Overview
This lecture introduces the Statement of Comprehensive Income (SCI) – Single Step for service businesses, its purpose, preparation, and practice with sample problems.
Introduction to Statement of Comprehensive Income
- The Statement of Comprehensive Income (SCI) is also called the income statement, statement of performance, or statement of profit and loss.
- The SCI provides information about a business's past financial performance.
- Its main purpose is to measure and report the result of an entity's operations (profit or loss) over a period.
Key Elements of the SCI
- Revenue: Income earned by the business from providing services to clients.
- Expense: Costs incurred in the operation of the business (e.g., salaries, rent, supplies).
- Net Profit: Occurs when revenue is greater than expenses.
- Net Loss: Occurs when expenses exceed revenue.
Single-Step SCI Presentation
- The single-step format is typically used by service businesses.
- Total expenses are deducted from total revenue in one step to arrive at net profit or loss.
- The SCI must follow a standard format set by accounting rules.
- The heading should include business name, report title, and reporting period.
Steps in Preparing the SCI Single-Step
- Prepare a clear heading stating business name, report, and period covered.
- Classify accounts from the trial balance into revenues and expenses.
- Compute total revenue and total expenses.
- Subtract total expenses from total revenue to get net profit or loss.
- Final answer must have a double rule line to signify completion.
Example Practice Problem
- Given accounts: Identify professional fee as revenue; salaries, rent, supplies, depreciation, utilities, and insurance as expenses.
- Add all expenses to get total expenses.
- Subtract total expenses from revenue to calculate net profit.
- Example result: Revenue = 4,000,000; Total expenses = 850,000; Net profit = 3,150,000.
Key Terms & Definitions
- Statement of Comprehensive Income (SCI) — A report summarizing revenues and expenses, showing the business’s net profit or loss for a period.
- Revenue — Money earned from providing services.
- Expense — Cost incurred to earn revenue.
- Net Profit — The surplus remaining when revenues exceed expenses.
- Net Loss — The deficit when expenses exceed revenues.
- Trial Balance — A list of accounts and their balances used to prepare financial statements.
- Double Rule — Two lines drawn beneath the final total in a report to indicate the end.
Action Items / Next Steps
- Practice preparing a single-step SCI using sample trial balances.
- Review the concepts of revenue, expense, and net profit/loss.
- Prepare for the next lesson on multiple-step SCI or related financial statements.