PART 5

PART 5
THE FINANCIAL STATEMENT: STATEMENT OF COMPREHENSIVE INCOME
Two of the factors affecting equity are Income and Expense. The excess of income over expense is called net income while the excess
of expense over income is called net loss. In this chapter, we will discuss the financial statement that shows the performance of the
company. It is called a statement of comprehensive income.
THE STATEMENT OF COMPREHENSIVE INCOME

This financial statement provides information about how the entity performed during a period of time, by showing the income
earned and expenses incurred.
The statement of comprehensive income shows the result of business operations for a given period. It shows the profitability of the
company.
Profitability is the ability of the company to generate profits from its operation. Profit means the excess of income over the expense of
the company. Another term for profit or net profit is net income.
The key elements of the statement of comprehensive income based on the given definition are: Income and Expense. These are the
main accounts for the statement of comprehensive income.
THE INCOME
Income is an increase in economic benefits during the accounting period in the form of inflows or enhancements of assets or
decreases of liabilities that result in increases in equity, other than those relating to contributions from equity participants.
Income can be classified as Revenue and Gains.

Revenue is income that arises in the ordinary course of business, sale of goods or rendition of service. For service provider
business, there are different account names for revenue. Some of the examples are provided below:
Service Provider Account name for Revenue
Education Tuition Fees
Law Firms Legal Fees
Construction firms Construction Revenue
Hospital Medical Fees
Service provider businesses can use different account names based on the nature of its business.
For Merchandising and manufacturing business the account name for revenue is Sales or Sales Revenue.
Gains represent income that do not arise in the ordinary course of business. This income arises from transactions other than the
sales of goods or services. Examples of the transaction and account name of gains are presented below:
Transaction Account name for Gains
Sale of property, plant and equipment Gain on sale of equipment
Sale of investment Gain on sale of investment
2
THE EXPENSE
Expense is a decrease in economic benefits during the accounting period in the form of outflows or depletions of assets or
incurrences of liabilities that result in decreases in equity, other than those relating to distributions to equity participants.
Expenses arising from the ordinary course of business, sale of goods or rendition of service, is called an expense or operating
expense while those arising from transactions other than the ordinary course of business, sale of property, plant and equipment or sale
of investment, is called a loss. Loss can also occur from theft, embezzlement, lawsuits, natural disaster or accident.
Examples of expenses are as follows:

Advertising Expense Maintenance Expense
Insurance Expense Permit and licenses Expense
Salaries Expense Supplies Expense
Utilities Expense Loss due to fire
Rent Expense Loss from theft
Interest Expense Loss from sale of equipment
PRESENTATION OF STATEMENT OF COMPREHENSIVE INCOME

The statement of comprehensive income is presented in two sections:
1. The profit or loss section (Income statement)
2. Other comprehensive income (OCI) section
The statement of comprehensive income may be prepared using two forms:

1. One statement form – It includes the profit or loss section and other comprehensive income section
2. Two-Statement form – One statement for profit or loss and another statement for other comprehensive income which includes
the result for the first statement and the other comprehensive income.
For this course, we will only discuss the profit or loss section or the income statement. The full discussion of the statement of
comprehensive income will be covered by higher accounting courses.
THE INCOME STATEMENT

The income statement shows the income and expense of the company based on business operation for a given period of time.
3
The income is presented first followed by the expense.
The expense in the income statement may be presented using two methods:
1. The nature of expense method
2. Function of expense method
An entity engaged in any type of business operation can use the nature of expense method while the function of expense
method may be used by merchandising and manufacturing business.
Under the function of expense method, expenses are classified according to the purpose of the expense in the operation of business. The
function are as follows:
a. Cost of goods sold (Merchandising and Manufacturing Business)
b. Selling expense
c. General and administrative expense
d. Other operating expense
Under the nature of the expense method, there is no need to classify the expenses by function. Expenses are presented based on their
account names in the general ledger.
The interest expense or finance cost, and income tax expense are required to be presented as a line item in the income statement.
4
Example of Income Statement (Nature of Expense method)
ABC Service Provider Company
Income Statement
December 31, 2020
Service Revenue 1,100,000
Gain on sale of equipment 100,000
Total Income 1,200,000
Less: Operating Expenses
Advertising Expense 50,000
Insurance Expense 80,000
Rent Expense 300,000
Salaries Expense 400,000
Utilities Expense 200,000
Loss due to theft 20,000 950,000
Operating Income 250,000
Less: Interest Expense 10,000
Net Income before tax 240,000
Less: Income tax expense 40,000
Net Income after tax 200,000
Based on the following illustration, Income is presented first followed by expense. Total income minus operating expense is called
operating income. Interest expense is presented separately because this is a non-operating expense. It means this is an expense that
has nothing to do with the operation activity of the business. The Income tax expense is also presented separately.
The net income after tax is P200,000. This is the result of the business operation of the entity. This amount will be forwarded to the
statement of changes in equity. (See Part 4: Statement of changes in equity)
5
Appendix: Income Statement (Function of Expense method)
ABC Merchandising Company

Income Statement
December 31, 2020
Sales Revenue 2,000,000

Less: Cost of goods sold 1,200,000
Gross Profit 800,000
Gain on sale of equipment 100,000
Total Income 900,000
Less: Operating Expenses
Selling Expense 400,000
General Administrative Expense 200,000 600,000
Operating Income 300,000
Less: Interest Expense 10,000
Net Income before tax 290,000
Less: Income tax expense 90,000
Net Income after tax 200,000
The Income statement presented may be used by merchandising or manufacturing business.

PART 5 - Statement of Comprehensive Income and Its Elements

Uploaded by

Copyright:

Available Formats

PART 5 - Statement of Comprehensive Income and Its Elements

Uploaded by

Document Information

Original Title

Copyright

Available Formats

Share this document

Share or Embed Document

Sharing Options

Did you find this document useful?

Is this content inappropriate?

Copyright:

Available Formats

PART 5 - Statement of Comprehensive Income and Its Elements

Uploaded by

Copyright:

Available Formats

THE FINANCIAL STATEMENT: STATEMENT OF COMPREHENSIVE INCOME

THE STATEMENT OF COMPREHENSIVE INCOME

Income can be classified as Revenue and Gains.

Examples of expenses are as follows:

PRESENTATION OF STATEMENT OF COMPREHENSIVE INCOME

The statement of comprehensive income may be prepared using two forms:

THE INCOME STATEMENT

ABC Merchandising Company

Sales Revenue 2,000,000

The Income statement presented may be used by merchandising or manufacturing business.

You might also like

Pfad - The Proxy pFad of © 2024 Garber Painting. All rights reserved.