Statement of Comprehensive Income

Generally, the term financial statement could be referring to:

• General-purpose, external financial reports that are distributed by a company to people
outside of the company
• A more-detailed, internal financial report that remains inside of the company for use by the
company's management

What is a financial statement?

-are structured representation of the financial position and financial performance of an entity.
The objective of financial statements is to provide information about the financial position,
financial performance and cash flows of an entity that is useful to a wide range of uses in
making economic decisions.
-also show the results of the management’s stewardship of the resources entrusted to it. To
meet this objective, financial statements provide information about an entity’s;
• assets;
• liabilities;
• equity;
• income and expenses, including gains and losses;
• contributions by and distribution to owners in their capacity as owners; and
• cash flows
-This information, along with other information in the notes, assist users of financial
statements in predicting the entity’s future cash flows and in particular their timing and
certainty.

Examples of Financial Statements

• Balance sheet or statement of financial position
• Income statement
• Statement of comprehensive income
• Statement of cash flows
• Statement of stockholders' equity

Key Differences between SFP vs. SCI

Timing: While the income statement reports financial activity for a specific reporting period,
usually a month, a quarter or a year, the balance sheet reports financial activity at a specific
point in time, for a snapshot view of a business’s finances.

Information reported: The income statement reports on a business’s revenues and expenses
and ultimately the amount of profit or loss it generated, whereas a balance sheet reports on a
company’s assets, liabilities and equity.

Significance: The income statement is used to report the overall results of the business’s
financial performance, or how much earnings it’s generating. The balance sheet is used to
analyze whether a company has enough liquid assets to cover its financial obligations.

Key Differences between IS vs. SCI

Income Statement presents the results of the entity’s operations and financial performance
through the reporting of the entity’s revenues and expenses.

Statement of Comprehensive Income presents the entity’s net income, alongside the effects
of other comprehensive income leading to comprehensive income.
An entity has a choice on presenting the SCI
• Two-Statement Format • Single-Statement Format

What is Income Statement?

● The income statement is also known as the statement of operations, profit and loss
statement, and statement of earnings. It is one of a company's main financial
statements.
● The purpose of the income statement is to report a summary of a company's
revenues, expenses, gains, losses, and the resulting net income that occurred during
a year, quarter, or other period of time.
● An income statement or profit and loss account is one of the financial statements a
company requires to balance the accounting books and calculate the financial health
of the company.
● It shows the company's revenues and expenses during a particular period, which can
be selected according to the company’s needs. An income statement indicates how
the revenues are transformed into the net income or net profit.
● A quarterly income statement shows the profits or losses generated by the business
over a three month period. It can also be referred to as a profit or loss account, and is
a crucial financial statement that shows the businesses income and expenditures,
detailing the net income or net profits.
Items appearing in the IS
The main items reported in the income statement are:
• Revenues, which are the amounts earned through the sale of goods and/or the providing of
services • Expenses, which include the cost of goods sold, distribution or selling expenses,
general or administrative expense, other expenses and interest expense (finance cost)
• Gains and losses, such as the sale of a noncurrent asset for an amount that is different from
its book value
• Net income, which is the result of subtracting the company's expenses and losses from the
company's revenues and gains.

How the Income Statement Amounts are Calculated?

● The income statement amounts are best calculated for a specific period of time by
using the accrual basis of accounting. Under the accrual basis the revenues are the
amounts that were earned (not the amount of cash received), and the expenses are
the amounts that best match the revenues or were used up during the period (not the
cash that was paid out).

An income statement reports the company’s financial

performance through presenting the entity’s revenues,
gains, expenses and losses for the period ended.

There should be a proper and separate reporting of

income tax payments or income tax payments.
REVENUES - EXPENSES = NET INCOME
Elements of Financial Performance

Income increases in economic benefits during the accounting period in

the form of inflows or enhancements of assets or decreases of liabilities
that result in the increases in equity, other than those relating to
contributions from equity participants.

Expenses are decreases 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.

Income encompasses both revenue and gains

Revenues arises in the course of ordinary regular activities.
Gains are other items that represents increases in economic benefits but does not regularly
arise in ordinary business operations. (Example: Gain on sale of assets*)
• A merchandising company who sells their inventories earn Sales Revenue. If that company
decided to sell their equipment at a price higher than its carrying value, it’s
• a gain on sale of equipment
Expense encompasses both expenses and losses
Expenses are decreases in economic benefits due to, for example, salaries, rent, and
depreciation.
Losses do not arise in regular business operations such as loss from fire, loss from disasters,
or loss from sale of assets.

Forms of Income Statement

Natural Form
otherwise called the nature of expense method, it presents expenses according to nature.
This type of income statement is used in a service business. It is also called the single-step
income statement, since a single step in deducting expenses from revenue is performed to
arrive at the net income or net loss.

Functional Form
otherwise known as the cost of sales method, it presents expenses according to function.
(e.g. cost of sales, selling expenses, administrative expenses). This type is used in a
merchandising business. It is also called the multi-step income statement since a series of
steps is performed to arrive at the net income or net loss.

! Notice that in the natural form of income statement, a single-step of deducting total
expenses from total revenues was done to get the net income/loss from operations. However,
in the functional form income statement, a series of steps was done showing several
activities of the business before finally arriving at the net income/loss from operations !
 The Single-Step Income Statement
This type of income statement is used in a service business.

ACCOUNTS:
Service income
includes revenues earned or generated by the business in performing services for a customer
or client. The following are examples of income:
• Laundry income • Medical fees • Dental Fees • Legal Fees • Consultancy Fees
Salaries or wages expense
include all payments made to employees or workers for rendering services to a company.
Examples are salaries or wages, 13th month pay, cost of living allowances, and other related
benefits given to the employees.
Utilities expense
is an expense related to the use of electricity, fuel, water, and telecommunication facilities.
Supplies expense
covers office supplies used by a business in the conduct of the daily operations.
Insurance expense
is the expired portion of premiums paid on insurance coverage such as premiums paid for
health or life insurance, motor vehicles, or other properties.
Depreciation expense
is the annual portion of the cost of tangible assets such as buildings, machineries, and
equipment charged as expense for the year. ( this are estimates.)
Bad debts expense
means the amount of receivables charged as expense for the period because they are
estimated to be doubtful of collection.
Interest expense/Finance cost
is the amount of money charged to the borrower for the use of borrowed funds.

Notes to the financial statements is considered as an integral part of the financial statements.
The notes (or footnote disclosures) are required by the full disclosure principle because the
amounts and line descriptions on the face of the financial statements cannot provide sufficient
information. In fact, there may be some large potential losses that cannot be expressed as a
specific amount, but they are critical information for lenders, investors, and others.

Example of Single-Step Income Statement

 The Multiple-Step Income Statement
This type is used in a merchandising business.

ACCOUNTS:
Sales
the proceeds from the sales price of goods sold to the revenue account in the accounting
period when the sales were made.
Sales Returns and Allowances
the account used to record returns acknowledged or allowances granted by the supplier to
the buyer from the sale of goods.
Sales Discount
a reduction from the sales price of the merchandise or goods sold granted by the seller to the
buyer or customer for paying within the discount period.
Freight-out or Delivery Expense
the cost of transporting the merchandise or goods from the buyer’s place to the seller’s place
of business.
Net Sales
The first line after the heading of the income statement is the net sales. To show the details of
its computation, it is supported by a note to financial statement. Net sales is computed as
follows:

Cost of Sales
The cost of sales or cost of goods sold represents the merchandise inventory sold by the
business to its customers. This comprises the company's biggest expense and is deducted
from net sales to arrive at the gross profit.
Purchases
the account used to record the cost of the goods or merchandise bought for the purpose of
resale.
Purchase Returns and Allowances
the account used to record returns acknowledged or allowances granted by the supplier to
the buyer from the purchase of goods
Purchase Discount
a reduction from the purchase price of the merchandise or goods bought granted by the
supplier to the buyer or customer for paying within the discount period.
Freight-in
the cost of transporting the merchandise or goods from the seller’s place to the buyer’s place
of business. This is also called Transportation-in.
Cost of Sales Computation

Other Income
it is the income derived from sources other than the company’s main line of business.
Examples are interest income, dividends income, commissions income, rent income, and
gain on sale of assets. To show the details of this income account, it is supported by a note to
financial statement.
Distribution Expenses/Selling Expenses
Selling expenses are those incurred in directly selling the merchandise. This includes:
1. salaries of sales personnel,
2. expenses incurred in promoting or advertising the product,
3. commission on sales,
4. store supplies used,
5. utilities used in the store,
6. depreciation expense of assets used in the store
7. freight-out or delivery expense – the cost of transporting the merchandise to the
customer’s place of business
General/Administrative Expense
General or administrative expenses are expenses necessary in the management of the office.
This includes:
1. salaries of office personnel
2. office supplies use in the office
3. utilities used in the office
4. depreciation of office assets
5. provision of bad debts or uncollectible accounts.
Other Expenses
are expenses not connected to the operating activities of the business. An example of this is
loss on sale of assets and discount lost.
Finance Costs
finance costs are the interest expense paid for the use of borrowed funds.

Example of Multiple-Step Income Statement