Prepare a multiple step income statement
Multi-Step Income Statement is the company’s income statement which segregates the company’s total operating revenue from non-operating revenue and total operating expenses of the company from non-operating expenses thereby separating the total revenue and expense of a particular period into two different sub-categories i.e., operating and the non-operating. Show
What is a Multi-Step Income Statement?A Multi-Step Income Statement is a statement that differentiates among the incomes, expenditures, profits, and losses into two important sub-categories that are known as operating items and non-operating items. The multi-step income statement lists down all these items in different sections or categories, which makes it convenient for the users to gain an understanding of core business operations in a better way. On the other hand, in the format of the single-step income statementSingle-step Income StatementThe Single Step Income Statement is a format for Income Statement that records all expenses in one column, i.e., it lists the cost of goods sold with the operating, non-operating, and other business expenses.read more all the revenues are combined under one main head, i.e., income listing and all the expenditures are put together under Expenses head. Table of contents
You are free to use this image on your website, templates, etc., Please provide us with an attribution linkHow to Provide Attribution?Article Link to be Hyperlinked Format of a Multi-Step Income StatementBelow is the Format of Multi-Step Income Statement. It is divided into two main headings – Operating Head and Non-Operating Head. The Operating head is further divided into two important headings, which list primary business incomes and the expenditures. It is usually known as a Trading Account, where Direct Incomes and Expenses are mentioned. You are free to use this image on your website, templates, etc., Please provide us with an attribution linkHow to Provide Attribution?Article Link to be Hyperlinked # 1 – Operating Head – Gross ProfitThe format of the multi-step income statement contains Gross Profit as the first section. The calculation of the first section shows the gross profit of businessGross Profit Of BusinessGross Profit shows the earnings of the business entity from its core business activity i.e. the profit of the company that is arrived after deducting all the direct expenses like raw material cost, labor cost, etc. from the direct income generated from the sale of its goods and services.read more by deducting the cost of goods sold (COGS) from the total sales. It is an important figure for the creditors, investors, and internal management as it depicts how profitable a company is at selling the goods or making the products. For example, the Multi-step income statement of the retailer will have the figure of total sales that includes all the merchandise sales that are made during that period, and the cost of goods sold includes all the expenditures incurred while purchasing, shipping, or conveyance, and getting the merchandise ready for sale. Gross margin is the amount the company earned from selling their merchandise. The thing to be noted is that no other expenditures are included yet. It is simply Cash Inflow from Merchandise sales and Cash Outflow from purchasing the merchandise. This section helps measure the health of business and the profitability of core business activities. #2 – Operating Head – Selling and Admin ExpensesThe format of the multi-step income statement contains Selling and Admin Expenses as the second section. It notes all company operating expensesCompany Operating ExpensesOperating expense (OPEX) is the cost incurred in the normal course of business and does not include expenses directly related to product manufacturing or service delivery. Therefore, they are readily available in the income statement and help to determine the net profit.read more in two categories that are Selling and Administrative.
Both selling and administrative expenses are added together for computing total operating expenses. And the Company’s Operating income is calculated by deducting these total operating expenses from the gross profit in the first section. #3 – Non-Operating HeadThe format of the multi-step income statement contains Non-Operating Head as the third section. The non-operating and the other head list all kinds of business incomes and expenses unrelated to a business’s principal activities. For instance, a retailer is not into the insurance business, and a car hits their store. The insurance company paid an amount out of the settlement so that proceeds received from the insurance company will not be considered in total sales; rather, it will be a non-operating income. Hence, it will come in the non-operating and other heads.
Multi-Step Income Statement ExampleLet us prepare a multi-step income statement with the help of an example Below are the steps for preparation of multi-step income statement –
Benefits of Multi-Step Income Statement
ConclusionMulti-step income statement format is any day better than a single-step statement as it provides proper detailing. But, if it is not prepared correctly, it can be misleading. The company’s management might shift the expenses from the cost of goods sold to the operations to improve their margins artificially. It is very significant to view the comparative financial statements over time so that one can see and judge the trends and then possibly catch the misleading placement of the expenditures. Recommended ArticlesThis article has been a guide to what is a Multiple-Step Income Statement. Here we discuss the multi-step income statement format, how to prepare it, and practical examples and benefits. You may learn more about our articles below on accounting – What is the format for a multiWhen doing a multiple step income statement, one must remember the key elements. They are: Net Sales, Cost of Goods Sold, Gross Profit, Total Operating Expenses, net gain/loss from other activities, Income before taxes, Income tax expense, and Net Income.
What are the 3 main parts of a multiple step income statement?The multi-step income statement uses three different accounting formulas to arrive at the net income:. Gross Profit = Net Sales – Cost of Goods Sold. Cost of goods sold is subtracted from net sales. ... . Operating Income = Gross Profit – Operating Expenses. ... . Net Income = Operating Income + Non-operating Items.. What are the 4 steps to prepare an income statement?How to prepare an income statement. Step 1: Print the Trial Balance. ... . Step 2: Determine the Revenue Amount. ... . Step 3: Determine the Cost of Goods Sold Amount. ... . Step 4: Calculate the Gross Margin. ... . Step 5: Determine Operating Expenses. ... . Step 6: Calculate Income. ... . Step 7: Calculate the Income Tax. ... . Step 8: Calculate Net Income.. How many steps are there in preparing income statement?The four steps of writing an income statement are: Identify sources of revenue, as well as gains (from investments, for example) Identify company expenses and losses incurred over the same period. Consolidate revenue, expenses, gains and losses by category, payee or another factor.
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