Unit 2: Statement of Comprehensive Income

Lesson 2.2
Preparation of Statement of Comprehensive Income
Contents
Introduction 1

Learning Objectives 2

Quick Look 3

Learn the Basics 4

Preparing the Single-Step SCI 7
Preparing the Multi-Step SCI 9

Case Study 12

Keep in Mind 14

Try This 16

Practice Your Skills 17

Challenge Yourself 18

Photo Credits 19

Bibliography 20
Unit 2: Statement of Comprehensive Income

Lesson 2.2

Preparation of Statement of
Comprehensive Income

Introduction

The Statement of Comprehensive Income reports the profit or loss earned by a business for
a particular period. It measures a company's performance by reporting its profitability. Its
purpose is to keep track of the company's income and expenses and monitor the progress
of the business.

The SCI helps in the decision-making process, specifically in figuring out how the total
expenses could still be decreased and how the total income could be increased. However,
service and merchandising businesses operate differently. Therefore, one cannot simply
reduce the expense of a service business in the same way as cutting the costs of
merchandising activities. These two types of enterprises earn and operate differently. Thus,
they use different approaches in presenting their SCIs.

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Unit 2: Statement of Comprehensive Income

Learning Objectives DepEd Competencies

At the end of this lesson, you should be able to ● Prepare an SCI for a service business
do the following: using the single-step approach
(ABM_FABM12-Ic-d-6).
● Differentiate the methods in preparing a
● Prepare an SCI for a merchandising
single-step and multi-step SCI. business using the multi-step approach
(ABM_FABM12-Ic-d-7).
● Prepare a statement of comprehensive
income using a single-step and
multi-step approach.

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Unit 2: Statement of Comprehensive Income

Quick Look

Seeking Answers
You are an employee of ABC Merchandise, and your team is tasked to prepare financial
statements to be presented to prospective investors. You were assigned to prepare the
financial records for profitability. How much profit is the company generating? Does the
company maximize the utilization of company assets in order to generate income? Are
operations efficient and cost-effective? These are the questions that your report should
answer.

This financial statement will be the deciding factor whether or not the investors will invest in
the business.

Questions to Ponder
1. What approach will you use in preparing the statement of comprehensive income?
__________________________________________________________________________________________

__________________________________________________________________________________________

__________________________________________________________________________________________

2. How will this approach help you answer the questions that your report seeks to
answer?
__________________________________________________________________________________________

__________________________________________________________________________________________

__________________________________________________________________________________________

3. How will you prepare the statement of comprehensive income to be presented to

investors?
__________________________________________________________________________________________

__________________________________________________________________________________________

__________________________________________________________________________________________

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Unit 2: Statement of Comprehensive Income

Learn the Basics

In the previous lesson, you learned that the Statement of Comprehensive Income (SCI), also
known as the Income Statement or Statement of Financial Performance, contains the
results of a company’s operations for a specific period. It is one of the fundamental financial
statements because it measures the profitability that is necessary for the decision-making
process of a business.

In this lesson, you will learn how a statement of comprehensive income is prepared for
service and merchandising businesses.

Essential Questions

What is the importance of using the appropriate approach in preparing the

Statement of Comprehensive Income of businesses?

The key to preparing a statement of comprehensive income lies in how businesses generate
income. A service business generates income from providing services to customers and
treats the cost of labor as Salaries Expense. On the other hand, a merchandising business
generates income from the sale of goods and treats the labor cost as part of the Cost of
Goods Sold.

In preparing an income statement, a service business uses the single-step approach where
it separates revenues from expenses to determine whether the company will gain profit or
incur losses. Meanwhile, a merchandising business will determine its profit or loss by
presenting the gross profit first, followed by the expenses categorized into operating
expenses and non-operating expenses. The gross profit is the difference between the sales
and the cost of goods sold, both of which are presented before the gross profit amount. This
method is known as the multi-step approach.

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Unit 2: Statement of Comprehensive Income

Closer Look

Service Business and SCI

Laurence owns a laundry shop that offers its services to the residents within the
town. After three months, he thought of also offering snacks to its customers so
they could have something to eat while waiting.

The following year, he prepared the income statements for both businesses
using different approaches.

Laurence Laundry Services

Statement of Comprehensive Income
For the year ended December 2022
Service Income ₱ 454,500
Expenses:
Utilities Expense ₱ 120,000
Rent Expense 60,000
Salaries Expense 98,500
Depreciation Expense 24,500 (303,000)
Net Income ₱ 151,500

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Unit 2: Statement of Comprehensive Income

Laurence Food Kiosk

Statement of Comprehensive Income
For the year ended December 31, 2022
Net Sales ₱ 340,890
Cost of Goods Sold
Beginning Inventory ₱ 0
Purchases 175,000
Ending Inventory (55,000) (120,000)
Gross Profit ₱ 220,890

Operating Expenses
Rent ₱ 120,000
Other expenses 50,000 (170,000)
Operating Income ₱ 50,890

Other Income and Expenses

Non-operating revenue 20,000
Non-operating expenses (10,000) 10,000
Income before tax 60,890
Income Tax (30%) 18,267
Net Income ₱ 42,623

Check Your Progress

How do users benefit from the presentation of a Statement of

Comprehensive Income?
_________________________________________________________________________________
_________________________________________________________________________________
_________________________________________________________________________________

2.2 Preparation of Statement of Comprehensive Income 6

Unit 2: Statement of Comprehensive Income

Preparing the Single-Step SCI

The single-step approach to comprehensive income is used by service businesses. The
income statement is presented by listing all revenues in one line and expenses on the other
to compute the company’s net profit or loss. To help you familiarize yourself with this report,
a pro-forma SCI using the single-step approach is shown below.

XYZ Company
Statement of Comprehensive Income
For the Year Ended December 31, 2022

Revenues ₱ xxx
Expenses (not limited to the following)
Salaries expense ₱ xxx
Rent expense xxx
Depreciation expense xxx
Utilities expense xxx
Transportation expense xxx (xxx)
Net Income (Loss) ₱ xxx

The following are the steps in preparing the single-step SCI:

Step 1: Provide the heading. It includes the name of the enterprise, the name of the
statement, and the date of preparation which is presented by “For the Month/For
the Year”. The SCI will use “For the Month/For the Year” because the amounts
presented in the SCI are temporary, meaning that after each period, all amounts will
be closed and go back to zero to start a new period.

Step 2: Get the total revenues generated from providing services to customers.

Step 3: List all expenses incurred by the company.

Step 4: Compute for the Net Income/Net Loss. Deduct the total amount of expenses from
the total amount of revenues to compute the company’s profit or loss. Remember
that a business gains a net income if the total revenues are higher than expenses
and a net loss if computed otherwise.

2.2 Preparation of Statement of Comprehensive Income 7

Unit 2: Statement of Comprehensive Income

Closer Look

Service Business and SCI

ABC Co., a service business, was able to generate the following for the month of
January 2021.

Utilities Expense: ₱8,952 Salaries Expense: ₱21,500

Service Income: ₱107,500 Depreciation Expense: ₱3,500
Rent Expense: ₱10,000

Prepare the ABC company’s statement of comprehensive income for January.

ABC Co.
Statement of Comprehensive Income
For the month ended January 31, 2021
Service Income ₱107,500
Expenses:
Utilities Expense ₱ 8,952
Rent Expense 10,000
Salaries Expense 21,500
Depreciation Expense 3,500 (43,952)
Net Income ₱ 63,548

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Unit 2: Statement of Comprehensive Income
Preparing the Multi-Step SCI
The multi-step SCI is commonly used by merchandising businesses. In this approach, gross
profit is computed first before presenting all the expenses categorized into operating and
non-operating expenses. A pro-forma SCI using the multi-step approach is provided below.

XYZ Company
Statement of Comprehensive Income
For the Year Ended December 31, 2022
Net Sales
Sales revenue ₱ xxx
Sales returns/allowances (xxx)
Sales discount (xxx) ₱ xxx

Cost of Goods Sold

Merchandise inventory, beginning xxx
Net Purchases
Purchases xxx
Purchase returns/allowances (xxx)
Purchase discount (xxx) xxx
Freight in xxx
Merchandise inventory, end (xxx) (xxx)
Gross Profit xxx

Operating expense
Rent expense xxx
Depreciation expense xxx
Utilities expense xxx
Transportation expense xxx (xxx)
Operating Income (Loss) xxx

Other Income and Expenses

Other Income xxx
Other Expenses (xxx) xxx
Income before taxes xxx
Income taxes (xxx)
Net Income ₱ xxx

2.2 Preparation of Statement of Comprehensive Income 9

Unit 2: Statement of Comprehensive Income
To compute for the amounts shown in a multi-step SCI, you may refer to the following steps:

Step 1: Provide the heading.

Step 2: Get the Total Sales that the company generated from the sale of merchandise.

Step 3: Get the Total Contra Sales by adding the amount of sales returns, allowances, and
discounts.

Step 4: Compute the Net Sales by subtracting the total amount of contra sales from the
total amount of sales.

Step 5: Compute the Cost of Goods Sold by following these steps:

● The amount of beginning inventory will be added to the net cost of purchases.
● To compute the net cost of purchases, net purchases will be added to the amount
of freight-in.
● Net purchases are computed by subtracting the total amount of contra purchases
from the total purchases.
● The final step in computing the cost of goods sold is to subtract the cost of ending
inventory.

Step 6: Compute the Gross Profit by subtracting the cost of goods sold from the net sales.

Step 7: List down and categorize the expenses into operating and non-operating
expenses.

Step 8: Compute the Net Income/Net Loss by subtracting the total amount of expenses
from the gross profit.

2.2 Preparation of Statement of Comprehensive Income 10

Unit 2: Statement of Comprehensive Income

Closer Look

Merchandising and SCI

ABC Merchandise was able to generate the following for the month of February,
2021. Prepare the company’s statement of comprehensive income using the
multi-step approach.
Sales ₱ 64,500 Purchases ₱11,000
Sales Discounts 3,500 Purchase Discounts 2,000

Sales Returns and 1,800 Purchase Returns 2,600

Allowances and Allowances
Beginning Inventory 8,650 Ending Inventory 3,725
Freight In 3,000 Advertising Expense 2,950
Utilities Expense 5,675 Interest Expense 3,650
Rent Expense 8,750

ABC Co.
Statement of Comprehensive Income
For the month ended February 28, 2021
Net Sales
Sales ₱64,500
Sales discounts (3,500)
Sales returns and allowances (1,800) 59,200

Cost of Goods Sold

Beginning inventory 8,650
Net Purchases
Purchases 11,000
Purchase discounts (2,000)
Purchases returns and allowances (2,600) 6,400
Freight in 3,000
Total Goods Available for Sale 18,050
Ending inventory (3,725) (14,325)
Gross Profit 44,875

2.2 Preparation of Statement of Comprehensive Income 11

Unit 2: Statement of Comprehensive Income

Expenses
Operating expenses
Rent expense 8,750
Utilities expense 5,675
Advertising expense 2,950 (17,375)

Non-operating expense
Interest expense (3,650)
NET INCOME ₱23,850

Check Your Progress

How is the Cost of Goods Sold computed?

_________________________________________________________________________________

_________________________________________________________________________________

_________________________________________________________________________________

Case Study

PAL Bounced Back

To slash its $2 billion debt, restructure contracts, and obtain fresh capital,
the Philippine Airlines (PAL) filed its bankruptcy in the United States in 2021.
PAL was one of the greatly hit companies during the pandemic, where travel
restrictions were imposed upon travelers, causing a huge decline in its
revenue. As the costs are ongoing while the revenues are constantly
declining, the company needed to restructure its plans to cope up with the
upcoming challenges.

Fortunately, the fruits of PAL’s efforts to fly back to its profitability were

seen during the latter part of 2021. In fact, the company was able to end

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Unit 2: Statement of Comprehensive Income

2021 with ₱60.61 billion consolidated earnings compared to ₱73 billion

losses in 2020. Moreover, its revenue in 2021 amounted to ₱58.7 billion
while that of 2020 amounted to ₱55.26 billion.

It still continues to face the year 2022 with optimism as it reports ₱1.2
billion of net income during the 1st Quarter. This may be traced from the
significant increase in the number of its passengers as there are now less
travel restrictions. The company is being constantly challenged by higher
fuel prices, the Ukraine-Russia conflict, and the continuous recovery of the
travel market. However, it still strives to at least maintain the good start that
it exemplified during the start of 2022.

PAL filing for bankruptcy in US

Benjamin L. Vergara, “PAL filing for bankruptcy in US,”The
Manila Times, September 05, 2021,
https://www.manilatimes.net/2021/09/05/news/national/pal-f
iling-for-bankruptcy-in-us/1813591, last accessed on May 29,
2022.

PAL operator flies back to profit in 2021

“PAL operator flies back to profit in 2021,” CNN Philippines
(CNN Philippines, April 06, 2021),
https://www.cnnphilippines.com/business/2022/4/6/PAL-oper
ator-flies-back-to-profit-in-2021.html, last accessed on May
29, 2022.

Philippine Airlines back to profitability in Q1 with ₱1.2B

income
“Philippine Airlines back to profitability in Q1 with ₱1.2B
income,” CNN Philippines (CNN Philippines, May 14, 2022),
https://www.cnnphilippines.com/business/2022/5/14/Philippi
ne-Airlines-Q1-2022-income.html, last accessed on May 29,
2022

2.2 Preparation of Statement of Comprehensive Income 13

Unit 2: Statement of Comprehensive Income

Keep in Mind

● The preparation of a statement of comprehensive income depends on how a business

generates its income/revenue.
● There are two approaches used to prepare the statement of comprehensive income:
single-step and multi-step approaches.

● The pro-forma income statement prepared using the single-step is presented below.

XYZ Company
Statement of Comprehensive Income
For the Year Ended December 31, 2022

Revenues ₱ xxx
Expenses (not limited to the following)
Salaries expense ₱ xxx
Rent expense xxx
Depreciation expense xxx
Utilities expense xxx
Transportation expense xxx (xxx)
Net Income (Loss) ₱ xxx

2.2 Preparation of Statement of Comprehensive Income 14

Unit 2: Statement of Comprehensive Income
● The pro forma income statement prepared using the multi-step approach is presented
below.

XYZ Company
Statement of Comprehensive Income
For the Year Ended December 31, 2022
Net Sales
Sales revenue ₱ xxx
Sales returns/allowances (xxx)
Sales discount (xxx) ₱ xxx

Cost of Goods Sold

Merchandise inventory, beginning xxx
Net Purchases
Purchases xxx
Purchase returns/allowances (xxx)
Purchase discount (xxx) xxx
Freight in xxx
Merchandise inventory, end (xxx) (xxx)
Gross Profit xxx

Operating expense
Rent expense xxx
Depreciation expense xxx
Utilities expense xxx
Transportation expense xxx (xxx)
Operating Income (Loss) ₱ xxx

Other Income and Expenses

Other Income xxx
Other Expenses (xxx) xxx
Income before taxes xxx
Income taxes (xxx)
Net Income ₱ xxx

2.2 Preparation of Statement of Comprehensive Income 15

Unit 2: Statement of Comprehensive Income

Try This

True or False. Write true if the statement is correct. Otherwise, write false.

________________ 1. A statement of comprehensive income is also known as the

Balance Sheet.

________________ 2. An SCI reports the performance of a company for a given period.

________________ 3. The single-step approach is usually used by merchandising

businesses, while the multi-step approach is used mostly by
businesses who render services to customers.

________________ 4. The single step approach involves the computation of Cost of

Goods Sold.

________________ 5. The Cost of Goods Sold is deducted from the Net Sales to get the
Gross Profit.

________________ 6. Net Loss results from the total expenses exceeding the total
revenue.

________________ 7. The Statement of Financial Performance includes accounts such as

Assets and Liabilities.

________________ 8. Users may look at the SCI to know how profitable the company is
for a given year.

________________ 9. The SCI shows the results of a company’s operation for a given
period.

________________ 10. The Statement of Financial Position is just the same as the
Statement of Financial Performance.

2.2 Preparation of Statement of Comprehensive Income 16

Unit 2: Statement of Comprehensive Income

Practice Your Skills

Piecemeal SCI
Alma is about to prepare Fresh Company’s income statement for November. The following
information are available:
● Sales revenue from selling bath products: ₱345,000
● Sales returns/allowances: ₱8,232
● Sales discount: ₱5,567
● Beginning inventory: ₱65,000
● Purchases: ₱167,023
● Purchase returns/allowances: ₱2,558
● Purchase discount: ₱3,990
● Ending inventory: ₱35,657
● General and Administrative expenses: ₱36,000.

1. How much is Fresh Company’s Net Sales for the month?

2. How much is Fresh Company’s Net Purchases for the month?

3. How much is Fresh Company’s Cost of Goods Sold for the month?

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Unit 2: Statement of Comprehensive Income
4. How much is Fresh Company’s Gross Profit for the month?

5. How much is Fresh Company’s Net Income for the month?

Challenge Yourself

The records of Car Care Co. revealed the following information for the month of June, 2022:
● Revenue from car wash services: ₱78,925
● Salaries of the two employees: ₱30,000
● Utilities expenses: ₱18,290
● Depreciation expense: ₱7,500

1. How much shall be reported as the Total Expenses of the company?

2.2 Preparation of Statement of Comprehensive Income 18

Unit 2: Statement of Comprehensive Income
2. Present the company’s SCI using the single-step approach.

3. How much shall be reported as Net Income (Loss) of the company?

Photo Credits

White and red labeled pack, by Franki Chamaki is free to use under the Unsplash license via
Unsplash.

Brainstorming over paper, by Scott Graham is free to use under the Unsplash license via
Unsplash.

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Unit 2: Statement of Comprehensive Income

Bibliography
Chen, James. “Income Statement.” Investopedia. Last modified March 16, 2021.
https://www.investopedia.com/terms/i/incomestatement.asp.

Gilbertson, Claudia, and Mark Lehman. Century 21 South-Western Accounting. Canada:

Cengage Learning, 2008.

Wood, Frank, and David Horner. Business Accounting Basics. London: Pearson Education
Limited, 2010.

“Statement of Comprehensive Income - Overview, Components and Uses.” Corporate

Finance Institute. Last modified January 30, 2022.
https://corporatefinanceinstitute.com/resources/knowledge/accounting/statement-
of-comprehensive-income/.

2.2 Preparation of Statement of Comprehensive Income 20