Income Statement

Single-Step Income Statement

A single-step income statement is one of two commonly used formats for the income statement or
profit and loss statement. The single-step format uses only one subtraction to arrive at net income.

An extremely condensed income statement in the single-step format would look like this:

The heading of the income statement conveys critical information. The name of the company
appears first, followed by the title "Income Statement." The third line tells the reader the time interval
reported on the profit and loss statement. Since income statements can be prepared for any period
of time, you must inform the reader of the precise period of time being covered. (For example, an
income statement may cover any one of the following time periods: Year Ended May 31, Five Months
Ended May 31, Quarter Ended May 31, Month Ended May 31, or Five Weeks Ended May 31.)
A sample income statement in the single-step format would look like this:
Multiple-Step Income Statement

An alternative to the single-step income statement is the multiple-step income statement, because
it usesmultiple subtractions in computing the net income shown on the bottom line.
The multiple-step profit and loss statement segregates the operating revenues and operating
expenses from the nonoperating revenues, nonoperating expenses, gains, and losses. The multiplestep income statement also shows the gross profit (net sales minus the cost of goods sold).
Here is a sample income statement in the multiple-step format:
Using the above multiple-step income statement as an example, we see that there are three steps
needed to arrive at the bottom line Net Income:
Cost of goods sold is subtracted from net sales to arrive at the gross profit.
Step 1.
Step 2.
Operating expenses are subtracted from gross profit to arrive at operating income.
The net amount of nonoperating revenues, gains, nonoperating expenses and losses
is combined with the operating income to arrive at the net income or net loss.
Step 3.
There are three benefits to using a multiple-step income statement instead of a single-step income
statement:
1. The multiple-step income statement clearly states the gross profit amount. Many readers of
financial statements monitor a company's gross margin (gross profit as a percentage of net
sales). Readers may compare a company's gross margin to its past gross margins and to the
gross margins of the industry.
2. The multiple-step income statement presents the subtotal operating income, which indicates
the profit earned from the company's primary activities of buying and selling merchandise.
3. The bottom line of a multiple-step income statement reports the net amount for all the items
on the income statement. If the net amount is positive, it is labeled as net income. If the net
amount is negative, it is labeled as net loss.
Multi-Step Income Statement

Multi-step income statement is one of the two most commonly used income statement formats, the
other being the single-step income statement. Multi-step income statement involves more than one
subtraction to arrive at net income and it provides more information than a single-step income
statement. The most important of which are the gross profit and the operating profit figures.
Multi-step income statement is divided into two main sections: the operating section and the nonoperating sections.
The operating section contains information aboutrevenues and expenses of the principle business
activities. The gross profit and the operating profit figures are calculated in the operating section of a
multi-step income statement. All operating revenues are grouped at the top of the income statement.
The operating expenses are sub-classified into cost of goods sold, selling expenses and administrative
expenses.
Selling expenses are those which are incurred directly on making sales. Examples are: sales
commissions, sales salaries, advertising expense, delivery expense and depreciation expense of sales
equipment. The administrative expenses are those relating to general administrative activities.
Examples are: depreciation expense on office building, office salaries, office supplies expense and
office utilities expense.
The non-operating section of a multi-step income statement, usually labeled as 'other incomes and
expenses' contains those revenues and expenses which are not earned directly through principle
business activities but are incidental to them. For example gains/losses on sales of investments or
fixed assets, interest revenue/expense etc. It also includes extraordinary items of revenues and
expenses which are infrequent and unusual such as loss due to natural calamity.
Format and Example

The following example illustrates the format of a typical multi-step income statement. The calculation
steps are clarified via the '+' and '' symbols on the left of various income and expense items.
Company A
Income Statement
For the Year Ended December 31, 2010
Sales Revenue:
Total Sales
$137,460
Sales Returns
2,060
Sales Discounts
5,190
Net Sales Revenue
$130,210
Less: Cost of Goods Sold:

Beginning Stock
$12,300
+ Purchases
67,310
+ Freight-In
4,450
Purchase Discounts
3,900
Purchase Returns
1,000
Ending Stock
16,170
Cost of Goods Sold
62,990
Gross Profit
$67,220
Operating Expenses
Selling Expenses:
Freight-Out
$6,150
Advertising Expense
5,790
Sales Commissions Expense
3,470
Administrative Expenses:
Office Salaries Expense
18,510
Office Rent Expense
14,000
Office Supplies Expense
5,330
Total Operating Expenses
53,250
Operating Income
$13,970
Other Incomes and Expenses:

Gains on Sale Equipment
$2,430
Loss on Sales of Investments
1,640
Interest Expense
930
Net Other Incomes and Expenses

Net Income
140
$13,830
Single-Step Income Statement

Single-step income statement is one of the two most commonly used income statement formats, the
other being the multi-step income statement. A single step income statement uses just one
subtraction. This is done by subtotaling all the revenues and gains together at the top of income
statement and subtotaling all the expenses and losses together below revenues. The sum of expenses
and losses is then subtracted from the sum of revenues and gains to arrive at net income. Thus:
(Revenues + Gains) (Expenses + Losses)
= Net Income
The net income calculated using the single-step income statement is equal to that calculated using a
multi-step income statement.
Example and Format

The following example shows the format of a single-step income statement.
Company A
Income Statement
For the month ended December 31, 2010
Revenues:
Sales Revenues
$64,510
Interest Revenues
1,650
Gain on Sale of Investments
5,000
Total Revenues
$71,160
Expenses:
Cost of Goods Sold
$31,400
Depreciation Expense
7,980
Rent Expense
8,000
Advertising Expense
1,000
Salaries Expense
13,500
Utilities Expense
1,360
Loss due to Theft

Total Expenses
300
63,540
Net Income
$7,620

Income Statement

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What are the main differences between single-step and multiple-step income statements?

What are the main differences between single-step and multiple-step income statements?

What information is presented in the operating section of a multiple-step income statement?

What information is presented in the operating section of a multiple-step income statement?

Single-Step Income Statement

Multiple-Step Income Statement

Multi-Step Income Statement

Format and Example

Net Sales Revenue

Less: Cost of Goods Sold:

Cost of Goods Sold

Sales Commissions Expense

Office Rent Expense

Office Supplies Expense

Total Operating Expenses

Other Incomes and Expenses:

Loss on Sales of Investments

Net Other Incomes and Expenses

Single-Step Income Statement

Example and Format

Gain on Sale of Investments

Loss due to Theft

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