Fundamentals of Accountancy, Business, and Management 2 - Statement of Comprehensive Income

Practice flashcards covering the concepts, elements, single-step and multi-step approaches, and limitations of the Statement of Comprehensive Income (SCI).

What percentage of businesses in the Philippines closed when the pandemic hit in 2020?

About 26% of businesses in the Philippines closed.

What is the Statement of Comprehensive Income (SCI)?

A financial statement that shows a business's performance through profit or loss for a specific period; it is also called the Income Statement.

What are the two main components of the Statement of Comprehensive Income (SCI)?

Net Income and Other Comprehensive Income (OCI).

How is Net Income defined in the context of an SCI?

Net Income is obtained by preparing an income statement where revenues, expenses, gains, and losses are presented over a given period.

What is Other Comprehensive Income (OCI)?

OCI consists of all unrealized gains and losses that are not reflected in the income statement.

What are the key functions of the Statement of Comprehensive Income (SCI)?

To assess profitability and value for investment, determine creditworthiness, provide insights on asset utilization to create wealth, serve as an investment analysis tool, and summarize revenue information.

What are the main limitations of the Statement of Comprehensive Income (SCI)?

It uses the accrual method instead of the cash basis, and it can yield wrong information if proper timing and reasonable valuation are ignored.

What is the Single-Step Approach to preparing an SCI, and which type of business is it ideal for?

It is a simpler way of presenting a business's income statement where all revenues are listed in one section and all expenses in another. It is ideal for service businesses.

What are five common types of expenses listed under the Single-Step Approach?

Rent, Depreciation, Office Supplies, Salaries and Wages, and Utilities.

In a Single-Step Approach, what is the difference between Net Income and Net Loss?

Net Income is the positive result where total revenues are greater than total expenses, whereas Net Loss is the negative result where total expenses are greater than total revenues.

What is the Multi-Step Approach to preparing an SCI, and which type of business is it ideal for?

An approach that computes the cost of goods sold and gross profit while reporting operating and non-operating expenses separately. It is ideal for merchandising businesses.

What is Contra Sales and what account types does it include?

Contra Sales is an account found on the opposite side of the sales account that decreases sales. It includes Sales Returns and Allowances, and Sales Discounts.

What is the formula for calculating Net Sales in the multi-step approach?

$$\text{Net Sales} = \text{Sales} - (\text{Sales Returns and Allowances} + \text{Sales Discounts})$$

What is Cost of Goods Sold (COGS) and what direct expenses does it involve?

It is the total cost incurred in producing the goods sold to customers, involving direct expenses such as raw materials, labor, and shipping costs.

What are Contra Purchases and what specific accounts fall under them?

Contra Purchases are accounts credited as an opposite to the normal balance of purchases that decrease purchases, including Purchase Discounts and Purchase Returns and Allowances.

What is Freight In?

The account used in recording the transportation costs of merchandise purchased by a company.

How is Gross Profit computed in the multi-step approach?

By deducting the Cost of Goods Sold from Sales.

How do Operating Expenses differ from Non-Operating Expenses?

Operating Expenses are directly related to the business's main function of selling and delivering merchandise, while Non-Operating Expenses are not directly related to the merchandising function but are still necessary.

For Rico Accounting Firm (a service business) with revenues of ₱24,000.00 and expenses of ₱8,000.00, which approach should be used and what is the net income?

The single-step approach should be used, resulting in a Net Income of ₱16,000.00 (₱24,000.00 minus ₱8,000.00).

Based on the provided elements flowchart, what four elements branch under the Multi-step approach before reaching Net Income/Loss?

Sales, Cost of Goods Sold, Gross Profit, and Total Operating and Non-operating Expenses.

Under IAS 1, how can an entity present its profit/loss and Other Comprehensive Income (OCI)?

An entity may present either a single combined statement of profit and loss and other comprehensive income or two separate statements.

Where can Other Comprehensive Income (OCI) be found on the Statement of Financial Position (Balance Sheet) according to IFRS?

As a line item under equity.

What three major categories are included in Other Comprehensive Income (OCI) that significantly affect an entity's bottom line?

Unrealized investment gains and losses, currency exchange translation, and pension plans.