What Is a Multi-Step Income Statement?
Last editedFeb 20212 min read
There are several ways a business can format their income statements, one of which is a multi-step income statement.
Multiple step income statement definition
An income statement, also known as a profit and loss statement is required of every business when running their accounts. Most will opt for a single-step income statement, but you may also want to consider a multi-step income statement for greater clarity.
A multiple step income statement is used to report the following:
Expenses
Revenues
Profit/loss
It provides more information than a single-step income statement, which can make it advantageous for your own records as well as any investors looking in.
The main difference between a multi-step income statement and a single-step is that it separates the operating and non-operating costs of a business. This means that a multiple-step income statement gives detail into both the essential and non-essential activities of a company and how they have impacted one another. A multiple-step income statement also shows gross profit.
How to prepare an income statement
In order to prepare a multi-step income statement, you will need to decide if you are tracking your expenses for a monthly, quarterly, or yearly period.
An income statement should feature the following:
A header stating “Income Statement”
A header with the date, period covered, and the name of your company
Operating revenues
Operating expenses
Gross profit
Operating income
Non-operating revenues and expenses
Net income
Multi-step income statement example
Your multiple-step income statement should look like the below:
[Your Company Name]
Income Statement
For the year ending April 5, 2021
|
Sales |
$200,000 |
|
Costs of goods sold |
$175,000 |
|
Gross profit |
$25,000 |
|
Operating expenses |
|
|
Selling expenses |
$5,000 |
|
Commission |
$4,000 |
|
$9,000 |
|
|
Warehouse expenses |
$7,000 |
|
Supplies expense |
$2,000 |
|
$9,000 |
|
|
Total: |
$18,000 |
|
Non-operating expenses |
|
|
Interest revenues |
$4,000 |
|
Interest expense |
($1,000) |
|
Total: |
$3,000 |
|
Net income |
$21,000 |
The free online Word editor lets you compose any document in your web browser without downloading and installing any program.
The following multiple step income statement formulas can help you produce your statement:
For operating income:
Gross profit – Operating Expense = Operating Income
For gross profit:
Net Sales – Costs of Goods Sold = Gross Profit
For net income:
Operating Income + Non-Operating Items = Net Income
Should I use a multi-step income statement?
As a small business, you probably don’t need to use a multiple step income statement. They are mostly used by large businesses, and as a sole proprietor or small company, the additional admin may outweigh any potential benefits. If you are a publicly traded company, regardless of size, you will be required to create more detailed financial reports, which includes a multi-step income statement along with your cash flow statement and balance sheet.
It’s also worth noting that if you are looking to apply for a bank loan, you may be asked to present a multi-step income statement, as they give more insight into how profitable your operations are. This is also true if you are looking to attract investors, who will appreciate the extra steps you have taken to complete a multiple step income statement as opposed to single-step.
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