Explanation of the Topic...
|Part 1||Introduction to the Income Statement, Revenues & Gains|
|Part 2||Expenses & Losses, Additional Considerations|
|Part 3||Single-Step Income Statement|
|Part 4||Multiple-Step Income Statement|
|Part 5||Reporting Unusual Items|
|Part 6||Earnings per Share of Common Stock, Notes To Financial Statements, Other Income Statement Formats|
An alternative to the single-step income statement is the multiple-step income statement, because it uses multiple 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 multiple-step 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:
Step 1. Cost of goods sold is subtracted from net sales to arrive at the gross profit.
Gross Profit = Net Sales – Cost of Goods Sold Gross Profit = $100,000 – $75,000 Gross Profit = $25,000
Step 2. Operating expenses are subtracted from gross profit to arrive at operating income.
Operating Income = Gross Profit – Operating Expenses Operating Income = $25,000 – $13,000 Operating Income = $12,000
Step 3. 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.
Net Income = Operating Income + Non-Operating Items Net Income = $12,000 + $6,000 Net Income = $18,000
There are three benefits to using a multiple-step income statement instead of a single-step income statement:
Whether you are a business person or student of business, our Master Set of 87 Business Forms will assist you in preparing financial statements, financial ratios, break-even calculations, depreciation, standard cost variances, and much, much more.
13 videos (2 hours total) taken from our Bookkeeping Basics Seminar.
These videos are only available in our new AccountingCoach Pro members area.
300 questions with answers
This exam is only available in our new AccountingCoach Pro members area.
Join our Newsletter
Receive our free 19-page accounting cheat sheet. Plus, stay up to date with the latest questions answered.
AccountingCoach.com is designed to help people without an accounting background easily understand accounting concepts at no cost.
By investing thousands of hours, we have created clear and concise accounting information for both business people and students of all ages.
We understand how difficult accounting can be. That's why each accounting topic includes a clear explanation, reinforcing quizzes, Q&A, puzzles, dictionary of terms, etc.