Fundamentals of
Accountancy, Business &
Management 2
Quarter 1 – SLM 2
STATEMENT OF COMPREHENSIVE INCOME
What I Need to Know
The module is composed of one lesson, namely:
• Lesson 1 – Statement of Comprehensive Income (SCI) of a Merchandising Business using
multistep approach
After going through this module, you are expected to:
1. Identify the elements of the SCI of a merchandising business;
2. Describe the elements of a multistep SCI for a merchandising business;
3. Prepare the SCI of a merchandising business using multi-step approach;
and
4. Reflect on the importance of the preparation of SCI of a merchandising business using
multi-step approach.
What I Know
Choose the letter of the best answer. Write the chosen letter on a separate sheet of
paper.
1. Which of the following account is debited when customer return their products
for reasons such as defects, change of preference, etc.?
a. Sales returns c. Purchase Returns
b. Sales Discount d. Purchase Discount
2. Which of the following pertains to the amount of inventory at the beginning of
the accounting period?
a. Cost of goods sold c. Ending inventory
b. Beginning inventory d. Freight in
3. Which of the following best describes general and administrative expenses?
a. Actual cost of merchandise that the company was able to sell
b. Expenses directly related to the main purpose of a merchandising business
c. Expenses not directly related to the merchandising function of a company
d. Amount of goods bought during the current accounting period
4. Which of the account is normally used to signify the amount of revenue that the
company was able to generate from selling products?
a. Service Revenue c. Selling Expenses
b. Selling Revenue d. Sales
5. Which of the following is the accounting treatment for transportation costs of
merchandise purchased by the company?
a. Freight in and deducted from the net purchases
b. Freight in and added to the amount of net purchases
c. Freight out and treated as selling expenses
. Freight out and treated as general and administrative expenses
6. Which of the following represents the actual cost of merchandise that the
company was able to sell during the year?
a. Administrative expenses c. Cost of goods sold
b. Cost of goods available for sale d. Selling expenses
7. Which of the following does NOT describes purchase discount?
a. Account used to record early payments by the company to the suppliers
b. This is how buyers see a sales discount given to them by the supplier
c. Deducted from purchases thus classified as contra purchases account
d. This is where discounts given to customers who pay early are recorded
8. Which of the following is the accounting treatment for ending inventory?
a. Deducted from cost of goods available for sale
b. Added to the cost of goods available for sale
c. Deducted from cost of goods sold
d. Added to the cost of goods sold
9. Which of the following is NOT treated as selling expenses?
a. Salaries of sales agent c. Rent of office building
b. Depreciation of delivery van d. Advertising
10. Which of the following is an example of general and administrative expenses?
a. Cost of merchandise sold during the year
b. Salaries of sales agents
c. Depreciation of warehouse
d. Utilities of home office
Item 11-15: Take the following accounts of VIDIA-19 and Co. for the month of May
2020 to answer the succeeding questions:
Sales P 500,000
Sales returns 30,000
Sales discounts 10,000
Beginning inventory 250,000
Ending inventory 50,000
Purchases 100,000
Purchase returns 20,000
Purchase discounts 10,000
Freight in 15,000
Salaries expense(35% of which is salaries of sales agent) 30,000
Rent expense (for office space is P15,000) 23,000
Depreciation expense, inclusive of P7,000 for office equipment 17,000
Utilities expenses, (the amount for utilities of warehouse is P6,000 11,000
11. How much is the Net Sales of VIDIA-19 and Co. for the month of May 2020?
a. P 460,000 c. P 490,000
b. P 470,000 d. P 500,000
12. How much is the Net Purchases of VIDIA-19 and Co. for the month of May 2020?
a. P 85,000 c. P 80,000
b. P 70,000 d. P 90,000
13. How much is the Cost of Goods Sold of VIDIA-19 and Co. for the month of May 2020?
a. P 335,000 c. P 270,000
b. P 250,000 d. P 285,000
14. How much is the total Selling Expenses of VIDIA-19 and Co. for the month of
May 2020?
a. P 34,500 c. P 82,000
b. P 47,500 d. P 33,500
15. How much is the total General and Administrative Expenses of VIDIA-19 and
Co. for the month of May 2020?
a. P 34,500 c. P 48,500
b. P 47,500 d. P 33,500
Lesson 1 Statement of Comprehensive
Income (SCI) of a Merchandising
Business
Every business entity, especially in this time of COVID-19 pandemic must exert effort in
ensuring that their company remain in the market or at least earn a fair share of revenue and
income. With the help of the Statement of Comprehensive Income (SCI), a company can
determine if it is earning income or not. SCI can also determine if the earnings for the period
has increased or decreased. Engaging in business is a very risky venture. With increasing
number of competition and some business nowadays can easily enter into the market, one
must be certain that his venture is profitable. More so, one must be knowledgeable on the
preparation of Statement of Comprehensive Income to know if his business is earning or not.
What’s In
In the previous lesson, you have learned the meaning and elements of Statement of
Comprehensive Income (SCI) of a service business as well as its preparation using the single-
step approach. As a review, briefly define the following important terms to strengthen your
knowledge about the SCI before you proceed to this lesson.
1. Statement of Comprehensive Income
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2. Temporary or Nominal Accounts
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3. Single-step approach
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4. Service business
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What’s New
This activity will help you understand the elements of the Merchandising
business.
Activity 1: Can you spot it?
Directions: Study the Statement of Comprehensive Income (SCI) of ECQ Company.
Identify the elements of SCI using the format below. Write your answers on the
answer sheet.
1. Net Sales 2. Cost of Goods Sold
3. Selling Expenses 4. General and Administrative Expenses
What is It
In Activity 1, you were able to identify and define the elements of SCI of a merchandising
business. In this part of the module, you will find out further the elements of SCI of a
merchandising business and how to prepare such using the multi-step approach.
The SCI of a Merchandising Business
Let’s take a look again at the SCI of ECQ Company. It is an example of a multi-step
approach in preparation of SCI. Now, let us study the different elements of such
SCI.
Explanation of Exhibit 1:
A – Heading
i. Name of the company
ii. Name of the statement
iii. Date of preparation (emphasis on the word “for the” to denote that the
statement is only for that specific period.
B –Elements of SCI
1. Net Sales (Sales less Sales returns and Sales discount)
i. Sales – this is the amount of revenue that the company was able to
generate from selling products
ii. 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.
iii. 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 givenwhen customers buy in bulk. Sales discount is awarded to
customers who pay earlier or before the deadline.
Notes:
Sales returns and sales discount are called contra revenue account because it is on the opposite
side of the sales account. The sales account is on thecredit 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)
2. 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)
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.
ii. Net Cost of Purchases (Net Purchases + Freight In)
a. Net Purchases = Purchases – (Purchase discount and purchase returns)
b. Purchases – amount of goods bought during the current accounting period
c. 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.
d. 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
e. Freight In – this account is used to record transportation costs of merchandise
purchased by the company. (Haddock, Price, & Farina, 2012). It is called
freight in because this is recorded when goods are transported into the
company.
iii. Cost of Good available for Sale – add Beginning inventory and Net cost of
Purchases
iv. Ending inventory – amount of inventory presented in the Statement of Financial
Position. This is the total cost of inventory unsold at the end of the accounting cycle.
Notes:
• Purchase returns and purchase discounts are called Contra Purchases account that is credited
being “contrary” to the normalbalance of Purchases account.
• Gross Profit = Sales less Cost of Goods Sold
• Sales (benta); Cost of Goods Sold (puhunan sa benta)
• Net Purchases does not include Freight-in while Net Cost of Purchases include Freight-in
3. Selling Expenses – these expenses are those that are directly related to the main purpose of
a merchandising business such as the sale and delivery of merchandise. However, this does
not include cost of goods sold and contra revenue accounts. (Haddock, Price, & Farina, 2012)
4. 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
Notes:
• Gross Profit less General and Administrative Expenses less Selling Expenses is Net Income
for a positive result while Net Loss for a negative result
• Examples of selling expenses include sales commissions, delivery expenses, advertising
expense
• Examples of general and administrative expenses include utilitiesand rent for home office,
salaries of admin personnel
Simpler SCI:
The above SCI of ECQ Company can be presented in a much simpler form, taking only the four
important elements.
What’s More
Activity 2: To SELL or Not to SELL?
Directions: Using the following expense accounts of Covidy Store for the year ended December
31, 2019, identify if it is part of general or administrative expenses or selling expense.
Expense Account Classification
a. Salaries of admin personnel
b. Salaries of janitors
c. Salaries of sales agents
d. Utilities of home office
e. Rent of office building
f. Depreciation of office equipment
g. Depreciation of delivery van
h. Advertising
i. Cost of merchandise sold during the year
Activity 3: How MUCH did I sell?
Direction: Compute for the Cost of Goods Sold of Covidy Store using the following amounts:
Activity 4: Can you PREPARE me now?
Directions: The following are the accounts of Covidy Store for the month of May 2020. Prepare
its Statement of Comprehensive Income for the period using multistep approach in a simpler
format. Use the activity sheet as your guide for computation and presentation of the SCI. write
your answer on the answer sheet.
Sales P 50,000
Sales returns 3,000
Sales discounts 1,000
Beginning inventory 25,000
Ending inventory 5,000
Purchases 10,000
Purchase returns 2,000
Purchase discounts 1,000
Freight in 1,500
Salaries expense (60% of which is salaries of admin personnel) 3,000
Rent expense, inclusive of P800 for office space 2,300
Depreciation expense, (P1,000 is for office equipment) 1,700
Utilities expenses, (the utilities charged to admin office is P600) 1,100
Miscellaneous expense 100
Net Sales: Cost of Goods Sold:
Selling Expenses: General and Administrative Expenses:
Statement of Comprehensive Income (Simpler format)
Activity 5: My Reflection!
Directions: Based on your learnings gained while doing Activity 4, write your reflection on the
importance of the preparing SCI for a merchandising business using multi-step approach.
Write your answer on the answer sheet.
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Rubrics for Activity 5: My Reflection!
Score Score Indicators
3 The importance of preparation of SCI is stated clearly and excellently; the
grammar is correct.
2 The importance of preparation of SCI is stated fairly; there are few errors in grammar
1 The importance of preparation of SCI is stated fairly; there are few errors
What I Have Learned
At this point, let us see how much you have gained from the discussions and activities you have
undergone.
Activity 6: Can you FILL it?
Directions: Complete the missing title, accounts and amounts of the SCI of Corn Avina Ross
Company for the month of April 2020.
What I Can Do
This activity will help you transfer into real-life situations the knowledge and skills you have
gained or learned from this module.
Activity 7: The BOOKKEEPER in you
Step 1: Identify a merchandising business in your locality. Schedule an appointment for an
interview with the owner, bookkeeper or their sales person in whatever form convenient for you
and them.
a. Ask for the details of the business and fill-out the template below:
Name of the Business:
Business Address:
Owner:
Type of business organization:
Products offered:
b. Inquire on the amount of their daily sales and the effect of COVID-19 on such sales.
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c. Request for a copy of their May 2020 financial statement or statement of comprehensive
income or daily records, if they permit so. If the statement is not available yet for the specified
month, you can ask for the previous months or years, if any. Remember that any information
you get must be consented by the business owner.
Step 2: Prepare the statement of comprehensive income of the business under study for the
month of May 2020 using multi-step approach.
Notes:
• If the SCI for the period is readily available from the records you obtained,
rewrite it using the format discussed on this module
If the records obtained were only for past periods, prepare the SCI for May
2020 using estimates based on the amounts in the past statement and daily
sales you’ve got.
• If there is no record obtained at all, prepare the SCI using hypothetical amounts only.
• Write the SCI using the Activity Sheet below. If you opt to present it using the simpler
format, make sure to include also the computation of each element.
Rubrics in Rating Activity 7: The Bookkeeper in you
Case Facts 3 2 1
Business details Filled-out at least Fill-out only 2-3 Listed only one (or
4 needed needed none) needed
information information information
SCI Preparation: Headings is There are few Incorrect headings
Headings correct errors in the or no heading at
headings all
SCI Preparation: The format and There are few Incorrect format
Net sales computation is errors in the and computation
correct format and
computation
SCI Preparation: The format and There are few Incorrect format
Cost of Goods computation is errors in the and computation
Sold correct format and
computation
SCI Preparation: The format and There are few Incorrect format
Selling Expenses computation is errors in the and computation
correct format and
computation
SCI Preparation: The format and There are few Incorrect format
General and computation is errors in the and computation
administrative correct format and
expense computation
SCI Preparation: The SCI is There few There many
Overall presented in a accounts that are accounts that are
presentation correct and not presented in a not presented in a
organized manner correct and correct and
organized manner organized manner
Assessment
Directions: Choose the letter of the best answer. Write the chosen letter on a separate sheet of
paper.
1. Which of the account is normally used to signify the amount of revenue that the company
was able to generate from selling products?
a. Service Revenue c. Selling Expenses
b. Selling Revenue d. Sales
2. Which of the following represents the actual cost of merchandise that the company was able
to sell during the year?
a. Administrative expenses c. Cost of goods sold
b. Cost of goods available for sale d. Selling expenses
3. Which of the following best describes general and administrative expenses?
. Actual cost of merchandise that the company was able to sell
b. Expenses directly related to the main purpose of a merchandising business
c. Expenses not directly related to the merchandising function of a company
d. Amount of goods bought during the current accounting period
4. Which of the following is NOT treated as selling expenses?
a. Salaries of sales agent c. Rent of office building
b. Depreciation of delivery van d. Advertising
5. Which of the following is an example of general and administrative expenses?
a. Cost of merchandise sold during the year
b. Salaries of sales agents
c. Depreciation of warehouse
d. Utilities of home office
6. Which of the following account is debited when customer return their products for reasons
such as defects, change of preference, etc.?
a. Sales returns c. Purchase Returns
b. Sales Discount d. Purchase Discount
7. Which of the following pertains to the amount of inventory at the beginning of
the accounting period?
a. Cost of goods sold c. Ending inventory
b. Beginning inventory d. Freight in
8. Which of the following is the accounting treatment for transportation costs of merchandise
purchased by the company?
a. Freight in and deducted from the net purchases
b. Freight in and added to the amount of net purchases
c. Freight out and treated as selling expenses
d. Freight out and treated as general and administrative expenses
9. Which of the following does NOT describes purchase discount?
a. Account used to record early payments by the company to the suppliers
b. This is how buyers see a sales discount given to them by the supplier
c. Deducted from purchases thus classified as contra purchases account
d. This is where discounts given to customers who pay early are recorded
10. Which of the following is the accounting treatment for ending inventory?
a. Deducted from cost of goods available for sale
b. Added to the cost of goods available for sale
c. Deducted from cost of goods sold
d. Added to the cost of goods sold
Item 11-15: Take the following accounts of Covid Marie Enterprise for the year ended December
31, 2019 to answer the succeeding questions:
Sales 5,000,000
Sales returns 300,000
Sales discounts 100,000
Beginning inventory 2,500,000
Ending inventory 500,000
Purchases 1,000,000
Purchase returns 200,000
Purchase discounts 100,000
Freight in 150,000
Salaries expense (50% of which is salaries of sales agent) 300,000
Rent expense (for office space is P150,000) 230,000
Depreciation expense, inclusive of P70,000 for office equipment 170,000
Utilities expenses, (the utilities charged for office space is P60,000 110,000
Miscellaneous expense 10,000
11. How much is the Net Sales of Covid Marie Enterprise for the year ended December 31,
2019?
a. P 4,700,000 c. P 4,600,000
b. P 4,970,000 d. P 5,000,000
12. How much is the Net Cost Purchases of Covid Marie Enterprise for the year ended
December 31, 2019?
a. P 700,000 c. P 900,000
b. P 850,000 d. P 800,000
13. How much is the Cost of Goods Sold of Covid Marie Enterprise for the year ended
December 31, 2019?
a. P 3,350,000 c. P 2,850,000
b. P 2,500,000 d. P 2,700,000
14. How much is the total Selling Expenses of Covid Marie Enterprise for the year ended
December 31, 2019?
a. P 460,500 c. P 430,000
b. P 420,000 d. P 380,000
15. How much is the total General and Administrative Expenses of Covid Marie Enterprise for
the
year ended December 31, 2019?
a. P 440,000 c. P 430,000
b. P 420,000 d. P 380,000
Additional Activities
Let us reinforce the skills/knowledge that you have gained from this lesson by doing the next
activity.
Activity 8: Crack the CASE
This activity will help you develop your full ability to answer cases on the computation and
preparation of SCI of a merchandising business. Answer what is being asked in each case.
Case 1:
Handy Mask Company’s salaries to sales agents amounted to P10,000. Salaries of accountants
amounted to P20,000. No other expenses were incurred. How much is the company’s general
and administrative expense?
Case 2:
Handy Mask’s beginning inventory amounted to P250,000. Net purchases amounted to
P70,000. Freight In totaledP15,000. Compute for the company’s cost of goods available for sale.
Case 3:
Handy Mask’s Sales amounted to P500,000. Sales returns and sales discounts amounted to
P30,000 and P10,000 respectively. Purchases of the company totalled P100,000 while
purchase returns and purchase discounts amounted to P20,000 and P10,000 respectively.
How much is the company’s Net Sales? Net Purchases
Case 4:
Company’s Cost of Goods sold amounted to P285,000. Net cost of purchases totaled P85,000.
Beginning inventory amounted to P250,000. Sales amounted to P500,000. Compute for the
company’s Ending Inventory.
Case 5:
Gross profit of Handy Mask amounted to P175,000. Beginning Inventory totalled P250,000.
Ending Inventory amounted to P50,000 while Net Cost of Purchases totaled P85,000. Compute
for Handy Mask’s Net Sales.
