NAME: TEACHER:
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STRAND AND SECTION: DATE:
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Fundamentals Of Accountancy, Business and Management 2 -
Grade 12- Quarter 1 Week 3
PREPARING A STATEMENT OF COMPREHENSIVE INCOME FOR
MERCHANDISING BUSINESS USING MULTI-STEP APPROACH
BACKGROUND INFORMATION FOR LEARNERS
Now that you have the adjusted trial balance of a merchandising business, you can
already prepare your Statement of Comprehensive Income using the multi-step approach.
Multi-step income statement is one of the two income statement formats businesses
can use to report its profi
expenses using multi-steps to arrive at net income. Unlike the simple, single-step income
statement, the multi-step income statement differentiates between operating and non-
operating, revenues and expenses, giving both business owners and investors a better look
at company operations and profitability levels.
To illustrate the major parts of the merchandising income statement selected
transactions made by Sambella Trading will be used unless otherwise stated.
NET SALES
Net Sales is the first part of the merchandising income statement as presented below:
SAMBELLA TRADING
Partial Income Statement
For the Period Ended December 31, 2020
Sales P 129,000.00
Less: Sales returns and allowances 5,000.00
Sales Discount 5,000.00
Net Sales P 119,000.00
Exhibit 1 Partial Income Statement Net Sales
RO_ABM_FABM2_Grade 12_Q1_WK3_LP5 40
COST OF SALES
Cost of Sales or cost of goods sold is the largest single expense of a merchandising
business. It is the cost of inventory that the entity has sold to customers. To understand
fully the concept of cost of sales, it is necessary to examine the details affecting the
merchandise inventory and net purchases.
Beginning Net
Inventory Purchases
Goods Available for Sale
Ending Cost of Goods
Inventory Sold
Exhibit 2 Goods Available for Sale
SAMBELLA TRADING
Partial Income Statement
For the Period Ended December 31, 2020
Cost of Sales
Merchandising Inventory, January 1 P 80,000.00
Purchases P 50,000.00
Less: Purchase returns and allowances P 4,500.00
Purchase discounts 5,000.00 9,500.00
Net Purchases P 40,500.00
Add: Freight In 2,000.00
Net Cost of Purchases 42,500.00
Goods available for sale P 122,500.00
Less: Merchandise Inventory, December 31 50,000.00
Cost of Sales P 72,500.00
Exhibit 3 Partial Income Statement Cost of Sales
RO_ABM_FABM2_Grade 12_Q1_WK3_LP5 41
OPERATING EXPENSES
Operating Expenses make up the third major part of the income statement for a
merchandising business. These are expenses, other than the cost of sales, which are
- merchandising.
Distribution costs, administrative expenses and other operating expenses are the
categories.
STEPS IN PREPARING A MULTI-STEP INCOME STATEMENT
1. Prepare the report heading. The heading includes the name of the company, the type of financial
statement and the period covered.
SAMBELLA TRADING
Statement of Comprehensive
For the Year Ended December 31, 2020
2. Calculate the gross profit or gross margin. This is done by subtracting the cost of goods sold in
the first section of the statement (net sales) rather than listing it with other expenses.
SAMBELLA TRADING
Statement of Comprehensive Income
For the Year Ended December 31, 2020
Sales P 129,000.00
Less: Sales returns and allowances 5,000.00
Sales Discount 5,000.00
Net Sales P 119,000.00
Cost of Sales
Merchandising Inventory, January 1 P 80,000.00
Purchases P 50,000.00
Less: Purchase returns and allowance P 4,500.00
Purchase discounts 5,000.00 9,500, 00
Net Purchases P 40,500.00
Add: Freight In 2,000.00
Net Cost of Purchases 42,500.00
Goods available for sale P 122,500.00
Less: Merchandise Inventory, December 31 50,000.00 72,500.00
Gross Profit P 46,500.00
RO_ABM_FABM2_Grade 12_Q1_WK3_LP5 42
3. Calculate the Operating Income. This is done by subtracting the operating expenses from the
gross profit.
SAMBELLA TRADING
Statement of Comprehensive Income
For the Year Ended December 31, 2020
Sales P 129,000.00
Less: Sales returns and allowances 5,000.00
Sales Discount 5,000.00
Net Sales P 119,000.00
Cost of Sales
Merchandising Inventory, January 1 P 80,000.00
Purchases P 50,000.00
Less: Purchase returns and allowance P 4,500.00
Purchase discounts 5,000.00 9,500, 00
Net Purchases P 40,500.00
Add: Freight In 2,000.00
Net Cost of Purchases 42,500.00
Goods available for sale P 122,500.00
Less: Merchandise Inventory, December 31 50,000.00 72,500.00
Gross Profit P 46,500.00
Less: Operating Expenses
Salaries P 14,500.00
Freight Out 3,500.00
Insurance Expense 500.00
Interest Expense 580.00
Bad Debts 7,400.00
Depreciation-store equipment 10,500.00
Depreciation- store furniture 7,200.00 44,180.00
Net income for the period P 2,320.00
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4. Calculate the Net Income. This is done by adding in any non-operating income or expenses and
adding or subtracting those amounts from the operating income to arrive at net income.
SAMBELLA TRADING
Statement of Comprehensive Income
For the Year Ended December 31, 2020
Sales P 129,000.00
Less: Sales returns and allowances 5,000.00
Sales Discount 5,000.00
Net Sales P 119,000.00
Cost of Sales
Merchandising Inventory, January 1 P 80,000.00
Purchases P 50,000.00
Less: Purchase returns and allowance P 4,500.00
Purchase discounts 5,000.00 9,500, 00
Net Purchases P 40,500.00
Add: Freight In 2,000.00
Net Cost of Purchases 42,500.00
Goods available for sale P 122,500.00
Less: Merchandise Inventory, December 31 50,000.00 72,500.00
Gross Profit P 46,500.00
Less: Operating Expenses
Salaries P 14,500.00
Freight Out 3,500.00
Insurance Expense 500.00
Interest Expense 580.00
Bad Debts 7,400.00
Depreciation-store equipment 10,500.00
Depreciation- store furniture 7,200.00 44,180.00
Net income for the period P 2,320.00
Add: Other income
Commission income P 7,000.00
Interest income 345.00 7,345.00
Net Profit P 9,665.00
Exhibit 4 Multi-step Statement of Comprehensive Income
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LEARNING COMPETENCY
The learner prepares an SCI for a merchandising business using the multistep approach
(ABM_FABM12-Ic-5)
ACTIVITIES
statement for merchandising business using the multi-step approach
ACTIVITY 1: COMPUTE TO COMPLETE
DIRECTIONS: Compute the missing elements of the income statement of two (2) companies
below. Complete the table by replacing the numbered blanks with the appropriate amounts
listed in the box. Use a pad paper for your answer. You will earn one (1) point for every correct
answer. (5 points)
P 20,000.00 P 90,000.00
P 180,000.00 P 120,000.00
P 70,000.00 P 25,000.00
Company A Company B
Net sales 1 3
Merchandise Inventory, Beg. P 30,000.00 P 50,000.00
Net Purchases P 80,000.00 4
Goods available for sale P110,000.00 P 160,000.00
Merchandise Inventory, End P 40,000.00 5
Cost of Sales 2 P 140,000.00
Gross Profit P 50,000.00 P 40,000.00
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ACTIVITY 2: FILL IT PROFIT-LY!
DIRECTIONS: Using the income statement below of JUNYAN ENTERPRISE, determine the
missing words/figures in each blank item. Write your answer in a pad paper. You will earn one
(1) point for every correct answer. (10 points)
a
Statement of Comprehensive Income
For the Year Ended December 31, 2020
Net Sales
Gross Sales P h
Less: Sales Returns and
Allowances P 45,000.00
Sales Discounts 15,000.00 g
Net
Sales P f
Cost of Goods Sold
Merchandise Inventory, 220,000.0
1/1/2020 P 0
Purchases P 985,000.00
Less: Purchase Returns 31,000.0
and Allowances P 0
Purchase 20,000.0
Discounts 0 b
934,000.0
Net Purchases 0
Transportation-in 36,000.00
Net Cost of Purchases c
Goods available for
sale P d
Less: Merchandise Inventory, 260,000.0
12/31/2020 0
Cost of Goods Sold e
620,000.0
Gross Profit P 0
Operating Expenses j
Net Profit P i
Clue: Note that the Gross Profit is 40% of Net Sales and Profit is 10% of Net
Sales.
RO_ABM_FABM2_Grade 12_Q1_WK3_LP5 46
ACTIVITY 3: PREPARE TO EARN!
DIRECTIONS: Given the selected amounts from the accounting records of Bicol Souvenirs,
prepare the income statement for the year-ended December 31, 2020 using the multi-step
approach. (25 points)
Accounts Receivable P 48,300.00 P 126,070.00
Accumulated Depreciation 18,700.00 Purchases 91,300.00
Cost of Goods Sold ? Purchase Discounts 3,000.00
Distribution Cost 37,840.00 Purchase Returns 2,000.00
Freight-In 2,200.00 Sales 301,000.00
General Expenses 23,800.00 Sales Discounts 9,000.00
Merchandise Inventory,1/1/2020 21,870.00 Sales Returns 16,000.00
Merchandise Inventory, 12/31/2020 19,450.00 Unearned Revenues 6,500.00
Other Operating Expenses 1,500.00
DIRECTIONS: With the given amounts below, prepare the income statement of SC&MC
Traders for the year-ended December 31, 2020 using the multi-step approach. In a separate
schedule, show the computation of the Cost of Goods Sold.
Gross Sales P 2,463,500.00 Transportation-In P 82,360.00
Merchandise Inventory,
528,000.00 Purchases 1,264,000.00
1/1/2020
Sales Returns and Allowances 27,500.00 Purchase Discounts 21,360.00
Merchandise Inventory,
1,796,000.00 Sales Salaries 225,000.00
12/31/2020
Store Supplies Expense 15,400.00 Transportation-Out 57,400.00
Insurance Expense-Distribution 5,600.00 Office Salaries Expense 171,000.00
Depreciation Expense-
Utilities Expense 48,000.00 26,000.00
Building
Depreciation Expense-
Office Supplies Expense 12,040.00 22,000.00
Office Equipment
Insurance Expense-General 3,600.00 Accounts Payable 25,678.50
RO_ABM_FABM2_Grade 12_Q1_WK3_LP5 47
Additional Information:
1. Purchase Returns and Allowances is 4.45% of Purchases.
2. Sales Discounts is 1.74% of Gross Sales.
3. Accounts Receivable is P 289,000.00 and Unearned Revenue is P 345,600.00.
REFLECTION
A multi-step income statement is composed of steps to arrive at net profit. As a Senior
High School student, how will you relate this in your life? What are the steps that you will
undertake to achieve your goals? In 10 sentences or less, write your answer in a pad paper.
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REFERENCES
Arganda,A. (2016). Fundamentals of Accounting Bookkeeping 1.Mandaluyong City: Anvil
Publishing, Inc.
Ballada, W., Ballada, S. (2016). Accounting Fundamentals. DomDane Publishers & Made
Easy Books.
https://www.fool.com/the-blueprint/amp/multi-step-income-statement The beginners guide
to the multi-step income statement I The blueprint
https://www.freshbooks.com How to create a multi-step income statement
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