income statement is the best option as it gives potential creditors and investors greater
financial detail about your business, which can help them assess its long-term viability.

’s More

Task 3
Directions: Prepare Statement of Comprehensive income using single-step in your activity
notebook. Use the following datas given below.

Service business – use single step format

Given:
Depreciation expense ₱ 1,000
Interest expense 500
Professional fees 247,000 Salaries expense 15,000
Rent expense 10,000 Permit & licenses expense 10,000
Utilities expense 8,000 Supplies expense 3,000

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Task 4
Directions: Prepare Statement of Comprehensive income using multi-step in your activity notebook.
Use the following data given below.

Merchandising business (perpetual)– use multi-step format

Given:
Sales Revenue ₱ 500,000.00
Sales Return 5,000.00
Cost of Goods Sold 340,000.00
Salaries Expense 25,000.00
Traveling Expense 6,000.00
Supplies Expense 5,000.00
Interest Expense 1,000.00

I Have Learned

Directions: Complete the following statements. Write your statements in your activity notebook.

1. As an ABM student, I have learned that the Statement of comprehensive income

is_______________________.

2. As an ABM student, it is very important for us to learn Statement of comprehensive income because
_______________________.

3. Using the knowledge I have learned in this lesson, I will be able to... _______________________.

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1.
I Can Do

Task 5

The store owner in your neighborhood is preparing financial statements for his store (ABC
mercantile). And as an ABM student who have adequate knowledge about these statements, the
owner asks if you can prepare these and he would pay you an adequate amount if you finish it on
time, which you immediately agreed.

Direction:
1. Prepare the statement of comprehensive income for the store owner using the following given
datas for this month end December 31, 2020:
Sales Revenue ₱ 66,780.00
Sales Return 5,556.00
Cost of Goods Sold 31,120.00
Salaries Expense 12,000.00
Sales Commission Expense 3,000.00
Traveling Expense 3,000.00
Utilities Expense 6,560.37
Interest Income 2,000.00
Interest Expense 1,000.00
2. As you were preparing the income statement, he was quite curious as to why we need to prepare
this statement. What would be your response?

STATEMENT OF COMPREHENSIVE INCOME RUBRIC

CRITERIA No Poor Needs Proficient Advanced
Submission (2 points) Improvement (4 points) (5 points)
(0 point) (3 points)
Presentation of No SCI Incomplete Has completeCorrect and Correct and
the Statement submitted presentation of presentation of
with few minor with no
of SCI and with SCI but witherrors in the errors in the
Comprehensive major errors errors presentation of presentation
Income SCI of SCI
Statement of No SCI Students does Preparation of Preparation of Preparation
Cash Flows submitted not SCI contains SCI has minor of SCI is
demonstrate an many errors errors correct, with
understanding no errors
of how SCI is
presented
Discussion #2 Ideas /response Shows 25% Shows 50% Shows 75% 100% Well-
not evident developed developed developed developed
ideas/response ideas/response ideas/response ideas/
response

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I. Directions: Identify what is asked in each item. Write the letter of the correct answer in your
notebook.
1. Which is an appropriate date for a statement of comprehensive income?
A. “As at December 31, 2020”
B. “For the period ended December 31, 2020”
C. Either A or B
D. Neither A nor B
2. Which of the following is an element of a statement of comprehensive income?
A. Cash B. Receivables
C. Revenues D. Interest Receivables
3. Which of the following is an element of a statement of comprehensive income?
A. Cash equivalents B. Mr. Eliseo Capital
C. Ms. Catherine Drawing D. Professional Fees
4. Which of the following is an element of a statement of comprehensive income?
A. Notes Payable B. Notes receivable
C. Interest Receivable D. Interest Expense
5. Which of the following is not an element of a statement of comprehensive income?
A. Interest Payable B. Interest expense
C. Rent Expense D. Prepaid rent
6. Which of the following is an element of a statement of comprehensive income?
A. Accounts Payable B. Interest payable
C. Interest Receivable D. Gross profit
7. Which of the following appropriately describes a statement of comprehensive income for
merchandising business?
A. Revenue is represented as Sales Revenue
B. Expenses are lined up regardless of its figures
C. Withdrawal is deducted from the net income
D. Gross income is the product after deducting operating expenses from net sales
8. Which of the following is an element on the statement of comprehensive income?
A. Net income B. Owners Withdrawal
C. Capital D. Gross Capital
9. Which of the following is the correct gross profit formula?
A. Net Sales + Cost of sales = Gross Profit
B. Net Sales + Gross profit = Cost of sales
C. Net Sales - Gross Profit = Cost of Sales
D. None of the above

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GLOSSARY

Utilities expense - is the cost incurred by using utilities such as electricity, water, waste disposal,
heating, and sewage and etc.

Rent expense - It is an expense which refers to the total cost of using rental property for each
reporting period.

Operating expenses – these are expenditures a business incurs to engage in activities other than those
associated with the production of goods or services; may be classified either as general and
administrative expenses or selling expenses.

Non-operating expenses – These are expenses that are not related directly to the business operation
like interest expense.

Non-operating income - These are other income that are earned by the business which is not related
directly to the business operation like interest income.

Cost of goods sold – also refers to as cost of sales. This refers to the cost of materials and labor
directly to create the product or to sell the product.

Purchases – these are merchandise being bought by the merchandising business which will be used
directly for reselling.

Purchase returns – These are returns to sellers due to either damaged goods, excess quantity shipped
and wrong item, delivered to the company which is a deduction to purchases account.

Purchase discount – is usually granted by suppliers to buyers to encourage prompt payment of the
latter’s account.

Sales – these are the amount received by the merchandising company from the business operations
particularly selling.

Sales returns – these are merchandise sent back by a buyer to the seller, usually for one of the
following reasons: Excess quantity shipped, wrong item, and damaged goods.

Sales discount - is a reduction in the price of a product or service that is offered by the seller, in
exchange for early payment by the buyer.

Non-operating income - is the portion of an organization's income that is derived from activities not
related to its core business operations.

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References

Department of Education. Fundamentals of Accounting, Business and Management-Grade 11:,

Teacher’ Guide 1st ed. 2016, 19-45.

What is loss? Accessed: December 26, 2020 [https://www.invoiceberry.com/accounting-terms/loss]

What is Rent Expense? Accessed: December 26, 2[020

https://corporatefinanceinstitute.com/resources/knowledge/accounting/rent-expense/]

What is inventory? Definition, Types & Examples. Retrieved: December 26, 2020
[https://www.zoho.com/inventory/guides/inventory-definition-meaning-types.html]

Single-Step vs Multi-Step Income Statement: Key Differences for Small Business Accounting.
Accessed: December 28, 2020 [https://www.freshbooks.com/hub/accounting/single-step-vs-multi-
step-income-statement]

Haddock, M., Price, J., & Farina, M. 2012. College Accounting: A Contemporary Approach, Second
Edition. New York: McGraw-Hill/Irwin.

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