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What Is a Multi-Step Income Statement?

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 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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GoCardless Ltd., Sutton Yard, 65 Goswell Road, London, EC1V 7EN, United Kingdom

GoCardless (company registration number 07495895) is authorised by the Financial Conduct Authority under the Payment Services Regulations 2017, registration number 597190, for the provision of payment services. GoCardless SAS (23-25 Avenue Mac-Mahon, Paris, 75017, France), an affiliate of GoCardless Ltd (company registration number 834 422 180, R.C.S. PARIS), is authorised by the ACPR (French Prudential Supervision and Resolution Authority), Bank Code (CIB) 17118, for the provision of payment services.