The document discusses the statement of comprehensive income, which shows an entity's financial performance over a period. It displays profit or loss, other comprehensive income, and total comprehensive income. The statement of comprehensive income differs from an income statement by also including other comprehensive income. Expenses are presented using either the nature of expense method or function of expense method. The nature method classifies expenses by type without reallocation, while the function method classifies expenses as cost of goods sold or other functions.
The document discusses the statement of comprehensive income, which shows an entity's financial performance over a period. It displays profit or loss, other comprehensive income, and total comprehensive income. The statement of comprehensive income differs from an income statement by also including other comprehensive income. Expenses are presented using either the nature of expense method or function of expense method. The nature method classifies expenses by type without reallocation, while the function method classifies expenses as cost of goods sold or other functions.
The document discusses the statement of comprehensive income, which shows an entity's financial performance over a period. It displays profit or loss, other comprehensive income, and total comprehensive income. The statement of comprehensive income differs from an income statement by also including other comprehensive income. Expenses are presented using either the nature of expense method or function of expense method. The nature method classifies expenses by type without reallocation, while the function method classifies expenses as cost of goods sold or other functions.
The document discusses the statement of comprehensive income, which shows an entity's financial performance over a period. It displays profit or loss, other comprehensive income, and total comprehensive income. The statement of comprehensive income differs from an income statement by also including other comprehensive income. Expenses are presented using either the nature of expense method or function of expense method. The nature method classifies expenses by type without reallocation, while the function method classifies expenses as cost of goods sold or other functions.
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STAT E M E N T O F
CO M PR EH EN SIV E I NC O M E SCI STATEMENT OF COMPREHENSIVE INCOME
•THE “STATEMENT OF COMPREHENSIVE INCOME” OR
“STATEMENT OF PROFIT OR LOSS AND OTHER COMPREHENSIVE INCOME” IS THE 2ND COMPONENT OF A COMPLETE SET OF FINANCIAL STATEMENTS. STATEMENT OF COMPREHENSIVE INCOME SHOWS INFORMATION ON AN ENTITY’S FINANCIAL PERFORMANCE DURING THE PERIOD. IT SHOWS THE FOLLOWING: 1.PROFIT OR LOSS; 2.OTHER COMPREHENSIVE INCOME; AND 3.COMPREHENSIVE INCOME THE STATEMENT OF PROFIT OR LOSS AND OTHER COMPREHENSIVE INCOME IS DIFFERENT FROM THE INCOME STATEMENT. Income Statement – profit or Statement of profit or loss and other loss comprehensive income
Income P 1000 Income P 1000
Expenses (600) Expenses (600) Profit or loss 400 Profit or loss 400 Other comprehensive income 50 Comprehensive income P 450 THE STANDARDS REQUIRE ENTITIES TO PRESENT A “STATEMENT OF PROFIT OR LOSS AND OTHER COMPREHENSIVE INCOME”. MEANING, PRESENTING AN INCOME STATEMENT ALONE WITHOUT “OTHER COMPREHENSIVE INCOME” IS PROHIBITED. BUT SOMEHOW STANDARDS ALLOW THE PRESENTATION OF AN INCOME STATEMENT TOGETHER WITH THE STATEMENT OF COMPREHENSIVE INCOME. IT IS CALLED TWO- STATEMENT PRESENTATION. SINGLE-STATEMENT COMPREHENSIVE INCOME
ABC Co. Statement of Comprehensive Income For the period ended December 31, 2017
Income P 1,000 Expenses ______(600) Profit for the year 400 Other comprehensive income ________50 Comprehensive income for the year ______ P450 TWO-STATEMENT PRESENTATION FIRST OF TWO STATEMENTS SECOND OF TWO – THE INCOME STATEMENT STATEMENTS ABC Co. ABC Co. Statement of Comprehensive Income Statement of Comprehensive Income For the period ended December 31, 2017 For the period ended December 31, 2017
Profit or loss P 400
Income P 1,000 Other comprehensive Expenses ______(600) Income _______50 Profit or loss _______400 Comprehensive Income __450 OTHER COMPREHENSIVE INCOME WILL BE DISCUSSED IN HIGHER ACCOUNTING
FOR NOW “SINGLE-STATEMENT” PRESENTATION OF
COMPREHENSIVE INCOME ELEMENTS OF THE STATEMENT OF COMPREHENSIVE INCOME
1. INCOME – ARE INCREASE IN ECONOMIC BENEFITS DURING
THE PERIOD IN THE FORM OF INFLOWS OR ENHANCEMENTS OF ASSETS OR DECREASES OF LIABILITIES THAT RESULT IN INCREASE IN EQUITY, OTHER THAN THOSE RELATING TO INVESTMENTS BY THE BUSINESS OWNERS. INCOME INCLUDES BOTH REVENUE AND GAINS A. REVENUE – ARISES IN THE COURSE OF THE ORDINARY ACTIVITIES OF A BUSINESS AND IS REFERRED TO BY A VARIETY OF DIFFERENT NAMES INCLUDING SALES, FEES, INTEREST, DIVIDENDS, ROYALTIES AND RENT.
•SERVICE BUSINESS – RENDERING SERVICE OR SERVICE FEES
•MERCHANDISING BUSINESS – SALES OF GOODS OR SALES REVENUE OR SIMPLY SALES B. GAINS – REPRESENTS OTHER ITEMS THAT MEET THE DEFINITION OF INCOME AND MAY OR MAY NOT ARISE IN THE COURSE OF THE ORDINARY ACTIVITIES OF AN ENTITY. EXPENSES ARE DECREASES IN ECONOMIC BENEFITS DURING THE PERIOD IN THE FORM OF OUTFLOWS OR DEPLETIONS OF ASSETS OR INCREASE OF LIABILITIES THAT RESULT IN DECREASES IN EQUITY, OTHER THAN THOSE RELATING TO DISTRIBUTIONS TO THE BUSINESS OWNERS. THE DIFFERENCE BETWEEN INCOME AND EXPENSE REPRESENTS PROFIT OR LOSS
Transportation and Travel Expense 70,000 5,000 following Interest Expense 2,000
information Miscellaneous Expense 1,000 Loses 15,000
. Totals P493,000 P950,000
ACCOUNTS DEBIT CREDIT ABC Corporation Service fees P 870,000 Statement of Comprehensive Interest Income 60,000 Income Gains 20,000 For the period ended December Salaries Expense P300,000 31, 2017 Rent Expense 30,000
Utilities Expense 20,000
INCOME Supplies Expense 10,000 Service Fees P870,000 Depreciation Expense 40,000
Taxes and Licenses 70,000
Interest Income 60,000 Transportation and Travel Expense 5,000 Gains 20,000 Interest Expense 2,000 TOTAL INCOME P950,000 Miscellaneous Expense 1,000
Taxes and Licenses 70,000 Miscellaneous Expense 1,000
Transportation and Travel Expense 5,000 Loses 15,000
Interest Expense 2,000 TOTAL EXPENSES 493,000
Miscellaneous Expense 1,000
Loses 15,000 SECOND PORTION
Totals P493,000 P950,000 ABC Corporation EXPENSES Statement of Comprehensive Income Salaries expense 300,000 For the period ended December 31, 2017 Rent Expense 30,000 Utilities Expense 20,000 INCOME Supplies Expense 10,000 Service Fees P870,000 Depreciation Expense 40,000 Interest Income 60,000 Taxes and Licenses 70,000
Gains 20,000 Transportation Expense 5,000
Interest Expense 2,000 TOTAL INCOME P950,000 Miscellaneous Expense 1,000 PROFIT FOR THE YEAR 457,000 Loses 15,000
OTHER COMPREHENSIVE - TOTAL EXPENSES 493,000
INCOME COMPREHENSIVE INCOME FOR P457,000 THE YEAR
Third PORTION PRESENTATION OF EXPENSES EXPENSES MAY BE PRESENTED IN THE STATEMENT OF COMPREHENSIVE INCOME USING EITHER OF THE FOLLOWING METHODS: 1. NATURE OF EXPENSE METHOD 2. FUNCTION OF EXPENSE METHOD (COST SALES METHOD) EXPENSE NATURE OF EXPENSE METHOD IN GENERAL •DEPENDS ON NATURE ( DEPRECIATION, PURCHASES OF MATERIAL, TRANSPORT COST, EMPLOYEES BENEFITS AND ADVERTISING COST) AND ARE NOT REALLOCATED AMONG THEIR FUNCTIONS WITHIN THE ENTITY. •VERY SIMPLE BECAUSE NO REALLOCATIONS OF EXPENSES ARE NECESSARY •IT IS REFERRED TO AS A SINGLE STEP – APPROACH •THIS METHOD IS COMMONLY USED IN SERVICE BUSINESS FUNCTION ON EXPENSE METHOD EXPENSE ARE CLASSIFIED AND PRESENTED ACCORDING TO THEIR FUNCTION AS PART OF COST OF SALES OR, FOR EXAMPLE, THE COST OF DISTRIBUTION OR ADMINISTRATIVE ACTIVITIES. AT A MINIMUM, AN ENTITY DISCLOSES ITS COST OF SALES UNDER THIS METHOD SEPARATELY FROM OTHER EXPENSES. COMMONLY USED IN MERCHANDISING AND MANUFACTURING BUSINESS A TYPE OF COMPREHENSIVE INCOME THAT SHOWS EXPENSES BY THEIR FUNCTION IS REFERRED TO AS PREPARED USING A MULTI-STEP APPROACH. MAJOR CATEGORIES OF EXPENSE UNDER THE FUNCTION OF EXPENSE METHOD:
1. COST OF SALES (OR COST OF GOODS SOLD)
2. DISTRIBUTION COST (SELLING EXPENSES) 3. ADMINISTRATIVE EXPENSE ( GENERAL AND ADMINISTRATIVE EXPENSE) 4. OTHER EXPENSES 5. INTEREST EXPENSES (FINANCE COST) 6. INCOME TAX EXPENSE DISTRIBUTION COST(SELLING EXPENSES)
COST ATTRIBUTE TO SELLING ACTIVITIES. EXAMPLE INCLUDES:
FREIGHT-OUT OR DELIVERY EXPENSES, SALES COMMISSIONS, ADVERTISING, SALARIES OF SALES PERSONNEL, DEPRECIATION ON DELIVERY EQUIPMENT, RENT PERTAINING TO SPACE OCCUPIED BY THE SALES DEPARTMENT, AND THE LIKE. ADMINISTRATIVE EXPENSES A RESIDUAL CATEGORY OF EXPENSE . AN EXPENSES THAT DOES NOT QUALIFY FOR CLASSIFICATION UNDER THE OTHER CATEGORIES IS INCLUDED IN THIS CATEGORY. ( COST SALES, DISTRIBUTION COST, OTHER EXPENSES AND INTEREST EXPENSES)
(INSURANCE, TAXES AND LICENSES (EXCEPT INCOME TAX EXPENSE) , SALARIES OF
NON-SALES PERSONNEL DEPRECIATION OF ASSETS NOT USED BY THE SALES DEPARTMENT, RENT PERTAINING TO OFFICE SPACE, AND THE LIKE OTHER EXPENSES
INCLUDES, LOSSES LIKE CASUALTY
LOSSES AND LOSSES ON SALE OF PROPERTIES. INCOME TAX EXPENSE
INCLUDES TAXES ON INCOME. OTHER TAXES ARE
PRESENTED IN ADMINISTRATIVE EXPENSES CATEGORY UNDER THE “TAXES AND LICENSES” ACCOUNT. FUNCTION EXPENSE Entry Cost
Salaries expense ( 1/4 pertains to non-sale personnel) 200,000
Sales commission expense 20,000
Bad debts expense 6,000
Interest expense 1,000
Determine the amounts of expenses classified as (1) distribution cost and (2) administrative expense
1. Selling Expense 2. Administrative Expense
Advertising Expense P 18,000 Insurance Expense P 120,000 Freight out 36,000 Rent Expense (120,000 x ½) 60,000 Rent Expense (120,000 x ½) 60,000 Salaries expense (200,000 x 1/4) 50,000 Salaries expense (200,000 x ¾) 150,000 Bad debts 6,000 Sales commission expense 20,000 Administrative expenses P 236,000 Selling expenses P 284,000 BAD DEBTS EXPENSE IS CLASSIFIED AS ADMINISTRATIVE EXPENSES.
THIS IS BECAUSE CREDIT GRANTING IS AN ADMINISTRATIVE
FUNCTION AND BAD DEBTS NORMALLY RESULT FROM POOR CREDIT POLICIES OR DECISIONS. HOWEVER,IF MATERIAL, THE AMOUNT OF BAD DEBTS SHALL BE PRESENTED SEPARATELY AND NOT INCLUDED IN CATEGORIES OF EXPENSE. •COST OF GOOD SOLD IS PRESENTED SEPARATELY •LOSS ON SALE OF EQUIPMENT IS UNDER OTHER EXPENSE (MATERIAL AMOUNT OF LOSSES SHALL BE PRESENTED SEPARATELY •INTEREST EXPENSE IS PRESENTED SEPARATELY THE TRIAL BALANCE OF ABC CO. ON DECEMBER 31,2017 SHOWS THE FOLLOWING INFORMATION Account Debit Credit Salaries Expense 300,000 Sales P900,000 Rent Expense 30,000 Interest Income 60,000 Depreciation Expense 40,000 Gains 20,000 Utilities Expense 20,000 Inventory Beginning P50,000 Supplies Expense 10,000 Purchases 200,000 Transportation and travel 5,000 expense Freight-In 10,000 Insurance expense 12,000 Purchase Returns 5,000 Taxes and Licenses 70,000 Purchases Discounts 7,000 Interest Expense 2,000 Freight-out 25,000 Misc. Expense 1,000 Sales Commission 30,000 Loss on the sale of 15,000 equipment Advertising Expense 15,000 Totals P835,000 P835,000 ADDITIONAL INFORMATION
•A. ENDING INVENTORY P80,000
•B. ONE-HALF OF THE SALES, RENT, AND DEPRECIATION EXPENSES PERTAIN TO THE SALES DEPARTMENT. THE SALES DEPARTMENT DES NOT SHARE OTHER EXPENSES. REQUIREMENTS
•PREPARE THE STATEMENT OF COMPREHENSIVE INCOME USING
THE FOLLOWING. a.NATURE OF EXPENSE METHOD (SINGLE-STEP APPROACH) b.FUNCTION OF EXPENSE METHOD (MULTI-STEP APPROACH)
