[Music] hello dear students welcome to search was accounting lessons ph this is lesson 36 senior high school constructive accounting part two and we will be talking about the statement of comprehensive income so at the end of the video you should be able to review income statement elements and then we will be learning how to prepare both and a single step service income statement and a multiple step or a multi-step merchandising income statement and then we will also be reviewing how to prepare the function of expense income statement and how to also prepare a nature of expense income statement before we end uh the videos and or the discussions we will be solving accounting problems relative to the income statement okay so in the last lesson we learned the different elements of the balance sheet which is assets liabilities and capital and then we know how to differentiate when an asset and a liability is current and when it is or when is it non-current and then you also know how to prepare the balance sheet under the account form and the balance sheet under report form so remember that when assets is on the left side and liabilities and capital is on the right side that is the account form balance sheet and when the assets is in the topmost portion and liabilities and capital is written below the assets then that is the report form balance sheet and then we also solved some accounting problems about the balance sheet okay so in any case that you need to go back to the discussions just go back to lesson 35 okay so before anything else please like and subscribe the search was accounting lessons ph and um 19 pandemic so actually these videos will be up forever in youtube so after the pandemic we actually had this recorded during the covet 19 pandemic so okay so let's go back to the concept of financial statements again financial statements are a 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 users in making economic decisions again we go back to this definition of financial statements we know that it presents the financial procession financial performance equity and cash flows of a company which will help the users of these financial statements make better economic decisions that's under international accounting standard one the presentation of financial statements again always remember accounting standards are paragraphs and paragraphs and paragraphs of guidance on how will we account for business transactions in accounting okay so you also knew last time that the financial statements shows or presents these different elements such as assets liabilities equity income and expenses with gains and losses and then contributions by and distributions to owners in their capacity as owners and cash flows so for today since we will be talking about the state of our comprehensive income we are talking about income and expenses including gains and losses okay so now we're ready to start an income statement reports the company's financial performance through presenting the entity's revenues gains expenses and losses for the period ended okay so the very nature of income statement since in the previous video spa is that we deduct revenues from expenses in order for us to get the net income or the net income before tax and then we will be paying taxes to the government and that is your net income that in asana that revenue minus expenses direction net income because we assume acting income tax expense expenses but actually there should be a proper and separate reporting of your income tax payments or income tax expenses to arrive at your net income however in our video today in our discussion today we will not be computing for taxes for now okay because there is a separate lesson on where we will be preparing and computing taxes so let's assume for today that revenue minus expenses is net income and that's the end point for the discussion today okay so revenue minus expense net income okay so we have the following elements of financial performance the two main elements of financial performance first one is income an income or income is the increases in economic benefits during the accounting period in the form of inflows or enhancement of assets or decreases in liabilities that result in increases in equity other than those relating to contributions from equity participants well in its lightest sense income is young if you rendered services to customers service revenue if you sell products inventory to your and you are a merchandising company then you earn from selling sales revenue okay however the standard sorry the conceptual framework rather the conceptual framework for financial reporting uh shows you what really happened so when there is an income there is an inflow or enhancement of assets or you you can also [Music] you can also see that it can also decrease liabilities okay and then remember that income results in an increase in equity remember that we add net income to the capital balance to get the adjusted capital balance so basically income increases equity now increases in equity capacity income is other than those relating to contributions from equity participants is young additional contribution owners capital balance so one way of increasing equity other than the contributions from equity participant it's like that and then we also have expense so expenses are decreases in economic benefits during the accounting period in the form of outflows or depletion of assets or incurrences of liabilities that result in decrease in equity other than those relating to distributions to equity participants again it's in its lightest sense expenses for or expense is nothing in order for the company to continue operating employees salaries expenses space rent expense [Music] office now water okay so utilities expense okay so and report my expense outflow or depletion of assets or incurrences of liabilities it is a decrease in equity other than those nadine distribute that into equity participants okay so income is and as you know it revenue or income minus expenses is net income net income is added to capital net loss is deducted to capital let's talk about income income encompasses both revenue and gains revenue arises in the course of ordinary regular activities if you are a barber shop if you are a travel and tourist agency kumikitaka in providing travel and tourist services to your clients or to your customers if you are a merchandising company that sells teddy bears then teddy bears okay so the ordinary regular activities or ordinary business operations of a company okay however we also have what we call gains gains are other items that represents increases in economic benefits but does not regularly arise in ordinary business operations parang you have gained something hindi naman revenue for example gain on sale of assets a merchandising company who sells their inventories earn sales revenue however if that company decided to sell their equipment at a price higher than its carrying value it's a gain on sale of asset it's a gain on sale of equipment what am i trying to say here anub inventory equipment when the selling price of that asset is higher than its carrying value at the point of sale okay so let's say for example teddy bear company teddy bear higher than its carrying value the difference between the two will be recorded as at a price higher than its carrying value that is a gain on sale of furniture okay now revenue and gains remember is from ordinary regular business activities that is revenue business activity then that is again okay okay expenses encompasses both expenses and losses expenses are decreases in economic benefits due to salaries rent or depreciation so the normal activities of a business input expenses says from disasters loss from sale of assets sir panda naman pundang los from sale of assets young equipment or furniture in the guinea government office at a price lower than the carrying value then that's the time major logic loss from sale of assets so is something about regular business operations those are expenses you lost something due to fire you lost something due to disasters or you you have sold an asset that that they are using in the company at a lower price than the carrying value then those are lost from sale of assets okay so i hope you understand the difference between revenue and gains and expenses and losses okay so we're ready to prepare the statement of comprehensive income please download handout 036 the link is available in the description box okay so for problem one we will be preparing a single step income statement let me read to you first the problem dr laika de la cruz is a dentist she has a dental clinic operating under the name kimchi smile dental clinic for the month of april 20x9 she earned 635 7742 from rendering services to clients as dentists she also provides other dental related services which earned seven 158 seventy four in order to operate the dental clinic spent two hundred eighty seven thousand six hundred sixty during the month for dental supplies common operating expenses include salaries of ninety six thousand five hundred fifty four to nurses and assistants 18 000 rent and 12 000 utilities depreciation of the dental clinic equipment amounted to 8530. however during the month the equipment needed repair and maintenance work which costed the clinic four thousand eight hundred ninety seven and we are required to prepare a single step service company income statement when you will be preparing a single step review from the word itself single step multiple steps merchandising operations so for the month of april 20 x 9 she earned 6 3 5 7 42 and then merengue rendered other dental related services um salaries rent utilities depreciation and repairs and maintenance expenses and we are to prepare the income statement okay so the solution for the problem would be like this you will be making the heading first dr laika de la cruz dentist doing business under the name kimchi smile dental clinic [Music] and then the name of the financial statement statement of comprehensive income for the month ended april 30 20 x 9. remember paul when you are doing an income statement you will be writing the phrase for the month ended for the year ended for the period ended it's okay because revenues and expenses are reported for that specific month only 635 7742 and then other services now 158 774. you just get the total so total revenue will be seven hundred ninety four thousand five hundred sixteen and then you proceed with the expenses you will just list down all of the expenses dental supplies salaries rent utilities depreciation repairs and maintenance expense for a total of 427 641. if you already have your total revenues and your total expenses or revenue minus expense will give you a net income of three hundred sixty six thousand eight hundred seventy five that's it okay so in preparing an income statement for a service company you just gather all information regarding revenue and gather all information or ledger balances in your accounts for all expenses it's just like that okay so that is the single step service company income statement okay so now we're ready to prepare the multiple step income statement so before anything else before we solve this problem remember that we have already discussed the preparation of an income statement in this format in our previous videos which teaches you how to prepare an income statement for a merchandising company so this is just a bit of a review for you and if you need to go back to that video that's that's recommended okay so for problem two teddy bear trading is operating a big store of stuffed toys called crush magic for the month of april 20 x 9 recorded sales in the ledger amounted to 8 million thousand four hundred forty five contra sales account balances include two hundred twenty three thousand six hundred fifty returns and allowances and three hundred ninety six thousand five hundred discounts the entity began april with 2 163 574 of inventory which decreased by 75 924 at the end of the month purchases made amounted to 3 685 790 which were transported to the company premises costing 352 000 in total contra purchases account balances include 235 112 returns and allowances and 265 820 for discounts the company is also into costume rentals of different cartoon characters rental income of which amounted to 125 746 for the month to operate the company needs to pay salaries of four hundred thirty five thousand eight hundred seventy four utilities of two hundred thirty six thousand eight hundred eighty seven and rent of fifty two thousand three hundred sixty five depreciation of furniture equipment and pos system or point of sale system total 39657 and we are to prepare the multi-step merchandising company income statement later in the ponette requirement b and requirement c okay so looking at the problem bina yin naman purayana information about sales and then contra sales account balances nothing so sales returns and allowances and sales discount mini gandhi the entity began april with two million amount of inventory that's your beginning inventory pair bin again now at the end of the month decrease dow now 7524 sepsis inventory at the end seventy five thousand in hundred twenty four okay and then anjan puyong purchases and then purchase returns and allowances and purchase discounts that was rental income so that's other income because there are into selling stuff toys rental income density so automatically other incoming putting operating expenses the salaries utilities rent and depreciation okay so on first step heading teddy bear trading doing business under the name crush magic and then the name of the financial statement which is statement of comprehensive income and then for the month ended april 30 20 x 9. okay so your first step is to compute for your net sales gross sales less sales returns and allowances and sales discount net sales is eight million one hundred thirty six thousand two hundred ninety five okay and then you start with your beginning inventory because we are on the process of computing of computing your cost of goods sold so beginning inventory and then start tayasa purchases and then our next nanaka affects the purchase is which is purchase returns and allowances and purchase discount for a total of five hundred thousand eight hundred thirty two tapos you can purchase a smaller four million thirty seven thousand seven hundred ninety ma minus long nathan and precious returns and allowances and purchase discounts for net purchases of three million five hundred thirty six 858 remember beginning inventory plus net purchases is cost of goods available for sale six million five hundred thousand four hundred thirty two less ending inventory two million eight hundred eighty seven thousand six hundred fifty seven decreased seventy five thousand plus two million eight hundred eighty seven thousand six hundred fifty so cos of goods available for sale less ending inventory is your cost of goods sold of three million six hundred twelve thousand seven hundred eighty two so net sales less cost of goods sold will give you your gross profit or gross margin of four million five hundred twenty three thousand five hundred thirteen remember for a total revenue of four million six hundred forty nine thousand two hundred fifty nine and then operating expenses and then revenue minus expenses that is your net income three million eight hundred eighty-four thousand three hundred seventy-six multi-step income statement subsections multiple so we will now be reviewing how to prepare the function of expense method and nature of expense method so to review the preparation of an income statement under those two methods please revisit po acting lesson 29 accounting for merchandising operations part 3 which talks about the income statement okay but function of expense method we show the expenses according to their function cost of goods sold in operating expenses okay so is note number seven which is net sales again seven is just an example number indicated [Music] information about the company and the note number two is usually significant accounting policies accounting standards on cash receivables inventory so let's assume the number seven i uh net sales number one okay so sales returns and allowances and sales discount okay and then compute also for your net purchases which is gross purchases add freight in that's your total purchases less contra purchases that's your net purchases and then cost of goods sold is beginning inventory plus net purchases which is cost of goods available for sale less ending inventory that's your cost of goods sold and then just get your total operating expenses notes the financial statements you are ready to prepare the income statement okay so same heading po and then your net sales minus cost of goods sold gross profit had nothing no other income that's your total revenue less operating expenses that is your net income gonna import three million eight hundred eighty four thousand three hundred bug decrease positive okay so decrease in merchandise inventory seventy five thousand eight hundred twenty four and then again that important net purchases and then upon the operating expenses nothing okay so gonna dump on that income three million eight hundred eighty four thousand three hundred seventy six so for a more thorough discussion of the difference between function of expense method and nature of expense method is merchandising income statement okay so i hope you understand how to prepare the income statement or the statement of comprehensive income now that we have mentioned that me basically there is a confusion why am i sometimes referring it to the income statement and why am i sometimes referring it to the statement of comprehensive income is there a difference between the two or are they just the same actually both of those statements are correct it's different in a sense that it's also the same okay so an income statement presents the results of the entities operations and financial performance through the reporting of the entities revenues and expenses so an income statement po i revenue expenses gains and losses okay however the statement of comprehensive income starts with a net income and then the effects of other comprehensive income which will lead the comprehensive income so net income income statement add or minus the effects of other comprehensive income is your comprehensive income under comprehensive income senior high school okay other comprehensive income i might actually give you examples for now is really net income and we're assuming now along other comprehensive income items comprehensive income statement of comprehensive income but in the entire income okay so an entity has a choice on presenting the statement of comprehensive income reading two statement format reading single statement format annuity known to statement a single statement statement format literal statements income statement represents revenue at expenses which will lead you to net income tapos statement you know statement of comprehensive income and starting point net income adjustments not any other comprehensive income examples now other comprehensive income period currency translation adjustment unrealized loss and financial asset fair value through other comprehensive income measurement on uh okay but at least you know the difference between the two foreign single statement format single statement format statement statement of comprehensive income that's the redirectional revenue expenses net income other comprehensive income union comprehensive income sir ubiq examples a single statement format the answer is yes in the previous slides a single statement format statement of comprehensive income comprehensive items because we assume in that scenario that the net income is also the comprehensive income other comprehensive income items and that's perfectly fine we just assumed as the single statement format so because net income is in our examples that's already the comprehensive income okay uh but don't worry you can use the income statement you can use the statement of comprehensive income but in your higher accounting statement of comprehensive income okay so i hope you understand the point but for now you can use the statement of comprehensive income assuming other comprehensive items or other comprehensive income items okay so let's try to solve some multiple choice questions okay problem number one the fall provided here is an excerpt from the worksheet of choice only company's third month of operations so bin again trial balance the unadjusted amounts and then adjusted amounts nonprofit or loss columns how much is the net income okay so pause the video try to answer the problem and then we will solve it afterwards okay so assuming that you have uh solved and answer it this is the solution okay so the first step is to analyze the worksheet balance account balances long before and after adjustment before and after adjustment expense so nothing analysis is you will be getting the difference between the unadjusted balances and the adjusted balances which will look like this i am so analyzed depreciation expense now 5792 depreciation expense okay that's billion down service revenue commission's revenue and don't forget in the problem other expenses is worth 65 000 okay so i'm gonna go in that's your total revenue of 171 000. expenses office supplies expense in 2000 insurance expense in 12 000 rent expense in 4 000 depreciation expense 5792 and remember all other expenses and 65 000 to give you total expenses of 887.92 so total revenue 171 000 less expenses eight eight seven ninety two minus and you will get a net income of eighty two thousand two hundred eight the answer is letter b eighty two thousand two hundred eight major challenging no major challenging problem i gave you a college problem but that's okay i we need to prepare you for college okay problem number two colleen company's net income was erroneously computed by the owner's three-year-old daughter wow so um erroneously computed okay so service revenue commission's revenue cash balance minus cash withdrawals expenses in the unit income although erroneously computed the amounts are correct based on the ledger in the worksheet except for commission's revenue which is overstated by 15 500 and rent expense which is understated by 4 300 what is the correct net income of colleen company a b c or d okay so please pause the video try answering the problem first and then play again the video when you're ready okay assuming that you have already paused the video and answered the problem this is the solution okay um for our purposes here we will just determine latin revenues and expenses so it looks like this so 125 000 minus 15 500 the correct balance of commission's revenue is 109 500. just get the total that's your total revenue five hundred fifty nine thousand five hundred salaries rent number three thousand seven hundred understated non four thousand three hundred ibiza being so three thousand seven hundred plus four thousand three hundred eight thousand okay and then we also have utilities expense no changes now five thousand four hundred fifty just get the total expenses fifteen thousand eight thousand five thousand four hundred fifty for a total of twenty eight thousand four fifty bug adjusted revenue atlanta expense and the revenue minus expense net income five hundred thirty one thousand fifty letter b that is also a challenging problem because that's a college problem okay but in a senior high school improv college i'm giving them problems at the level higher than what they can so that they can be uh they can be practiced very well when they're in college already so samaran against college of videos and i hope that you're doing well in college shout outs on the love you all [Laughter] okay so that's it and then problem number three gross sales revenue during the period is eighty thousand cost of goods available for sale is fifty 56 000 if the if the beginning merchandise inventory is 18 000 and the ending inventory 7 000 lower than the beginning count compute for the amount of gross profit assuming there is no freight in and contra account balances on sales as a debit balance of 7500 okay so pause the video and then compute for the amount solve the problem then play again for the solution okay assuming that you have already tried to answer the problem this is the solution of goods available for sale beginning inventory 18 000 ending inventory dao is 7 000 pesos lower than the beginning so now 7 000 ending [Music] la genji lion formula income statement for merchandising okay so gross sales 980 000 minus contra sales 7500 net sales 72 500. my beginning inventory 18 000. cost of goods available for sale in the 56 000 okay you're ending so 18 minus seven eleven since the hormone 11 cause of goods available for sale 56 000 minus ending inventory in 11 000 cost of goods sold 45 union net sales cost of goods sold gross profit twenty seven thousand five hundred sir panda bona hawaiian thirty available for sale that's my ending inventory account eighteen thousand public so fifty six thousand minus eighteen thousand minute purchases kana thirty eight thousand so even prof spreading the lawn you can solve it as long as you know the formula okay so net sales of 72 500 minus cost of goods sold the 45 000 will give you a gross profit of 27 500 the answer is letter c hi okay so our next lesson is about the statement of changes in equity financial statement okay so in 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my love here it is don't be shy again [Music] don't be coy like a again