SCI--Statement of Comprehensive Income

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Statement of Comprehensive Income

Statement of Comprehensive Income for Merchandising Business

Statement of Comprehensive Income

Income statement shows the financial performance of an entity for a period. It includes income, expenses, gains, losses, and net income or loss.

Comprehensive Income

The change in equity from transactions and other events during a period. It includes:

  1. Profit or Loss
  2. Other Comprehensive Income (OCI)
    • Unrealized gains/losses on equity and debt investments
    • Revaluation surplus
    • Foreign currency translation gains/losses

Income

Increases in assets or decreases in liabilities resulting in higher equity. Includes both revenue and gains.

Sources of Income:

  1. Sale of Merchandise

    2. Gross Sales - Sales Discount - Sales Returns & Allowances = Net Sales

    Example: On Sept. 20, AZZ Trading sold merchandise worth P100,000 (50% cash, balance terms 2/15, n/30).

    Journal Entry:

    Initial: Cash P50,000, Accounts Receivable P50,000, Sales P100,000

    When Paid (Sept. 30): Cash P49,000, Sales Discount P1,000, Accounts Receivable P50,000

  2. Rendering of Services

    3. Professional fees, commissions

  3. Use of Entity Resources

    4. Income from rent, interest, royalties, dividends

  4. Disposal of Resources

    5. Gains from the sale of investments, property, plant, and equipment (PPE)

Expenses

Expenses decrease assets or increase liabilities, reducing equity. Also includes losses.

Components of Expenses:

  1. Cost of Goods Sold (COGS)

    2. Beginning Inventory + Net Purchases - Ending Inventory = COGS

    Example: Mr. A purchased merchandise for P21,000 (terms 20% down, balance 2/10, n/30).

    Journal Entry:

    Initial: Purchases P21,000, Cash P4,200, Accounts Payable P16,800

    When Paid (Sept. 25): Accounts Payable P16,800, Cash P16,464, Purchase Discount P336

  2. Distribution Costs (Selling Expenses)

    3. Freight out, salesmen's salaries, advertising, depreciation

  3. Administrative Expenses

    4. Office salaries, supplies, doubtful accounts, depreciation of office buildings and equipment

  4. Other Expenses

    5. Casualty losses, losses on disposal of PPE, sale of non-current investments

Types of Businesses

  1. Service Business

    2. Revenue from services - Expenses = Net Income + Other Comprehensive Income = Comprehensive Income

  2. Merchandising Business

    3. Net Sales - COGS = Gross Profit ± Other Income/Expenses = Net Income + Other Comprehensive Income = Comprehensive Income

Forms of Income Statement:

  1. Functional Form

    2. Classifies expenses based on function (COGS, distribution, administrative, other expenses)

  2. Natural Form

    3. Groups similar expenses together

Operating Cycle of a Merchandising Business:

Includes Cash Sales and Credit Sales.

Merchandise Inventory:

  • Periodic Inventory System: Physical count at the end of the period.
  • Perpetual Inventory System: Continuous record of inventory inflow and outflow.

Ownership of Goods in Transit:

  • FOB Destination: Ownership transfers upon receipt by buyer.
  • FOB Shipping Po
    int:     Ownership transfers when goods are shipped.

Freight Charges:

  • Freight Collect: Buyer pays the freight.
  • Freight Prepaid: Seller pays the freight.

Example Freight Transactions:

  1. FOB Destination, Freight Prepaid: Mr. M sold merchandise for P15,000 (terms 2/10, n/30). Freight prepaid P1,000.
  2. FOB Shipping Point, Freight Collect: Mr. M sold merchandise for P15,000 (terms 2/10, n/30). Freight collect P1,000.

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