FUNDAMENTALS OF

SENIOR
ACCOUNTANCY, BUSINESS HIGH
AND MANAGEMENT 2 (FABM 2) SCHOOL
2
Self-
Statement of Comprehensive Learning
Module
Income for Merchandising 6
Business Quarter 1
Fundamentals of Accountancy, Business and Management 2 (FABM2) – Grade 12
Quarter 1 – Self-Learning Module 6: Statement of Comprehensive Income for
Merchandising Business
First Edition, 2020

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Printed in the Philippines by Department of Education – Schools Division of

Pasig City
FABM2 SENIOR
HIGH
SCHOOL

Self-
Learning
Module 6

Quarter 1

Statement of Comprehensive Income

for Merchandising Business
Introductory Message

For the facilitator:

Welcome to the Fundamentals of Accountancy, Business and Management 2

for Grade 12 Self-Learning Module on Statement of Comprehensive Income for
Merchandising Business !

This Self-Learning Module was collaboratively designed, developed and

reviewed by educators from the Schools Division Office of Pasig City headed by its
Officer-in-Charge Schools Division Superintendent, Ma. Evalou Concepcion A.
Agustin, in partnership with the City Government of Pasig through its mayor,
Honorable Victor Ma. Regis N. Sotto. The writers utilized the standards set by the K
to 12 Curriculum using the Most Essential Learning Competencies (MELC) in
developing this instructional resource.

This learning material hopes to engage the learners in guided and

independent learning activities at their own pace and time. Further, this also aims
to help learners acquire the needed 21st century skills especially the 5 Cs, namely:
Communication, Collaboration, Creativity, Critical Thinking, and Character while
taking into consideration their needs and circumstances.

In addition to the material in the main text, you will also see this box in the
body of the module:

Notes to the Teacher

This contains helpful tips or strategies
that will help you in guiding the learners.

As a facilitator you are expected to orient the learners on how to use this
module. You also need to keep track of the learners' progress while allowing them
to manage their own learning. Moreover, you are expected to encourage and assist
the learners as they do the tasks included in the module.
For the learner:

Welcome to the Fundamentals of Accountancy, Business and Management 2

Self-Learning Module on Statement of Comprehensive Income for Merchandising
Business !

This module was designed to provide you with fun and meaningful
opportunities for guided and independent learning at your own pace and time. You
will be enabled to process the contents of the learning material while being an
active learner.

This module has the following parts and corresponding icons:

Expectations - This points to the set of knowledge and skills

that you will learn after completing the module.

Pretest - This measures your prior knowledge about the lesson

at hand.

Recap - This part of the module provides a review of concepts

and skills that you already know about a previous lesson.

Lesson - This section discusses the topic in the module.

Activities - This is a set of activities that you need to perform.

Wrap-Up - This section summarizes the concepts and

application of the lesson.

Valuing - This part integrates a desirable moral value in the

lesson.

Posttest - This measures how much you have learned from the
entire module.
 EXPECTATIONS
After going through this self-learning module, you are expected to:
1. identify the parts of the Statement of Comprehensive Income for
Merchandising Business using the multi-step approach;
2. prepare the Statement of Comprehensive Income for a service
business using the multi-step approach; and
3. reflect on the importance of preparing Statement of Comprehensive
Income for merchandising business.

PRETEST

Multiple Choice. Directions: Encircle the letter of the best answer.

1. A merchandising company sells goods to customers and the main cost
associated with the activity is the cost of the merchandise that is
presented under which part in Statement of Comprehensive Income
using the Multi-Step approach?
A. Heading
B. Sales
C. Cost of Goods Sold
D. Selling Expenses

2. Which among the following equations is correct to compute net

purchases?
A. Net Purchases = purchases – (purchase discount and purchase
returns)
B. Net Purchases = purchase discount + purchase returns +
purchases
C. Net Purchases = purchases + (purchase discount – purchase
returns)
D. None of these

3. The following are general and administrative expenses, except

for_____.
A. Office rental
B. Utility expense of admin. building
C. Salaries of office employees
D. Freight-out
4. It is computed as the difference between the Gross Profit and Selling
Expenses and General and Administrative Expenses.
A. The Net income
B. Cost of goods sold
C. Net cost of purchases
D. Net sales

5. Which among the following is not included in the Statement of

Comprehensive Income for Merchandising Business?
A. Sales
B. Cost of goods sold
C. Assets
D. Selling expenses

E. RECAP

Directions: Arrange properly the given parts of the statement of

comprehensive income for service business.
 LESSON

What do you see in the picture?

What kind of business is this?

If you have this kind of business, how are you going to compute for
your net income?

Statement of Comprehensive Income for Merchandising Business using

the Multi-Step Approach

In the previous lesson we discussed that the single-step Statement of

Comprehensive Income is more commonly used by service companies, the
net income for merchandising business is commonly determined using the
multi-step approach. It is called multi-step because there are several steps
needed to arrive at the company’s net income. (Haddock, Price, & Farina,
2012 as cited by Monfero et. Al 2016, 23)

A merchandising company sells goods to customers and the main cost

associated with the activity is the cost of the merchandise which is
presented under the line item Cost of Goods Sold. In presenting these items
on the
Statement of Comprehensive Income, a merchandising company will present
total sales and cost of goods sold on the first part of the statement which
will net to the company’s gross profit before presenting the other expenses
which are classified as either administrative expenses or selling expenses (as
seen in the multi-step proforma).
ABC Selling Company
Statement of Comprehensive Income
For the year ended December 31, 2019

Sales XXX
Sales Return XXX
Sales Discount XXX XXX
NET SALES XXX

Cost of Goods Sold

Beginning Inventory XXX

Net Cost of Purchases

Purchases XXX
Purchase Returns XXX
Purchase Discounts XXX
Net Purchases XXX
Freight-in XXX XXX
Cost of Goods Available for Sale XXX
Ending Inventory XXX XXX
GROSS PROFIT XXX

Selling Expenses
Salaries Expense XXX
Rent Expense XXX
Depreciation Expense XXX
Utility Expense XXX XXX
General and Administrative Expenses
Salaries Expense XXX
Rent Expense XXX
Depreciation Expense XXX
Utilities Expense XXX
Miscellaneous XXX XXX
NET INCOME XXX
 Figure 6.1 Proforma SCI for Merchandising Business

Preparing the Statement of Comprehensive Income for Merchandising

Business using Multi-step approach

1. Prepare the statement heading

ABC Selling Company

Statement of Comprehensive Income
For the year ended December 31, 2019

Figure 6.2. The Heading

The statement heading includes the name of the company, the name
of the statement, and the date covered. The date of the Statement of
Comprehensive Income use “for the” because the amounts in the SCI are
temporary, meaning that each period, amounts go back to being zero to
start all over.

2. Determine the revenue

If it is a merchandising business, the revenue comes from sales. Sales

are the total amount of revenue that the company was able to generate the
selling of products.

Sales Php 1,000,000.00

Sales Return (60,000.00)
Sales Discount (20,000.00) (80,000.00)
NET SALES 920,000.00

Figure 6.3. The Revenue and Contra Revenue Accounts

This part also considers contra revenue accounts, called contra

because it is on the opposite side of the sales account and contrary to the
normal balance of the sales or revenue account. It is therefore a reduction
to sales account.

Sales Returns is a merchandise sent back by a buyer to the seller.

Merchandise was returned, usually for one of the following reasons:
excess quantity shipped, excess quantity ordered, defective goods, goods
shipped too late, product specifications are incorrect, wrong items
shipped. (Bragg 2019, 1)

A sales discount is a reduction in the price of a product or service

that is offered by the seller, in exchange for early payment by the buyer.
This approach is commonly used when a seller is in immediate need of
cash.(Bragg 2018, 1) This is also known as a cash discount.

Net sales are computed by deducting sales return and sales

discount from sales (Net Sales = sales – (sales returns + sales discounts).

3. Determine the net cost of purchases, cost of goods sold, and gross
profit

Cost of Goods Sold

Beginning Inventory 500,000.00

Net Cost of Purchases

Purchases 200,000.00
Purchase Returns (40,000.00)
Purchase Discounts (20,000.00)
Net Purchases 140,000.00
Freight-in 30000 170000
Cost of Goods Available for Sale 670000
Ending Inventory (100,000.00) (570,000.00)
GROSS PROFIT Php 350,000.00

Figure 6.4. Net Cost of Purchases, Cost of Goods Sold, and Gross Profit

a. Determine the net cost of purchases first using the following

formula:

Net Cost of Purchases = Net Purchases + freight-in

Net Purchases = Purchases – (Purchase discount and purchase

returns)

Purchases refer to the number of goods bought during the accounting

period. This part also considers contra purchases accounts: purchase
discounts and purchase returns, called contra because it is on the opposite
side of the purchases account and contrary to its normal balance. It is
therefore a reduction to purchase account. A purchase discount is a
deduction that a company may receive if the supplier offers it and the
company pays the supplier's invoice within a specified period. On the other
hand, purchase return is a reduction in the cost of goods purchased that is
allowed by the supplier based on the authorized return of goods.

Freight-in implies charges about the receipt of goods and accounted

for as an addition to purchases. It is emphasized that there is a difference
between freight-in and freight out. Freight-out on the other hand refers to
the delivery cost of goods sold. Freight-out is treated as a selling expense.
(Beticon 2016, 58)
b. Determine the cost of goods sold using the formula
Beginning Inventory
Add: Net cost of purchases
Total Goods Available for Sale
Less Ending Inventory
Cost of Goods Sold

Figure 6.5 Cost of Goods Sold

The cost of goods sold is the accumulated total of all costs used to
create a product, which has been sold. While beginning inventory is the
amount of inventory at the beginning of the accounting period. This is
also the ending inventory from the previous period. On the other hand,
ending inventory is the total cost of inventory unsold at the end of the
accounting period.
c. Determine the gross profit

Gross profit is computed as the difference between the net sales and
cost of goods sold. If the cost of goods sold is larger than the net sales, the
result is a gross loss.
4. Determine the selling expenses

Selling Expenses
Salaries Expense (20,000.00)
Rent Expense (16,000.00)
Depreciation Expense (14,000.00)
Utility Expense (12,000.00) (62,000.00)

Figure 6.6. Selling Expenses

Selling expenses are expenses related to the activities generating

sales revenues. To be considered a selling expense, the cost must be a
direct expense, such as a sales representative's salary, commission,
benefits, travel, and any accommodations in line with the sale.
 5. Determine the general and administrative expenses

General and Administrative Expenses

Salaries Expense (40,000.00)
Rent Expense (30,000.00)
Depreciation Expense (20,000.00)
Utility Expense (10,000.00)
Miscellaneous (2,000.00) (102,000.00)

Figure 6.7. General and Administrative Expenses

General and administrative expenses are all the expenses not directly
related to selling and not associated with making the product but are
necessary for the effective operation of the business. These expenses
include the overhead to run the main office, marketing, executive, and
support staff, etc.

6. Determine the net income

Gross Profit less Selling Expenses and General and Administrative

Expenses is Net Income for a positive result, while, Net Loss for a
negative result.
 ABC Selling Company
Statement of Comprehensive Income
For the year ended December 31, 2019

Sales Php 1,000,000.00

Sales Return (60,000.00)
Sales Discount (20,000.00) (80,000.00)
NET SALES 920,000.00

Cost of Goods Sold

Beginning Inventory 500,000.00

Net Cost of Purchases

Purchases 200,000.00
Purchase Returns (40,000.00)
Purchase Discounts (20,000.00)
Net Purchases 140,000.00
Freight-in 30000 170000
Cost of Goods Available for Sale 670000
Ending Inventory (100,000.00) (570,000.00)
GROSS PROFIT Php 350,000.00

Selling Expenses
Salaries Expense (20,000.00)
Rent Expense (16,000.00)
Depreciation Expense (14,000.00)
Utility Expense (12,000.00) (62,000.00)
General and Administrative Expenses
Salaries Expense (40,000.00)
Rent Expense (30,000.00)
Depreciation Expense (20,000.00)
Utilities Expense (10,000.00)
Miscellaneous (2,000.00) (102,000.00)
NET INCOME Php 186,000.00

Figure 6.8. Statement of Comprehensive Income for Merchandising

Business using the multi-step approach

ACTIVITIES

I. Practice.
Let’s do it!
Directions: Ana had the following expense accounts for the year ended
December 31, 2019. Identify if the account is part of the general and
administrative expenses or selling expense. Write G if General and
Administrative Expense and write S if Selling Expense.

1. salaries of the office staff

2. freight out
3. salaries of sales agents
4. utilities of home office
5. rent of office building
6. depreciation of office building
7. maintenance expense of delivery van
8. advertising
9. salaries of store employees
10. rent of store space

II. Keep Practicing

I can solve it! Directions: Solve the following problems. Show the
solutions.

1. The following are some of the balances of ECs Merchandising

Business, compute for the Cost of Goods Sold:

Sales – 150,000
Purchases – 20,000
Purchase returns – 2000
Purchase discounts – 2000
Freight in – 1000
Beginning inventory – 10,000
Ending inventory – 5000
 2. During September, Aling Ana’s Convenience store had the
following transactions involving revenues and expenses:
Did Aling Ana earn a net income or incur a net loss for the
period? What was the amount?
Paid Php 2,400 for utilities
Sales for Php8,500 in cash
Paid Php500 for telephone service
Additional Sales for Php3,800
Paid salaries of Php3,650 to store employee
Paid Php700 for office cleaning service
3. Maria Merchandising Business has the following balances at the
end of December 2019, prepare a multi-step Statement of
Comprehensive Income.
Sales – 60,000
Cost of Goods Sold – 30,000
General and administrative expenses – 12,000
Selling expenses – 6,000

4. Reflections

Did Maria Merchandising Business earn a net income or incur a

net loss for the period?

Based on the Statement of Comprehensive Income of Maria’s

Merchandising Business, did the company perform well? What can
you recommend to the EC Company?

WRAP UP

Let’s wrap up!

 Why does preparing the statement of comprehensive income is called
multi-step?
 What are the steps in preparing the statement of comprehensive
income for merchandising business?
 How are the expenses in SCI multi-step being categorized?
Differentiate the categories.

VALUING
 What are the words/phrases can you form from the acronym
SCI which show good practices in operating a Merchandising
Business? Discuss why do you think these words are good practices
in operating a merchandising business.

S –

C –

I -

POSTTEST

Modified True or False. Directions: Write the word True if the statement is
correct, if it is wrong, change the underlined word with the correct answer.
1. The multi-step income statement shows a gross profit.

2. Net sales minus the cost of goods sold equals net profit.

3. Selling expenses are all the expenses not directly related to selling
and not associated with making the product, but are necessary for
the effective operation of the business.

4. Freight –out is added to net purchases to get the net cost of

purchases.

5. Gross Profit less Selling Expenses and General and Administrative

Expenses is Net Loss for a positive result.
 KEY TO CORRECTION

5. Net income 5. c 4
4. Freight-in 4. a 5
3. General and administrative 3. d 2
2. Gross profit 2. a 1
1. true 1. c 3
Recap Post test Pretest

R E F E R E N CE S

Beticon, J. L., Domingo, JC. D., Yabut, FA. D. 2016. Fundamentals of

Accountancy, Business, and Management 2, Teacher’s Manual.
Quezon City: Vibal Group Inc.
Beticon, J. L., Domingo, JC. D., Yabut, FA. D. 2016. Fundamentals of
Accountancy, Business, and Management 2. Quezon City: Vibal
Group Inc.
Binuya, MVJ. M. 2016. Fundamentals of Accountancy, Business, and
Management Book 2. Manila: JFS Publishing Services.
Dumrique, D. O., Cariño, C.I., Ignacio, R. M. 2014. Accounting MADE EASY.
Rizal: Jenher Publishing House
Monfero, RP. P., Andres, C. S., Salazar, DR. C., Honorario, C. B. Teaching
Guide for Senior High School, Fundamentals of Accountancy, Business,
and Management Book 2. Quezon City: Commission on Higher
Education.
Manuel, Z. V. 2016. 21st Century Accounting Process, International Edition.
Manila: Raintree Traiding and Publishing, Inc.
Salazar, D. R. 2017. Fundamentals of Accountancy, Business, and
Management 2. Manila: Rex Bookstore Inc.

Online References

https://www.accountingcoach.com/terms/P/purchase-return
https://www.accountingtools.com/articles/2017/5/4/cost-of-goods-sold
https://www.accountingtools.com/articles/2017/5/16/sales-
discount?rq=sales%20discount
https://www.accountingtools.com/articles/2017/5/16/sales-
return#:~:text=A%20sales%20return%20is%20merchandise,Goods%2
0shipped%20too%20late
https://smallbusiness.chron.com/selling-expenses-vs-administrative-
expenses57899.html#:~:text=General%20and%20administrative%20ex
penses%20are,staff%2C%20and%20any%20distribution%20costs.