Topic 2

Statement of Comprehensive Income (SCI)

Learning Outcomes

At the end of the topic, you should be able to:

1. Identify the elements of the SCI and describe each of these items for a service business
and a merchandising business
2. Prepare an SCI for a service business using the single-step approach
3. Prepare an SCI for a merchandising business using the multi-step approach

INTRODUCTION

WHAT IS THE STATEMENT OF COMPREHENSIVE INCOME?

Also known as the income statement, it contains the results of the company’s operations for a specific
period of time which is called net income if it is a net positive result while a net loss if it is a net negative
result. This can be prepared for a month, a quarter or a year. (Haddock, Price, & Farina, 2012)

JIANNE’S NOTE: On our previous lesson, we’ve mentioned the Net Income. Net Income is the
result of the operations of the company for a specific period of time. Basically, it is your revenue
minus your expenses. If what remains is a positive amount, it is Net Income, if negative, a Net
Loss.

A simple SCI of a student like you for one month can look like this:

Allowance Revenue Php 5,000

Expenses
Food Expense 2,500
Transportation Expense 1,000
Rent Expense (Dorm) 500
Load Expense 400
Other Expense 300
Total Expenses Php 4,700

NET INCOME Php 300

In the example above, the allowance you receive from your parents or guardians are your revenue,
and your expenses for one month are your expenses. The amount you saved after all your
 expenses is your Net Income. If you arrived at a loss, meaning your expenses are greater than
your revenue, think of any debts you owe to any friend or classmate and add it to your revenue.

What are Temporary Accounts?

Also known as nominal accounts are the accounts found under the SCI. They are called such because at
the end of the accounting period, balances under these accounts are transferred to the capital account,
thus having only temporary amounts and resulting to zero beginning balances at the beginning of the
following year.(Haddock, Price, & Farina, 2012)

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

JIANNE’S NOTE: An Income kapag na-minus tanan na Expenses, an tawag Net Income. An mga
account na na-close sa Net Income, mao an aton gintatawag na Temporary Accounts. Diri
ginprepresentar o ginpapakita an Temporary Accounts sa aton SFP. All your revenue and expense
accounts are Temporary Accounts.

Here is an example of a Statement of Comprehensive Income of a company,

LEARNING IS FUN COMPANY

STATEMENT OF COMPREHENSIVE INCOME
FOR THE YEAR ENDED DECEMBER 31, 2020
Single-step and Multi-step Presentation of SFP

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)

2. Multi-step – Called multi-step because there are several steps needed in order to arrive at the
company’s net income. (Haddock, Price, & Farina, 2012)

Note that these two are only formats and will yield the same amount of net income/loss. The single-
step SCI is more commonly used by service companies while multi-step format is more commonly used
by merchandising companies.

The sample SCI in the previous page uses the Single-step format.

Rules on Single Rule and Double Rule

On our Statement of Financial Position discussion, we said that when there is an operation (addition,
subtraction), the amount is single ruled. For SCI, the same principle is applied and we only double rule the
final amount or the Net Income/Loss.

Difference of the Statement of Comprehensive Income of a Service Company and of a Merchandising Company

The main difference of the Statements of the two types of business lies on how they generate their revenue. A
service company provides services in order to generate revenue and the main cost associated with their service is
the cost of labor which is presented under the account Salaries Expense. On the other hand, a merchandising
company sells goods to customers and the main cost associated with the activity is the cost of the merchandise
which is presented under the line item Cost of Goods Sold. In presenting these items on the Statement of
Comprehensive Income, a service company will separate all revenues and expenses (as seen in the single-step
format) while a merchandising company will present total sales and cost of goods sold on the first part of the
statement which will net to the company’s gross profit before presenting the other expenses which are classified as
either administrative expenses or selling expenses (as seen in the multi-step format).
Below is an example of an SCI of a Service company using the single-step format:

Below is an example of an SCI of a Merchandising company using the multi-step format.

Again, note that for a service company, we present the revenue and expenses separately and after deducting the
expense from revenue, we come up with our Net Income/Loss. For a merchandising company, we deduct the Cost of
Goods Sold from our Sales to arrive at our Gross Profit, and deduct the other expenses to arrive at the Net
Income/Loss.

Parts of a Statement of Comprehensive Income

The example below is a Statement of Comprehensive Income presented using the Single-step format:

LEARNING IS FUN COMPANY

STATEMENT OF COMPREHENSIVE INCOME
FOR THE YEAR ENDED DECEMBER 31, 2020

I. First, let’s focus on the Heading since we’ve already discussed Revenue, Expenses and Net
Income/Loss. Like your Statement of Financial Position, your SCI’s heading is composed of the:

i. Name of the Company

ii. Name of the Statement
iii. Date of preparation
Jianne’s Note: Notice that the date is preceded by the words “for the year ended.” As previously
mentioned, the amounts in the SFP are permanent meaning that the amounts are cumulative from
the beginning of the life of the company that’s why we a present the amounts in the SFP “as of”
that point in time, or at the moment. However, for your revenue and expense accounts in your
Statement of Comprehensive Income, the amounts presented are temporary and is not cumulative
(meaning, on the following year, all these accounts should have a beginning balance of zero as
they must be closed as at yearend), thus, we present these accounts only “for the year ended.”

II. Second part is Revenues. This is the total amount of revenue that the company was able to generate
from providing services to customers
III. Third part is Expenses (this can be further broken down into General and Administrative and Selling
Expenses). We’ll discuss this further below in the next example.
IV. Fourth is the Revenues less Expenses. Net income for a positive result and net loss for a negative
result.
The example below is a Statement of Comprehensive Income presented using the Multi-step format:
I. First is the Heading which we’ve already discussed above. Note that whatever the format of the
presentation, the heading of the Statement of Comprehensive Income remains the same.

II. Second is Sales. This is the total amount of revenue that the company was able to generate from
selling products

III. Third part is composed of Contra revenue accounts. They are called contra because it is on the
opposite side of the sales account. The sales account is on the credit side while the reductions to sales
accounts are on the debit side. This is “contrary” to the normal balance of the sales or revenue
accounts. (Haddock, Price, & Farina, 2012)

Jianne’s Note: If you remember our “Contra asset” accounts in the Statement of Financial Position, the
same principle applies for “Contra revenue” accounts. Contra asset accounts are not liabilities in the
same way Contra revenue accounts are not expenses although they are deducted from the revenue.

a. Sales returns – This account is debited in order to record returns of customers or allowances for
such returns. (Haddock, Price, & Farina, 2012) Sales returns occur when customers return their
products for reasons such as but not limited to defects or change of preference.
b. Sales discount – This is where discounts given to customers who pay early are recorded.
(Haddock, Price, & Farina, 2012) Also known as cash discount. This is different from trade
discounts which are given when customers buy in bulk. Sales discount is awarded to customers
who pay earlier or before the deadline.

IV. Sales less Sales returns and Sales discount is Net Sales.

V. Fifth part is Cost of Goods Sold – This account represents the actual cost of merchandise that the
company was able to sell during the year. (Haddock, Price, & Farina, 2012)

a. Beginning inventory – This is the amount of inventory at the beginning of the accounting period.
This is also the amount of ending inventory from the previous period.
b. Net Cost of Purchases = Purchases + Freight In
i. Net Purchases = Purchases – (Purchase discount and purchase returns)
1. Purchases – amount of goods bought during the current accounting period.
2. Contra Purchases –An account that is credited being “contrary” to the normal
balance of Purchases account.
a. Purchase discount – Account used to record early payments by the
company to the suppliers of merchandise. (Haddock, Price, & Farina,
2012) This is how buyers see a sales discount given to them by a
supplier.
b. Purchase returns – Account used to record merchandise returned by
the company to their suppliers. (Haddock, Price, & Farina,2012) This is
how buyers see a sales return recorded by their supplier
ii. Freight In – This account is used to record transportation costs of merchandise purchased
by the company. (Haddock, Price, & Farina, 2012) Called freight in because this is
recorded when goods are transported into the company.
c. Add Beginning inventory and Net cost of Purchases to get Cost of Goods Available for Sale
d. Ending inventory – amount if inventory is presented in the Statement of Financial Position. Total
cost of inventory unsold at the end of the accounting cycle.

VI. Sales less Cost of Goods Sold is Gross Profit

VII. Seventh Part is General and Administrative Expenses –These expenses are not directly related to the
merchandising function of the company but are necessary for the business to operate effectively.
(Haddock, Price, & Farina, 2012)

VIII. Eight Part is Selling Expenses – These expenses are those that are directly related to the main purpose
of a merchandising business: the sale and delivery of merchandise. This does not include cost of goods
sold and contra revenue accounts. (Haddock, Price, & Farina, 2012)

IX. Gross Profit less General and Administrative Expenses less Selling Expenses is Net Income for a
positive result while Net Loss for a negative result