Multi-step Income Statement Explained: Definition, Examples, Practice & Video Lessons

This information helps you make more informed decisions based on how profitable your product or service lines are. Join over 2 million professionals who advanced their finance careers with 365. Learn from instructors who have worked at Morgan Stanley, HSBC, PwC, and Coca-Cola and master accounting, financial analysis, investment banking, financial modeling, and more. The core difference between the two formats lies in the level of detail provided.

Single-Step Income Statements

Depreciation relates to the decrease in value of tangible assets in the company, such as buildings, machinery and equipment that over time will lose value due to wear and tear and Debt to Asset Ratio age. For a service-based company, COGS would cover items such as external contractors related to the service. In this guide, we show you how to complete an income statement with a template for you to download. Hence, the potential investors and creditors will gain better clarity of your company’s financial footing, which helps boost your chances of getting funding and bank loans.

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Finally, we arrive at the net income, which represents the company’s total profit after all expenses, including taxes, have been deducted. This caption represents expenses directly related to the goods sold or services provided during a given multiple step income statement example period of time. Preparing a multi-step income statement is a more complex process than creating a single-step report. Here are the steps you need to follow to create a multiple-step income statement for your business.

Non-operating revenues and expenses

Every half-yearly to present the company’s different revenues and expenses during the period of half-year to present a financial picture of the company. Users can gain insights into how a company’s primary business activities generate revenue and affect costs compared to the performance of the non-primary business activities. A multi-step income statement is an alternative to the single-step income statement.

• Cost of Goods is shown as a stand-alone section in the multi-step income statement, but not in a single-step statement.
• Chartered accountant Michael Brown is the founder and CEO of Double Entry Bookkeeping.
• An income statement is also known either as a profit and loss statement (P&L) or as a revenue statement.
• Single-step income statements are more straightforward, showing revenue and expenses with a simple one-step equation.
• The direct costs (coffee beans, milk, sugar, flour, direct baker wages, and utilities for the ovens) amounted to $60,000.

What are income statements used for?

The components of the multi-step income statement comprise three equations that calculate a profit metric that each measures a unique attribute of the underlying company’s financial performance. A multi-step (or single-step) income statement is one of three core financial statements. The other core financial statements are the balance sheet and cash flow statement.

• Throughout this process, we will ensure adherence to Generally Accepted Accounting Principles (GAAP), providing you with a robust framework for accurate and reliable financial reporting.
• It provides valuable insights into various aspects of a business, including its overall profitability and earnings per share.
• Taxes are then deducted to arrive at the net income, which represents the total profit or loss the company recorded during the period.
• Below-The-Line items relate to any extraordinary costs for a business that are not a part of the core activities of the business.
• It begins with the gross profit calculation, derived by deducting the cost of goods sold from the total revenue.

For a company that sells goods (merchandise, products) the first subtotal is the amount of gross profit. Generally, businesses that use multi-step income statements are large, complex companies. Most small businesses and sole proprietorships can get by with just a single-step income statement, since their operations and accounting ledger account tend to be straightforward. The income statement, also known as the profit and loss statement, is a crucial financial document that showcases a company’s profitability over a specific period.