INTRODUCTION TO THE •Multi-Step Approach – used for merchandising
businesses; computes the cost of goods sold and gross
STATEMENT OF COMPREHENSIVE INCOME profit; reports the operating and non-operating expenses
separately
•Statement of Comprehensive Income ELEMENTS OF MULTI-STEP APPROACH
- Income Statement •Sales – total amount that the company generates
- Shows a business’ performance through profit or from selling goods
loss for a specific period •Contra-Sales – found on the opposite side of the
•Profit/Loss = Income – Expenses sales account and decreases sales; sales allowances
+ = net profit and discounts and Sales discounts
- = net loss •Sales Returns and Allowances – involve
•Net Income amounts recorded when customers return
- Obtained by preparing an income statement their items for reasons such as, but not limited
where revenues, expenses, gains, and losses are to, defects
presented over a given period •Sales Discounts – used to record the amounts
of discounts given for early payments made by
•Other Comprehensive Income the customers
- Consists of all unrealized gains and losses that are •Net Sales = Sales – (Sales Returns and
not reflected in the income statement Allowances + Sales Discounts)
•Cost of Goods Sold – total cost incurred in producing
FUNCTIONS OF SCI the goods sold to customers. Involve direct expenses
•To assess the profitability and value for investment such as raw materials, labor, and shipping costs
•To determine the credit worthiness of a company •Beginning Inventory – total amount of
•To provide insights on how the company utilizes its assets inventory at the beginning of the period
to create wealth •Purchases – total amount of goods bought
•An investment analysis tool during the current accounting period
•Summary of the revenue information •Contra Purchases – accounts that are being
credited as an opposite to the normal balance of
LIMITATIONS purchases. Decreases purchases. Purchase
•Uses accrual method instead of cash basis discounts and purchase returns and allowances
•Accrual Method – requires that the SCI uses this •Purchase Discounts – used to record
over cash basis. Records revenue and expenses when discounts availed for early payments made to
transactions occur but before money is received or the suppliers of a business
dispensed •Purchase Returns and Allowances – account
•Cash Basis – transaction is recorded when money is a business uses to return the merchandise to
received the supplies
•Wrong information if proper timing and reasonable •Net Purchase = Purchase – (Purchase Returns
valuation are ignored and Allowances + Purchase Discounts)
•Freight In – the account used in recording the
METHODS IN PREPARING SCI
transportation costs of merchandise purchased by
•Single-Step Approach – used for service businesses
a company
•How
•Freight-out – the seller shoulders the expense of
1. All revenues or income are listed down in one
shipping, record as selling expense
section
•Total Operating and Non-Operating Expenses
2. All expenses are listed in another
•Operating Expenses – expenses related to the
3. The net income/loss is computed using:
business’s function: sale and delivery of the
• NI/L = Total Revenue – Total Expenses
merchandise
ELEMENTS OF SINGLE-STEP APPROACH
•Income/Revenue – total amount that the business •Non-Operating Expenses – expenses that are
generated from rendering services to the customers not directly related to the merchandising function
•Expenses – the total amount of money spent or of a business, but are necessary
incurred by a business to generate income •Net Income – positive result where the total
•Rent Expense •Office Supplies revenues are greater than the total expenses
•Utilities •Salaries and Wages •Net Loss – negative result where the total expenses
•Depreciation are greater than the total revenues
businesses; computes the cost of goods sold and gross
STATEMENT OF COMPREHENSIVE INCOME profit; reports the operating and non-operating expenses
separately
•Statement of Comprehensive Income ELEMENTS OF MULTI-STEP APPROACH
- Income Statement •Sales – total amount that the company generates
- Shows a business’ performance through profit or from selling goods
loss for a specific period •Contra-Sales – found on the opposite side of the
•Profit/Loss = Income – Expenses sales account and decreases sales; sales allowances
+ = net profit and discounts and Sales discounts
- = net loss •Sales Returns and Allowances – involve
•Net Income amounts recorded when customers return
- Obtained by preparing an income statement their items for reasons such as, but not limited
where revenues, expenses, gains, and losses are to, defects
presented over a given period •Sales Discounts – used to record the amounts
of discounts given for early payments made by
•Other Comprehensive Income the customers
- Consists of all unrealized gains and losses that are •Net Sales = Sales – (Sales Returns and
not reflected in the income statement Allowances + Sales Discounts)
•Cost of Goods Sold – total cost incurred in producing
FUNCTIONS OF SCI the goods sold to customers. Involve direct expenses
•To assess the profitability and value for investment such as raw materials, labor, and shipping costs
•To determine the credit worthiness of a company •Beginning Inventory – total amount of
•To provide insights on how the company utilizes its assets inventory at the beginning of the period
to create wealth •Purchases – total amount of goods bought
•An investment analysis tool during the current accounting period
•Summary of the revenue information •Contra Purchases – accounts that are being
credited as an opposite to the normal balance of
LIMITATIONS purchases. Decreases purchases. Purchase
•Uses accrual method instead of cash basis discounts and purchase returns and allowances
•Accrual Method – requires that the SCI uses this •Purchase Discounts – used to record
over cash basis. Records revenue and expenses when discounts availed for early payments made to
transactions occur but before money is received or the suppliers of a business
dispensed •Purchase Returns and Allowances – account
•Cash Basis – transaction is recorded when money is a business uses to return the merchandise to
received the supplies
•Wrong information if proper timing and reasonable •Net Purchase = Purchase – (Purchase Returns
valuation are ignored and Allowances + Purchase Discounts)
•Freight In – the account used in recording the
METHODS IN PREPARING SCI
transportation costs of merchandise purchased by
•Single-Step Approach – used for service businesses
a company
•How
•Freight-out – the seller shoulders the expense of
1. All revenues or income are listed down in one
shipping, record as selling expense
section
•Total Operating and Non-Operating Expenses
2. All expenses are listed in another
•Operating Expenses – expenses related to the
3. The net income/loss is computed using:
business’s function: sale and delivery of the
• NI/L = Total Revenue – Total Expenses
merchandise
ELEMENTS OF SINGLE-STEP APPROACH
•Income/Revenue – total amount that the business •Non-Operating Expenses – expenses that are
generated from rendering services to the customers not directly related to the merchandising function
•Expenses – the total amount of money spent or of a business, but are necessary
incurred by a business to generate income •Net Income – positive result where the total
•Rent Expense •Office Supplies revenues are greater than the total expenses
•Utilities •Salaries and Wages •Net Loss – negative result where the total expenses
•Depreciation are greater than the total revenues
