Republic of the Philippines

Department of Education Region VIII

Schools Division of Leyte

INFORMATION AND LEARNING ACTIVITY SHEET

GRADE 12 FUNDAMENTALS OF ACCOUNTANCY, BUSINESS,
and MANAGEMENT 2
(Disclaimer: CONTENTS are taken from Teaching Guide for Senior High School in
Fundamentals of Accountancy, Business, and Management 1 (FABM 1) and FABM 2 by the
Commission on Higher Education in collaboration with Philippine Normal University. Resources
of the contents herein of the said teaching guide are cited at the last page. All italicized and
underlined text are added to aid the delivery of learning without the face-to-face facilitation from
the teacher in a classroom set-up due to COVID pandemic.)

Module 2: STATEMENT OF COMPREHENSIVE INCOME (SCI)

MOST ESSENTIAL LEARNING COMPETENCY 2 and 3 (MELC 2 and 3)
(ABM_FABM12-Ic-d-6) and (ABM_FABM12Ic-d-7) - Week 2-3

At the end of this module, you will be able to:

1. Prepare an SCI for a service business using the single-step approach

2. Prepare an SCI for a merchandising business using the multistep approach

DEFINITION OF TERMS:

STATEMENT OF COMPREHENSIVE INCOME

– Also known as the income statement. 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)

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.

Elements of a Statement of Comprehensive Income (SCI):

1. Income is the increase in economic benefits during the accounting period in

the form of inflows of cash or other assets or decreases of liabilities that result
in increase in equity. Income includes revenue and gains.

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 Revenue account is used when the result of the performance of a transaction
is coming from main-producing activities. Gain account is used as a result
coming from other than the main-producing activities.

Income increases the resources resulting from performance of service or

selling of goods. Examples of Income Accounts: Service revenue for service
entities, Sales for merchandising and manufacturing companies

2. Expenses are decreases in economic benefits during the accounting period

in the form of outflows of assets or incidences of liabilities that result in
decreases in equity. Expense is the decrease in resources resulting from the
operations of business. Examples of Expense Accounts: Salaries Expense,
Interest Expense, Utilities Expense

Types of Business According to its Activities:

1. Service Business

This type of business offers professional skills, advice and consultations. A

service business provides a needed service for a fee. In general, service businesses
actually have no physical product sold to clients. Their services are designed to
facilitate the work of clients and in return are paid. Service businesses include salons
or barbershops, laundry services, car repairs, medical centers and services of
professionals like lawyers and doctors. The revenue of a service business is usually
realized once the service has been substantially completed. Aside from the minor
supplies, the service business does not maintain a high level of inventory as
compared to merchandising and manufacturing businesses. In relatively small
service businesses, all transactions are on cash payments. This means sales are
collected immediately while most expenses are paid outright in the form of cash or
checks. The typical financial transactions recorded for a service company include
collecting a deposit from the customer, providing the service and receiving payment.

2. Merchandising Business

This type of business buys at wholesale and later sells the products at retail.
They make a profit by selling the merchandise or products at prices that are higher
than their purchase costs. This type of business is also known as "buy and sell".
Examples are: book stores, sari-sari stores, hardware stores.

3. Manufacturing Business

This type of business buys raw materials and uses them in making a new
product, therefore combining raw materials, labour and expenses into a product for
sale later on. Examples are: shoe manufacturing businesses, car manufacturing
plants.

Additional information: There are businesses that may be classified under more than one type of
business. A bakery, for example, combines raw materials in making loaves of bread
(manufacturing), sells hot pan de sal (merchandising), and caters customers’ orders in small
coffee table servings of ensaymada and hot coffee (service).

Types of Approach/Format in the Presentation/Preparation of a SCI:

1. Single-step

– 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

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

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

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).

PRESENTATION/PREPARATION of a SCI (refer to the samples given)

Figure 1: Sample of a Single-step Approach/Format SCI

a. Heading

i. Name of the Company

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

b. Body

i. First part is revenues. This is the total amount of revenue that the company was able to
generate from providing services to customers.

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ii. Second part is expenses (can be broken down into General and Administrative and
Selling Expenses). Please see the discussion in multi-step for general and
administrative and selling expenses.

iii. Revenues less Expenses. Net income for a positive result and net loss for a negative
result.

Figure 2: Sample of a Multi-step Approach/Format SCI

a. Heading

i. Name of the Company

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

b. Body

i. First part is sales. This is the total amount of revenue that the company was able to
generate from selling products.

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ii. Second part is composed of contra revenue – 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).

ii.i. 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.

ii.ii. 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.

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

iv. Third 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)

iv.i. 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.

iv.ii. Net Cost of Purchases = Purchases + Freight In

iv.ii.i. Net Purchases = Purchases – (Purchase discount and purchase returns)

iv.ii.i.i. Purchases

– amount of goods bought during the current accounting period.

iv.ii.i.ii. Contra Purchases

– An account that is credited being “contrary” to the normal balance of

Purchases account.

iv.ii.i.ii.i. 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.

iv.ii.i.ii.ii. 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

iv.ii.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.

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 iv.iii. Add Beginning inventory and Net cost of Purchases to get Cost of Goods
Available for Sale

iv.iv. Ending inventory – amount of inventory presented in the Statement of Financial

Position. Total cost of inventory unsold at the end of the accounting cycle.

v. Sales less Cost of Goods Sold is Gross Profit

vi. Fourth 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)

vii. Fifth 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)

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

Figure 3: Sample of Simpler Multi-step Approach SCI

Notice that the numerical figures for the net sales and cost of goods sold are shown
right away as presented in the previous page. It could be done, however, a separate
schedule of the computations for both mentioned line items must be disclosed to the
”Notes to the Financial Statement”.

General Instruction:

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 Use your columnar journal in answering all the activities. Make sure to write the
title of the activity. Do not write anything on the pages of this module.

Activity 1: Proper Identification and Computation of SCI Elements and Line Items

Easy:

1. Learning is Fun Company generated revenues amounting to Php 100,000. Expenses for
the year totaled Php 76,000. How much is the company’s net income for the year?

2. Happy Selling Company’s salaries to sales agents amounted to Php 10,000. Salaries of
accountants amounted to Php 20,000. No other expenses were incurred. How much is
the company’s general and administrative expense?

Medium:

3. Happy Selling’s beginning inventory amounted to 250,000. Net purchases amounted to

70,000. Freight In totaled 15,000. Compute for the company’s cost of goods available for
sale.

4. Happy Selling’s Sales amounted to Php 500,000. Sales returns and sales discounts
amounted to Php 30,000 and Php 10,000 respectively. Purchases of the company
totaled Php 100,000 while purchase returns and purchase discounts amounted to Php
20,000 and Php 10,000 respectively. How much is the company’s Net Sales? Net
Purchases?

Difficult:

5. Company’s Cost of Goods Sold amounted to Php 285,000. Net cost of purchases totaled
Php 85,000. Beginning inventory amounted to Php 250,000. Sales amounted to Php
500,000. Compute for the company’s Ending Inventory.

6. Gross profit of Happy Selling amounted to Php 175,000. Beginning Inventory totaled Php
250,000. Ending Inventory amounted to Php 50,000 while Net Cost of Purchases totaled
Php 85,000. Compute for Happy’s Net Sales.

Activity 2: Computation of Net Income and Cost of Goods Sold

1. At the end of the first month of operations for Juan’s Service Company, the business had
the following accounts: Cash, Php19,000; Prepaid Rent, Php500; Equipment, Php5,000
and Accounts Payable Php2,000. By the end of the month, Jackson's had earned
Php20,000 of Revenues, Php1,000 of Utilities Expenses and Php1,500 of Salaries
Expenses. Calculate the net income to be reported by the company for this first month.

2. During October, a sari-sari store had the following transactions involving revenue and
expenses. Did the firm earn a net income or incur a net loss for the period? What was
the amount? Paid Php1,200 for rent; Provided services for Php2,750 in cash; Paid
Php250 for telephone service; Provided services for Php1,900 on credit; Paid salaries of
Php1,675 to employees; Paid Php350 for office cleaning service.

3. Compute for the Cost of Goods Sold using the following: Sales – 15,000 Purchases –
2,000 Purchase returns – 200 Purchase discounts – 200 Freight in – 100 Beginning
inventory – 1,000 Ending inventory – 500

Activity 3: Preparation of a SCI (single-step format)

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 Prepare a single-step Statement of Comprehensive Income using the following:
Revenues – 20,000 Rent expense – 3,000 Salaries expense – 4,000 Utilities expense – 2,000.
Learners can use any business name and the end of the current year for the heading.

Activity 4: Preparation of a SCI (multi-step format)

Prepare a multi-step Statement of Comprehensive Income using the following: Sales –

20,000 Cost of Goods Sold – 10,000 General and administrative expenses – 4,000 Selling
expenses – 2,000 Learners can use any business name and the end of the current year for the
heading.

APPENDIXES:

Teaching Guide for Senior High School in Fundamentals of Accountancy, Business, and
Management 1 – Types of Major Accounts:

Wild, J. (2009). Principles of Accounting 19th ed. McGraw Hill Publishing

Haddock, M., Price, J., & Farina, M. (2012). College Accounting: A Contemporary Approach 2nd
Ed., New York: McGraw-Hill/Irwin

Teaching Guide for Senior High School in Fundamentals of Accountancy, Business, and
Management 2 – Statement of Financial Position (SFP):

(1)Haddock, M., Price, J., & Farina, M. (2012). College Accounting: A Contemporary Approach,
Second Edition. New York: McGraw-Hill/Irwin.
(2) Valencia, E. G., &Roxas, G. F. (2010). Basic Accounting (3rd ed.). Mandaluyong City,
Philippines: Valencia Educational Supply

Answer Key:

Activity 1: Proper Identification and Computation of SCI Elements

Easy:

1. P24,000.
2. P20,000

Medium:

3. P335,000
4. P460,000 and P70,000

Difficult:

5. P50,000
6. P460,000

Activity 2: Computation of Net Income and Cost of Goods Sold

1. P17,500
2. P1,175
3. P2,200

Activity 3: Preparation of a SCI (single-step format)

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Activity 4: Preparation of a SCI (multi-step format)

Prepared by:

FERNANDO A. RALLOS JR.

FABM2 Teacher

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