SHS

Fundamentals of Accountancy,
Business and Management 2
Week 3: Module 3
Fundamentals of Accountancy, Business and Management 2
Grade 12 Week 3: Module 3
First Edition, 2020

Copyright © 2020
La Union Schools Division
Region I

All rights reserved. No part of this module may be reproduced in any form without
written permission from the copyright owners.

Development Team of the Module

Author: Liza N. Antolin, T II

Editor: SDO La Union, Learning Resource Quality Assurance Team

Illustrator: Ernesto F. Ramos Jr., P II

Management Team:

ATTY. Donato D. Balderas, Jr.

Schools Division Superintendent

Vivian Luz S. Pagatpatan, Ph.D

Assistant Schools Division Superintendent
German E. Flora, Ph.D, CID Chief

Virgilio C. Boado, Ph.D, EPS in Charge of LRMS

Lorna O. Gaspar, EPS in Charge of Fundamentals of Accountancy,
Business and Management

Michael Jason D. Morales, PDO II

Claire P. Toluyen, Librarian II
 Fundamentals of
Accountancy, Business and
Management 2
Week 3: Module 3
 Target

Statement of Comprehensive Income for a Merchandising

Business using a Multi-step Approach

A merchandising business Statement of Comprehensive Income is expanded

to include groupings and subheadings necessary to make it easier for investors to
read and understand. A multi-step income statement is more detailed than a
simple income statement. Because of the additional detail, it is the option selected
by many companies whose operations are more complex. Each revenue and
expense account is listed individually under the appropriate category on the
statement. The multi-step income statement may be more beneficial for internal
use and management decision-making because of the detail in account
information.

In your previous learning materials, we have studied the Statement of

Comprehensive Income (SCI) for the service business. Learning materials will
illustrate the procedures on how to prepare the Statement of Comprehensive
Income for merchandising business with only two categories—revenues and
expenses. In contrast, a multi-step income statement divides both revenues and
expenses into operating and non-operating (other) items. The statement also
separates operating expenses into selling and administrative expenses. A multi-step
income statement is also called a detailed income statement. Upon completion
of this learning material, you are expected to:

 Understand the procedures to be used in the preparation of the Statement of

Comprehensive Income for merchandising business;
 Prepare a Statement of Comprehensive Income of a service business using
the multi-step approach (ABM_FABM12-Ic-d-7); and
 Honed your skills at tackling real jobs through the sample quizzes at the end
of the learning materials.

2
 Jumpstart

For a better understanding of the lesson, do the following activities.

Activity 1. It is a Puzzle Time!

Instruction: Based on your previous lessons on the features of merchandising

business read and fill in the box the correct answer. The rating shall be based on
the following rubric:
15 10 5 0

All answer is Few answers is Few answers is

correct incorrect correct No accomplishment

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 Discover

Preparation of the Statement of Comprehensive Income Using the

Multi-Step Approach for Merchandising Business
Multi-step Statement of Comprehensive Income is one of the two formats
that can be used to report the profits of the business. It comprises of the company’s
revenues, expenses, and overall profit or loss for a specific accounting period. It is
more detailed than the single-step and uses multiple equations to calculate the
business’ net income. Furthermore, it segregates the operating expenses and
administrative expenses, which gives insights into how the company’s primary
business activities generate income and affect costs as compared to the
performance of its non-essential activities.
Generally, with the multi-step approach, Merchandise Company can
facilitate its operation along with planning, controlling, and decision-making. A
multi-step approach will appear in two ways depends upon the preferences of the
company.
Gross Sales xxxxx
Less:
Sales Discount xxxx
Sales Returns and
Allowance xxxx xxxxx
Net Sales xxxxxx
Less: Cost of Sales
Merchandise Inventory,
January 1 xxxxx
Add Net Cost of Purchases
Purchases xxxx
Add: Freight-In xxxx
Total Cost of Goods
Delivered xxxx
Purchases
Less: Discounts xxx
Purchases Returns
and Allowances xxx xxxx xxxxx
Total Goods Available for
Sale xxxxx
Less: Merchandise Inventory,
December 31 xxxxx xxxxxx
Gross Income xxxxxx
Less: Operating Expenses
Selling Expenses xxxx
Administrative
Expenses xxxx xxxxx
Operating Income xxxxx
Add: Other Income xxx
Less: Other Expenses xx
NET INCOME xxxxx

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2.
Net Sales (Note 1) XXXXX
Cost of Sales (Note 3) XXXXX
Gross Profit Operating Income XXXXX
Selling expenses (Note 4) XXXXX
Administrative Expense (Note 5) XXXXX
NET INCOME XXXXX

Procedures on the Preparation of the Multi-Step of the Statement of

Comprehensive Income of Merchandising Business

1. Draft the appropriate title/ heading.

The title or the heading of your multi-step statement of comprehensive
income conveys essential information to readers. It states the name of the
business, it identifies the document as an income statement, and it defines the
reporting period covered by the document

2. Determine the Net Sales

The top sections cover sales. Since it is a merchandising business, its
revenue will come from sales. A sale is generated from selling the goods. The sales
to be presented net of discounts, returns, and allowances. The calculation may
appear as follows:

Gross Sales
Less:
Sales Discount
Sales Returns and Allowance
Net Sales

3. Determine the Net Purchases

From gross purchases, freight-in is added to arrive at Total Cost of Goods
Delivered. For the Total Cost of Goods Delivered, purchases discounts and
purchases returns and allowances are deducted to arrive at Net Purchases. The
calculation may appear as follows:

Purchases
Add: Freight-In
Total Cost of Goods Delivered
Less: Purchases Discounts
Purchases Returns and Allowances
Net Purchases

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4. Determine the Cost of Goods Sold and Gross Profit

The Cost of Goods Sold is based on the inventory beginning, which will be
added to the Net Purchases, and the ending inventory will be deducted. Cost of
Goods Sold will be computed as follows:

Merchandise Inventory, January 1

Add Net Cost of Purchases
Less: Merchandise Inventory, December 31
Cost of Goods Sold
Net Sales
Less: Cost of Sales
Gross Profit

5. Determine Selling Expenses.

One should now appropriately allocate the given percentage used in storing,
promoting, packaging, and delivering the merchandise such as Freight-Out, Sales
Salaries, Advertising, sales Commission, Depreciation Expense, and other
expenses, which pertains to selling.

6. Determine the Administrative Expenses

It consists of the expenses needed in the general administration of the office
other than the store, such as the permits and licenses, office salaries expenses,
utilities expense, depreciation expense, and others.

7. Determine the Net Income

The final step in creating a multi-step income statement is calculating net
income. The Cost of goods sold is deducted from net sales to come out with gross
profit less than the operating expenses to arrive at the net income. If it is a positive
number, you’re reporting a profit. If the total is a negative number, you’re recording
a loss.

6
 Explore

To demonstrate the use of a multi-step income statement approach, let us

use the information of Jess Boutique for the year 2019. Salaries, rent, insurance,
and depreciation are appropriately 35% pertains to sales and the rest to the office.

Abat, Capital 220,000.00

Abat Drawing 30,000.00
Sales 150,000.00
Sales Discount 2,500.00
Sales Returns and Allowances 1,250.00
Purchases 50,000.00
Freight-in 2,500.00
Purchases Discount 1,000.00
Purchases returns and Allowances 2,500.00
Advertising Expenses 3,000.00
Commission Expenses 2,500.00
Insurance Expense 500.00
Salaries Expense 25,000.00
Rent Expense 10,000.00
Depreciation Expense 1,500.00
Inventory, Jan 1, 2019 60,000.00
Inventory, December 31, 2019 45,000.00

1. Draft the appropriate title.

Abat Boutique
Statement of Comprehensive Income
For the Year-ended December 31, 2019

2. Determine the Net Sales

Abat Boutique
Statement of Comprehensive Income
For the Year-ended December 31, 2019

Net Sales (Note 1) ₱ 96,250.00

Note 1:
Sales ₱100,000.00
Less: Sales Discount 2,500.00
Sales Returns and Allowances 1,250.00
Net Sales ₱ 96,250.00

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 3. Determine the Net Purchases

Abat Boutique
Statement of Comprehensive Income
For the Year-ended December 31, 2019

Net Sales (Note 1) ₱ 96,250.00

Note 1:
Sales ₱100,000.00
Less: Sales Discount 2,500.00
Sales Returns and Allowances 1,250.00
Net Sales ₱ 96,250.00

Note 2:
Purchases ₱ 50,000.00
Add: Freight-in 2,500.00
Total Cost of Goods Delivered 52,500.00
Less Purchases Discount 1,000.00
Purchases Returns and
Allowances 2,500.00
Net Purchases ₱ 49,000.00

4. Determine the Cost of Goods Sold and Gross Profit

Abat Boutique
Statement of Comprehensive Income
For the Year-ended December 31, 2019

Net Sales (Note 1) ₱ 146,250.00

Less: Cost of Sales (Note 3) 64,000.00
Gross Profit 82,250.00

Note 1:
Sales ₱ 150,000.00
Less: Sales Discount 2,500.00
Sales Returns and
Allowances 1,250.00
Net Sales ₱146,250.00

Note 2:
Purchases ₱ 50,000.00
Add: Freight-in 2,500.00
Total Cost of Goods Delivered 52,500.00
Less Purchases Discount 1,000.00
Purchases
Returns and
Allowances 2,500.00
Net Purchases ₱ 49,000.00

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 Note 3:
Merchandise Inventory, January 1,
2019 ₱ 60,000.00
Add: Net Purchases 49,000.00
Total Goods Available for Sales 109,000.00
Less: Inventory, December 31, 2019 45,000.00
Cost of Sales ₱ 64,000.00

4. Determine Selling Expenses and Administrative Expenses.

Based on the problems selling is allocation as 35% of insurance, salaries,

rent, and depreciation while the remaining, which is 65%, is incurred by the office.
While advertising and commission pertain to selling. Below is the allocation
schedule:

100% 35% 65%

Selling Administrative
Advertising Expenses ₱ 3,000.00 ₱ 3,000.00
Commission Expenses 2,500.00 2,500.00
Insurance Expense 500 175.00 ₱ 325.00
Salaries Expense 25,000.00 8,750.00 16,250.00
Rent Expense 10,000.00 3,500.00 6,500.00
Depreciation Expense 1,500.00 525.00 975.00
Total ₱42,500.00 ₱18,450.00 ₱ 24,050.00

Based on the allocation schedule, you can now determine the selling
expenses, which are note 4, while administrative expenses as note 5.

Abat Boutique
Statement of Comprehensive Income
For the Year-ended December 31, 2019

Net Sales (Note 1) ₱ 146,250.00

Less: Cost of Sales (Note 3) 64,000.00
Gross Profit 82,250.00
Selling Expenses (Note 4) 18,450.00
Administrative Expenses (Note 5) 24,050.00
Note 1:
Sales ₱ 150,000.00
Less: Sales Discount 2,500.00
Sales Returns and Allowances 1,250.00
Net Sales ₱146,250.00
Note 2:
Purchases ₱ 50,000.00
Add: Freight-in 2,500.00
Total Cost of Goods Delivered 52,500.00
Less Purchases Discount 1,000.00
Purchases Returns and Allowances 2,500.00
Net Purchases ₱ 49,000.00

9
 Note 3:
Merchandise Inventory, January 1, 2019 ₱ 60,000.00
Add: Net Purchases 49,000.00
Total Goods Available for Sales 109,000.00
Less: Inventory, December 31, 2019 45,000.00
Cost of Sales ₱ 64,000.00

Note 4:
Advertising Expenses ₱ 3,000.00
Commission Expenses 2,500.00
Insurance Expense 175.00
Salaries Expense 8,750.00
Rent Expense 3,500.00
Depreciation Expense 525.00
Total Selling Expenses ₱ 18,450.00

Note 5:
Insurance Expense ₱ 325.00
Salaries Expense 16,250.00
Rent Expense 6,500.00
Depreciation Expense 975.00
Total Administrative Expense ₱ 24,050.00

5. Determine the Net Income

Abat Boutique
Statement of Comprehensive Income
For the Year-ended December 31, 2019

Net Sales (Note 1) ₱ 146,250.00

Less: Cost of Sales (Note 3) 64,000.00
Gross Profit 82,250.00
Selling Expenses (Note 4) 18,450.00
Administrative Expenses (Note 5) 24,050.00
NET INCOME ₱ 39,750.00

Note 1:
Sales ₱ 150,000.00
Less: Sales Discount 2,500.00
Sales Returns and Allowances 1,250.00
Net Sales ₱146,250.00
Note 2:
Purchases ₱ 50,000.00
Add: Freight-in 2,500.00
Total Cost of Goods Delivered 52,500.00
Less Purchases Discount 1,000.00
Purchases Returns and Allowances 2,500.00
Net Purchases ₱ 49,000.00

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 Note 3:
Merchandise Inventory, January 1, 2019 ₱ 60,000.00
Add: Net Purchases 49,000.00
Total Goods Available for Sales 109,000.00
Less: Inventory, December 31, 2019 45,000.00
Cost of Sales ₱ 64,000.00

Note 4:
Advertising Expenses ₱ 3,000.00
Commission Expenses 2,500.00
Insurance Expense 175.00
Salaries Expense 8,750.00
Rent Expense 3,500.00
Depreciation Expense 525.00
Total Selling Expenses ₱ 18,450.00

Note 5:
Insurance Expense ₱ 325.00
Salaries Expense 16,250.00
Rent Expense 6,500.00
Depreciation Expense 975.00
Total Administrative Expense ₱ 24,050.00

Deepen

Let us have other business transactions to ponder.

1. Given the following information from Betty’s RTWs for the year ended 2019.

Depreciation Expenses 1,250.00

Purchases 125,000.00
Sales 250,000.00
Insurance Expense 750.00
Purchases Discount 2,750.00
Purchases Returns and Allowance 1,000.00
Rent Expense 5,000.00
Salaries Expense 12,000.00
Sales discount 2,700.00
Utilities Expense 3,400.00

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 Based on actual count P 100,500 is the beginning inventory while the ending is P
75,000. Selling expenses of 20% on rent, salaries, and utilities and the rest on the
administrative. You were tasked to prepare the Statement of Comprehensive
Income for 2019 and report the following amount to Miss Betty. The rating will be
based on the rubric below.

a. How much is the net sales? _________________________

b. How much is the net purchases? _________________________

c. How much is the cost of sales? _________________________

d. How much is the gross profit? _________________________

e. How much is the selling expenses? _________________________

f. How much is the administrative expenses? ____________________

g. How much is the net income? __________________________

15 10 5 0
The answer is The answer is The answer Did not
correct with no correct with few contains many submitted any
errors errors errors project

Gauge

Summative test.

Instruction: Multiple Choice. Choose the letter of the best answer and use the
space provided.

_______1. Which of the following BEST describe a Statement of Comprehensive

Income (SCI)?

A. reports the changes in equity for corporation throughout an

accounting period.

B. displays the assets of a company and its sources of financing and

equity.

C. shows the results of operations of the company as of the cut-off date.

D. explains the net change in cash for the end of the accounting period.

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_______2. Which of the following is an element of the Statement of Comprehensive?

Income for merchandising business?

A. Accounts Receivable B. Cash C. Freight-in D. Supplies

_______3. Which of the following is an appropriate date for the SCI?

A. For the month of January 31, 2020 B. 31th of January 2020

C. January 31, 2020 D. January 30, 2020

_______4. Which of the following Best describes a merchandising type of business?

A. Income received by a vulcanizing shop for the service rendered.

B. Gains on sale of property, plant, and equipment.

C. Sales revenue earned by a department store.

D. Consultation fee charged by a doctor.

_______5. Which of the following is classified as an administrative expense?

A. Cash B. Freight-out C. Permits D. Salaries of sales clerks

II. The following are taken from the records of San Agustin Lumber and Supplies
for the year ended December 2019. Use the space provided.

You will be score is based on the following rubrics:

20 15 10 5 0
Needs No
Advanced Proficient Poor
Improvement Submission
Preparation of Preparation of Preparation of The student No project
the Statement the Statement Statement of does not was
of of Comprehensive demonstrate submitted
Comprehensive Comprehensive Income an
Income is Income is contains many understanding
correct with no correct, with errors of how to
errors few minor prepare the
errors Statement of
Comprehensive
Incomes. Work
is incomplete

The business owner employed you as its bookkeeper in its first year of
operations. You are now to prepare the Statement of Comprehensive Income.
Accordingly, 30% of the rent, salaries, depreciation, and utilities expenses pertain
to the sales office while the rest to the corporate office.

Advertising Expense 25,000.00

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Depreciation Expenses 2,500.00
Freight-In 5,000.00
Freight-out 3,500.00
Insurance Expense 5,000.00
Inventory, January 1, 2019 235,600.00
Inventory, December 31, 2019 125,000.00
Purchases 275,000.00
Purchases Discount 3,500.00
Purchases Returns and Allowance 4,550.00
Rent Expense 35,000.00
Salaries Expense 50,000.00
Sales 725,000.00
Sales discount 15,250.00
Sales Returns and Allowances 10,250.00
Utilities Expense 7,500.00

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References:
Books:

Dani Rose C. Salazar. (2017), Fundamentals of Accountancy, Business, and

Management 2. First. Sta. Mesa Heights. Quezon City: Rex Printing Company
Inc.,
Page number: 43-47
Josefina Beticon, James Christopher Domingo, and Fermin Antonio Yabut.( 2016)
Fundamentals of Accountancy, Business, and Management 2. Araneta
Avenue Quezon City: Vibal Group Inc.
Page number: 33-40

Website:

Fresh Books. “How to Create a Multi-Step Income Statement: A Guide to In-Depth

Financial Reporting.” FreshBooks Cloud Accounting, 2019.
https://www.freshbooks.com/hub/accounting/multi-step-income-
statement.
lumen. “Financial Accounting,” 2020. https://courses.lumenlearning.com/sac-
finaccounting/chapter/alternative-formats-and-terminology-for-financial-
statements/.
Openstax. “Principles of Accounting.” Rice University, 2020.
https://openstax.org/books/principles-financial-accounting/pages/6-6-
describe-and-prepare-multi-step-and-simple-income-statements-for-
merchandising-companies.

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