Fu n d a m e n t a l s o f A c c o u n t a n c y,

Business, and Management 2

B Y: JETHRO TORRES
Part 1: The Financial
Statement
C h a p t e r 1 : T h e Tw o F o r m s o f
the Income Statement
Lesson 1-1: The Income
Statement
Learning Outcomes:
1. Be familiar with the two form of income statement
2. Diff erentiate the two form of income statement
Income Statement
The Income Statement shows the result of operations for a
given period. In consist of revenue, cost, and expenses.
Forms of Income Statement
1. Single-Step Income Statement – also known as the natural
form (or the nature of expenses method), it presents expenses
according to nature. This type of income statement is commonly
used in a service business. It is called the single-step income
statement since there is only one process of deducting expenses
from revenues is performed to arrive at the net income or net loss.
Forms of Income Statement
2. Multiple-step Income Statement- also known as the functional
form ( or the cost of sales method), it presents expenses
according to function ( e.g, cost of sales, marketing and selling
expenses, general and administrative expenses). This form of
income statement is commonly used in merchandising and
manufacturing businesses. It is called the Multiple-step income
statement since there are series of processes performed to arrive
at the net income or net loss.
Example
Single-step Income Statement Multiple-Step Income
Statement.
Lesson 1-2: A Review of the
Single-Step Income
Statement
Learning Outcomes:
1. Review the accounts that comprise single-step income statement
2. Prepare a single-step income statement
Single-step income
statement
Service Income – Includes revenues earned or generated by the
business in performing service for a customer or client.
Examples: Laundry Services (Laundry Income)
Medical Services (Medical Fees)
Dental Services (Dental Fees)
Advisory Services (Consultancy Fees)
Accounting or Auditing Service (Audit Fees)
Single-step income
statement
Other Income – includes revenues earned or generated from
sources other than the company main business.
Examples: Interest Income – earned from money deposited in the
bank or money lent to earn interest.
Rent Income – income from the lease of company
property.
Dividend Income – income received by a shareholder of
the corporation.
Commissions Income – a percentage from the sales of
goods given by the owner or the
goods to the one who sold them.
Single-step income
statement
Salaries or Wages Expense Includes all payments made to
employees or workers for rendering service to the company
Examples: Salaries or wages
13 th month pay
Cost of living allowance
Other related benefi ts given to employees
Single-step income
statement
Utilities Expenses is an expense related to the use of electricity,
fuel, water, and telecommunications facilities.
Supplies Expense covers offi ce supplies used by the business in the
conduct of its daily operations.
Insurance Expense is the expired portion of premiums paid on
insurance coverage, such as premiums paid for health or life
insurance, motor vehicles or other properties.
Depreciation Expense is the annual portion of the cost of a
tangible assets, such as buildings, machineries, and equipment
charged as expense for the year.
Single-step income
statement
Uncollected Accounts Expense/ Doubtful Accounts Expense/
Bad Depts Expense means the amount of receivables charged as
expense for the period become they are estimated to be doubtful of
collection.
Interest Expense is the amount of money charged to the borrowers
for the use of borrowed funds.
Other Expenses are expense that are not related to the company’s
main line of business such as losses in the sale of company assets.
Example:
Prepare an income statement of Tabilin Spa for the year ended
DecemberService
2024Revenue P 454,00
Rent Income P 30,000
Dividends Income P 15,000
Gain on sales of Equipment's 10,000
Interest Income 6000
Depreciation Expense – 5000
Equipment
Loss on sales of furniture 4000
Interest Expense – Mortgage 3000
Depreciation Expense – Building 15000
Interest Expenses – Loan 1000
Salaries Expense 155000
Rent Expense 85000
Supplies Expense 5000
Insurance Expense 2000
Step 1: Classify the given

Service Revenue P 454,00 Service Income

Rent Income P 30,000 Other Income
Dividends Income P 15,000 Other Income
Gain on sales of Equipment's 10,000 Other Income
Interest Income 6000 Other Income
Depreciation Expense – Equipment 5000 Depreciation
Expense
Loss on sales of furniture 4000 Other Expense
Interest Expense – Mortgage 3000 Interest Expense/Finance
cost
Depreciation Expense – Building 15000 Depreciation
Expense
Interest Expenses – Loan 1000 Interest Expense/Finance
cost
Financial Statement” by
summarizing the given by
category
Note 1: Other income
Rent Income 30000
Dividends Income 15000
Gain on Sales of Equipment 10000
Interest Income 6000
Total 61000
Financial Statement” by
summarizing the given by
category
Note 2: Depreciation Expense
Depreciation Expense – Equipment 5000
Depreciation Expense – Building 15000
Total 20000
Financial Statement” by
summarizing the given by
category
Note 3: Other Expense
Loss on Sales of Furniture 4000
Total 4000
Financial Statement” by
summarizing the given by
category
Note 4: Finance Costs
Interest Expense-Mortgage 3000
Interest Expense – Loan 1000
Total 4000
Step 3: Create the heading for
the income Statement
Tabilin Spa
Income Statement
For the year ended December 2019
Step 4: Create the Financial Statement
Tabilin Spa
Income Satement
For the year ended December 2019
Note
Service income P 454,000.00
Other income 1 61000.00
P 515,000.00
Expenses
Salaries P 155,000.00
Rent 85,000.00
Supplies 5,000.00
Insurance 2,000.00
Depreciation 2 20,000.00
Other Expense 3 4,000.00
Finance 4 4,000.00 275,000.00
P 240,000.00
DRILL 1:
Below is a list of accounts of T. Mawah Law Firm. Prepare a Single-
step Income statement for year ended December 31, 2020.
Legal Fees P 828, 000
Salaries & Expense 158,400
Rent Expense 128,000
Utilities Expense 89,000
Supplies Expense 3,984
Interest Expense 18,800
Depreciation Expense – Office Equipment 12,000
Depreciation Expense – Furniture and Fixture 5,000
Dividend Income 16,000
Gain on Sales of Equipment 15000
Single-Step Income Statement
T. Mawah Law Firm
Income Satement
For the year ended December 2020
Note
Service income P 828,000.00
Other income 1 31000.00
P 859,000.00
Expenses
Salaries P 158,400.00
Rent 128,000.00
utilities 89,000.00
Supplies 3,984.00
Interest 18,800.00
Depreciation 2 17,000.00 415,184.00
P 443.816.00
Note to Financial Statement
Note 1: Other Income
Dividend Income P 16,000.00
Gain on Sales of Equipment 15,000.00
Total P 31,000.00

Note 2: Depreciation Expense

Depreciation Expense – Offi ce Equipment P 12,000.00
Depreciation Expense – Furniture & Fixture 5,000.00
Total P 17,000.00
Lesson 1-3: The Multiple-
Step Income Statement
Learning Outcomes:
1. Known the components of the Multiple-step income statement
2. Prepare the multiple-step income statement
Components of the Multiple-Step Income
Statement
T. Mawah Law Firm
Income Satement
For the year ended December 2020
Note
Net Sales 1 P xxx
Cost of Sales 2 xxx
Gross Profit P xxx
Other Income 3 xxx
Total Income P xxx
Operating Expenses
Distribution P xxx
4
Expenses
Administration E. 5 xxx
Other Expenses 6 xxx
Finance Cost xxx xxx
Net Income P xxx
Components of the Multiple-
Step Income Statement
Net Sales
the fi rst line after the heading of the income statement is the net
sales. This is the company’s main source of income. To show details
of its computation, it is supported by a note to fi nancial statement.
Net sales is computed as follows:

Gross Sales P xxx

Less: Sales Returns & Allowance P xxx
Sales Discount xxx xxx
Net Sales P xxx
Components of the Multiple-
Step Income Statement
Cost of Sales
The cost of sales or cost of goods sold represents the cost of
merchandise inventory sold by business to its customers. This
comprises the company’s biggest expense and is deducted from net
sales to arrive at the gross profi t. Computation of cost of sales is as
follows:
Components of the Multiple-
Step Income Statement
Cost of Sales
Components of the Multiple-
Step Income Statement
Other Income
Is income derived from sources other than the company’s main line
of business. To show the details of this income account, it is
supported by a note to fi nancial statement.
Components of the Multiple-
Step Income Statement
Distribution/Selling Expenses
Are those incurred in directly selling the merchandise. These
includes salaries of sales personal, expenses incurred in promoting or
advertising the product commissions on sales used, utilities used in
the store, depreciation expense of assets used in the store, and the
cost of transporting the merchandise to the customers’ place
business under the account title freight-out or delivery expense.
Components of the Multiple-
Step Income Statement
General/Administrative Expenses
Are expenses necessary in the management of the offi ce. This
includes the salaries of offi ce of offi ce personnel, offi ce supplies
used, utilities used in the offi ce, depreciation of offi ce assets and the
provision for bad depts or uncollectible accounts.
Components of the Multiple-
Step Income Statement
Other Expenses
Are expenses not connected to the operating activities of the
business. An examples of this is loss on sale of assets and discount
lost. Discount lost is a discount not availed by the company in the
acquisition of assets.
Components of the Multiple-
Step Income Statement
Finance Cost
Finance Cost are the interest expense paid for the use of borrowed
funds.