{"id":37021,"date":"2023-07-27T02:32:00","date_gmt":"2023-07-27T02:32:00","guid":{"rendered":"https:\/\/businessyield.com\/?p=37021"},"modified":"2023-09-22T08:55:54","modified_gmt":"2023-09-22T08:55:54","slug":"multi-step-income-statement-2","status":"publish","type":"post","link":"https:\/\/businessyield.com\/bs-business\/multi-step-income-statement-2\/","title":{"rendered":"MULTI-STEP INCOME STATEMENT: Meaning And Examples","gt_translate_keys":[{"key":"rendered","format":"text"}]},"content":{"rendered":"
An Income Statement is the summary of a company\u2019s financial net sales, expenditure, and earnings. They are also called profit and loss statements, an income statement is one of the significant financial statements prepared by businesses as part of their financial accounting along with a balance sheet and a cash flow statement. However, there are two types of income statements which is the multi-step income statement and the single-step income statement in this article let\u2019s study the multi-step income statement, how to prepare a multi-step income statement,multi-step income statement example, and single-step vs multi-step income statement.<\/p>
The multi-step income statement is one of the two-income statement formats businesses use to report their profits. A multi-step income statement is a format that separates the total revenue and expenditures into operating and non-operating heads. These operating heads are also known as(Indirect costs) while the operating heads are also knowns as ( Direct costs), direct costs are the expenses a firm incurs directly for a product or service while the indirect costs are the generalized expenditure of a company such as rent, utilities, and salaries. Above all, it enumerates all these items in different sections, which makes it convenient for the users to gain an understanding of core business operations in a better way. <\/p>
Meanwhile, it provides a detailed look at the company\u2019s financial status offering details about the company\u2019s growth. Most firms use it because it renders a profound analysis of margins and provides a more accurate representation of goods sold.<\/p>
The greatest advantage of a multi-step income statement is that it separates operating income from other types of income. This clears up the company’s finances and puts the most important part\u2014the operational part\u2014in the spotlight.<\/p>
They are:<\/p>
This is the first section of the income statement and is obtained by deducting the cost of goods sold from the total sales. Above all, it represents how much profit a company obtains in manufacturing or selling its products. Gross profit is used by creditors to show the company\u2019s capability to meet arising debt and to pay back outstanding credit. Most importantly, Investors also use the gross profit to ascertain the profitability of primary business activities. Therefore, when calculating gross profit, no other expenditures are included piecemeal from the cash flux from the trade of goods and cash exodus from the purchase of goods.<\/p>
This is the second component of the income statement. Selling expenses are the cost incurred when selling the product to customers and shall also include advertising expenses and the salary of the sales personnel, Administrative expenses are indirect expenses that are related to the sale of goods and might include the salary and rental expenses. The addition of both gives the operating charges, and when we abate the same from the gross profit, we arrive at the operating income. <\/p>
Lastly, this last component of the income statement<\/a> lists all business incomes and costs that are not related to the primary activities of the business. It includes the non-operating expenditures, revenues, gains, and losses which, when added to the operating income, give us the resultant the net income for the period.<\/p> In order to prepare a multi-step income statement, it requires a three-step computation.<\/p> This is done by subtracting the cost of goods from the total sales.<\/p>Prepare a Multi-Step Statement Income <\/span><\/h2>
#1. Calculate the Gross profit:<\/span><\/h3>