SLK_FABM2_Q1_Week 1-2_Bardinas_Gazelle_copy.pdf

Control No: _______________ SLK for Fundamentals of Accountancy, Business and Management 2 QUARTER 1 WEEK 1-2 Competency identify the elements of the SCI and describe each of these items for a service business and a me...

Control No: _______________ SLK for Fundamentals of Accountancy, Business and Management 2 QUARTER 1 WEEK 1-2 Competency identify the elements of the SCI and describe each of these items for a service business and a merchandising business prepare an SCI for a service business using the single-step approach prepare an SCI for a merchandising business using the multistep approach Objective At the end of the lesson, the students should be able to: a. identify the elements of the Statement of Comprehensive Income and describe each of these items for a service business and merchandising business; b. prepare a Statement of Comprehensive Income (SCI) for a service business using the single-step approach; and c. prepare a Statement of Comprehensive Income for a merchandising business using the multiple approach.. Topic/ Subject Statement of Comprehensive Income (SCI) Matter Textbook Arganda, A. M. (2016). Fundamentals of Accounting Bookkeeping 1. Anvil Publishing, Inc. Josefina L. Beticon, J. C. (2017). Fundamentals of Accountancy, Business and Management 2 - Teacher's Manual. Vibal Group. Inc. Reyes, V. D. (2017). Fundamentals of Accountancy, Business and Management 2. GIC Enterprises & Co., Inc. Salazar, D. R. (2017). Fundamentals of Accountancy, Business and Management 2. Rex Bookstore. Materials Paper, pen and calculator Copyrights DepEd – Talisay City Total Points Date I. CONTENT MAP Statement of Comprehensive Income 1 II. CONTENT NOTES Nature of Statement of Comprehensive Income The Statement of Comprehensive Income informs the reader about the “performance” and activities of the company for a certain period (e.g. for the period ended December 31, 2019). It generally contains the revenues and expenses incurred by an entity for the specified period. A Statement of Comprehensive Income is conventionally compared to a running video because it presents an entity’s business activities from the start to the end of a period. Below are the key features of a statement of comprehensive income. Key Features of Statement of Comprehensive Income (Income Statement) 1. The Heading The statement of comprehensive income is a financial report. As a financial report, it must be properly identified and dated. The appropriate title of the statement will enable the user to differentiate the statement of comprehensive income from the other financial reports issued by the entity. The heading includes the Name of the Entity, the Title of the Report (i.e., Statement of Comprehensive Income, and the period it covers (i.e., For the period ended December 31, 2019) 2. Revenues Revenues arise in the course of the ordinary activities of an entity and are referred to by a variety of different names including sales, fees, interest, dividend, royalties, and rent (IASB 2010). Revenues are the first line item in the statement of comprehensive income. Smaller and less complex entities will have one or two sources of revenues. Larger and more complex entities, on the other hand, will have multiple sources of revenues, recorded when earned. 3. Expenses Expenses arising in the course of the ordinary activities of the entity include, for example, cost of sales, wages, and depreciation. They usually take the form of an outflow or depletion of assets such as cash and cash equivalent, inventory, property, plant and equipment. Classifying expenses for merchandizing concern is more complex than in a service concern. For a merchandizing concern, the expenses are classified as cost of sales, selling expenses, and administrative (operating) expenses. 2  The cost of sales is the amount paid or payable by the business entity to its supplier for the merchandize sold to the business entity’s customers. Cost of sales will take a general formula as seen below: Beginning Inventory Add: Net Purchases Total Goods Available for Sale Less: Ending Inventory Cost of Sales Net purchases for the year are the total amount paid or payable to suppliers for the period. Net purchases follow a formula as shown below: Gross Purchases Less: Purchase Discounts Purchase Returns Add: Freight-In Net Purchases 4. Gain and Losses Gains represent other items that meet the definition of income and may or may not, arise in the course of the ordinary activities of an entity. To reiterate, gains are incidental to the operation of a business. For example, if a law firm sells its office printer for P 5,000.00 when the carrying amount of the printer is P 4,000.00, a gain amounting to P 1,000.00 must be recorded. Losses, on the other hand, represent other items that meet the definition of expense and may or may not arise in the course of the ordinary activities of the entity. 5. Other Items Other items included in the computation of the total comprehensive income are taxes and items of other comprehensive income. Income tax is the sum of money payable to the government. Lesson 2.2. Two Approaches in Making Statement of Comprehensive Income: 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 – 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 are only formats and will yield the same amount of net income/loss. The single-step SCI is more commonly used by service companies while multi- step format is more commonly used by merchandising companies 3 Sample Format of Statement of Comprehensive Income: LEARNING IS FUN COMPANY Statement of Comprehensive Income Heading For the period ended December 31, 2019 Sales Revenue P 100,000.00 Revenue Less: Expenses Salaries Expense 40,000.00 Rent Expense 20,000.00 Expenses Depreciation 10,000.00 Utilities 5,000.00 Miscellaneous Expense 1,000.00 76,000.00 Net Income P 24,000.00 Net income/loss Figure 2.1 Sample Format of Statement of Comprehensive Income using a Single-Step Approach. (This is commonly used in Service Concern Type of Business) Lesson 2.3. Steps in Preparing a Statement of Comprehensive Income using Single-Step Approach 1. Draft the Appropriate Title The appropriate title for the for Learning is Fun Company as shown above is; Learning is Fun Company Statement of Comprehensive Income For the period ended December 31, 2019 2. Determine Total Revenue from the Trial Balances Refer to the example above, the total revenue which came from the total sales is P 100,000.00. Sales Revenue P 100,000.00 3. Determine total Operating Expenses Based on the example above, our expenses can be determined as follows; Salaries Expense 40,000.00 Rent Expense 20,000.00 Depreciation 10,000.00 Utilities 5,000.00 Miscellaneous Expense 1,000.00 4. Determine the effect of other items Based on our worksheet, there are no items pertaining to gains, losses, and other comprehensive income. Income taxes are also ignored in the case. Having noticed such items, net income can now be determined by deducting Sales Revenue from Operating Expenses as shown on the example above. 4  Sample Format of Statement of Comprehensive Income using a Multi-Step Approach. ABM TRADING STATEMENT OF COMPREHENSIVE INCOME Heading FOR THE PERIOD ENDED DECEMBER 31, 2019 Sales 129,000 Less: Sales Returns & Allowances 7,000 Revenue Sales Discounts 3,000 10,000 Net Sales 119,000 Less: Cost of Sales Merchandise Inventory, Beginning 80,000 Add: Purchases 50,000 Freight In 2,000 Total Purchases 52,000 Cost of Sales Less: Purchase Returns & Allowances 4,500 Purchase Discounts 5,000 9,500 42,500 Total Goods Available for Sale 122,500 Less: Merchandise inventory, End 50,000 72,500 Gross Profit 46,500 Less: Administrative and Operating Expenses Salaries 14,500 Freight Out 3,500 Insurance Expense 500 Interest Expense 580 Cost of Sales Bad Debts 7,400 Depreciation-Store Equipment 10,500 Depreciation-Store Furniture 7,200 44,180 Net Income 2,320 Add: Other Income Commission Income 7,000 Cost of Sales Interest Income 345 7,345 Net Income for the Period 9,665 ====== Figure 2.2 Sample Statement of Comprehensive Income using Multiple-Step Approach. Lesson 2.4. Steps in Preparing SCI Using Multiple-Step Approach: 1. Determine the revenues. Since the entity is a merchandising concern, its revenue will come from sales. The revenue to be presented in the statement of comprehensive income must be net of the discounts, return and allowances. Sales discounts and returns and allowances are called contra revenue 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) 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. 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. (Sales less Sales Discounts and Returns is equal to Net Sales) 5 2. Determine the Net Purchases, Cost of Sales and Gross Profit This account represents the actual cost of merchandise that the company was able to sell during the year. (Haddock, Price, & Farina, 2012). 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. Net Cost of Purchases = Purchases + Freight In Net Purchases = Purchases – (Purchase discount and purchase returns) Purchases – amount of goods bought during the current accounting period. Contra Purchases –An account that is credited being “contrary” to the normal balance of Purchases account. 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. Purchase returns and allowances – 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. Freight In – This account is used to record transportation costs of merchandise purchased by the company. (Haddock, Price, & Farina, 2012) Note that there is a difference between freight-in and freight-out. Freight-in denotes charges pertaining to the receipts or purchase of goods. Freight-in is accounted for as an addition to purchases. Freight-out, on the other hand, pertains to the delivery of cost of goods sold. Freight-out is treated as a selling expense. Add Beginning inventory and Net cost of Purchases to get Cost of Goods Available for Sale Ending Inventory – amount of inventory presented in the Statement of Financial Position. Total cost of inventory unsold at the end of the accounting cycle. Sales less Cost of Goods Sold is Gross Profit 3. Determine the Administrative and Operating Expenses 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) Example of general and administrative expenses include utilities for home office, salaries of admin personnel Selling or Operating 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 the cost of goods sold and contra revenue accounts. (Haddock, Price, & Farina, 2012) Examples of selling expenses include sales commissions, delivery expenses, and advertising expenses. 6  4. Determine the Net Income Gross Profit less General and Administrative Expenses less Selling Expenses is Net Income for a positive result while Net Loss for a negative result. ACTIVITIES Activity 1. Solving the Problem Case #1. Sindayen Engineering Consultants The following are the accounts of Sindayen Engineering Consultants for December 31, 2019. Professional Fees 625,000.00 Salaries Expense (62,500.00) Supplies Expense (93,750.00) Depreciation Expense (75,000.00) Utilities Expense (50,000.00) Insurance Expense (25,000.00) Rent Expense (112,500.00) Loss on sale of equipment (50,000.00) You are employed by the entity as its bookkeeper in its first year of operation. You will prepare the necessary financial statement for the current year; Instructions: 1. Determine the net income. 2. Prepare a Statement of Comprehensive Income using Single-Step Approach. Activity 2. Solving the Problem Case #2. Tee Shirts Company. Refer to the partial trial balance of Tee Shirts Company below; TEE SHIRTS COMPANY TRIAL BALANCE DECEMBER 31, 2019 ACCOUNTS DEBIT CREDIT Inventory, beginning 2,000,000.00 Sales 15,000,000.00 Sales Returns and Allowances 10,000.00 Sales Discount 120,000.00 Purchases 8,000,000.00 Freight-in 200,000.00 Freight-out 500,000.00 Purchase Discounts 100,000.00 Purchase Returns and Allowances 10,000.00 7  Salary Expense 1,000,000.00 Utilities Expense 240,000.00 Permit & Licenses 10,000.00 Repair and Maintenance 100,000.00 Depreciation 120,000.00 Inventory, end 1,750,000.00 You are employed by the company as its bookkeeper in its first year of operations. You will prepare the necessary financial statement for the current year. Instructions: 1. Compute for the net sales for the year. 2. Compute for the cost of sale for the year. 3. Compute for the gross profit for the year. 4. Compute for the income for the year. 5. Prepare a Statement of Comprehensive Income using a Multi-step Approach. Evaluation Read and carefully examine the statements and choose the best answer. 1. Select the most appropriate description of the statement of comprehensive income’s key features. A. A statement of comprehensive income is like a picture that depicts a static image of an entity. B. A statement of comprehensive income is like a moving video that depicts a moving scene of an entity. C. A statement of comprehensive income contains assets, liabilities, and equity. D. A statement of comprehensive income is dated “As of December 31, 2019” 2. Which is an appropriate date for a statement of comprehensive income? A. “As of December 31, 2019” B. “For the period ended December 31, 2019” C. Either A or B D. Neither A or B 3. Which of the following is an element of a statement of comprehensive income? A. Cash B. Receivables C. Revenues D. Interest Receivables 4. Which of the following is an element of a statement of comprehensive income? A. Cash equivalents B. Capital C. Drawing D. Professional fees 5. Which of the following is an element of a statement of comprehensive income? A. Note Payable 8  B. Note receivable C. Interest Receivable D. Interest Expense 6. Which of the following is an element of a statement of comprehensive income? A. Interest Payable B. Interest Expense C. Rent Expense D. Prepaid Rent 7. Which of the following is an element of a statement of comprehensive income? A. Account Payable B. Interest Payable C. Interest Receivable D. Gross Profit 8. Which of the following is only ancillary to the entity’s operation? A. Professional fees charged by a law firm B. Sales revenue earned by a variety store C. Sales revenue earned by a department store D. Gain on sale of property, plant and equipment 9. Which of the following is classified as selling expenses? A. Salaries of corporate executive B. Salaries of salesman C. Depreciation of corporate headquarters D. Depreciation of automobile 10. Which of the following is the correct gross profit formula? A. Sales + Cost of Sales = Gross Profit B. Sales + Gross Profit = Cost of Sales C. Sales – Gross Profit = Cost of Sales D. None of the above. Enrichment: Socorro Ramos (founder) – National Book Store Socorro Ramos entered the publishing and retail industry by working as a salesgirl at a bookstore. At the age of 19, she opened National Book Store in Escolta with her husband with a capital of P200, selling books and school supplies to students. At that time, Manila was under the control of the Japanese, who imposed censorship on books and periodicals. To augment their earnings, she and her husband resorted to selling other items like candles and soaps. After the post-war boom proved profitable for the company, ushering in bigger revenues, the Ramoses opened a nine-story building along Avenida. At 95, she still believes in the time-honored tradition of “hands-on approach” in business. She even designed the company’s logo herself. 9 Answer the following: 1. What do you think is the reason that Socorro’s business became profitable? 2. If you will start your own business, how are you going to increase your revenue and eventually your profit? REFERENCES Arganda, A. M. (2016). Fundamentals of Accounting Bookkeeping 1. Anvil Publishing, Inc. Josefina L. Beticon, J. C. (2017). Fundamentals of Accountancy, Business and Management 2 - Teacher's Manual. Vibal Group. Inc. Reyes, V. D. (2017). Fundamentals of Accountancy, Business and Management 2. GIC Enterprises & Co., Inc. Salazar, D. R. (2017). Fundamentals of Accountancy, Business and Management 2. Rex Bookstore. Teacher’s Guide in Fundamentals of Accountancy, Business and Management 2 The Philippines Stocks Exchange, Inc. https://edge.pse.com.ph/openDiscViewer.do?edge_no=5b3feb584ad68ec41db82e377ee70f3b CFI Education, Inc. 2021, https://corporatefinanceinstitute.com/resources/knowledge/accounting/income-statement/ INQUIRER.net BrandRoom July 05, 2019 https://business.inquirer.net/273445/eight-successful-filipino-entrepreneurs-who-started- small#ixzz76AerS7S6 Prepared by: Name: Gazelle B. Bardinas School: Lawaan National High School VIII. FEEDBACK NOTES PARENTS’/GUARDIANS’ FEEDBACK LEARNER’S FEEDBACK ________________________________ ________________________ ________________________________ ________________________ ________________________________ ________________________ ________________________________ ________________________ ________________________________ ________________________ ________________________________ ________________________ ________________________________ ________________________ ________________________________ ________________________ ________________________________ ________________________ 10 ________________________________ ________________________ ________________________________ ________________________ IX. ANSWER SHEET – Fundamentals of ABM 2 Week 1-2 Control No: _______________ Name: ________________________________ Grade & Sec.: _____________ Contact No:______ School: _________________________ Subject Teacher: ____________________ Activity 1.... Activity 2. 11 Evaluation 1. 6. 2. 7. 3. 8. 4. 9. 5. 10. Enrichment: 1. 2. 12