Multi-Step vs Single-Step Income Statement: Key Differences, Format, and Excel Examples

The Board of Directors will receive a financial statement package, including the (multi-step) income statement, that includes analysis and interpretations of trends by the financial analyst team and the company’s CFO. Give your statement a final QA either manually or using an automated platform. Using software allows you to automatically track and organize Bookkeeping for Startups your business’s accounting data so you can access and review income statements.

• The gain may be a one-time item such as a winning lawsuit or insurance settlement.
• An example of a single step income statement is Dana Incorporated’s Consolidated Statement of Operations for the calendar years ended December 31, 2021, 2020, and 2019.
• Gross profit, a fundamental component of the multi-step income statement, is calculated by subtracting the cost of goods sold from the total revenue.
• Non-operating items, including non-operating revenues, non-operating expenses, and non-operating gains (losses), are shown separately from operating revenues and operating expenses.
• This includes sales figures, expense receipts, records of any asset sales, and so on.

Multi-Step Income Statement Format

How much is paid is not reported under the accrual basis This is ignored – the amount incurred (see 2) during the period is reported. These denote costs linked to the goods and services offered by a business, such as rent, office, supplies etc.. Sales commission, pension contributions, and payroll account also contribute to OPEX.

• This is calculated by subtracting all operating expenses, interest expenses, and other relevant costs from total revenue.
• Lastly, we got all the income and expenses of the business that are not connected to the main core activities of the business.
• It could be challenging for those without a financial background to discern the most crucial takeaways.
• We then calculate the income before income taxes, which summarizes the total income before tax obligations are deducted.

What Are Operating Expenses? Small Business Guide

Once the total of these items is found, depending on whether it is a positive or negative figure, the total Non-operating items is either added to or subtracted multiple step income statement example from the operating income to find the company’s net income. The multi-step income statement shows important relationships that help in analyzing how well the company is performing. For example, by deducting COGS from operating revenues, you can determine by what amount sales revenues exceed the COGS.

Operating Head: Selling and Admin Expenses

Non-operating items refer to expenses and revenues that are not directly tied to your core operations. Instead, these liabilities arise from events or transactions that aren’t regular. You can compare your financial performance over different periods to identify changes. Cost of goods and services in an income statement denote the expenses incurred to sell the final goods.

Single-step income statements include revenue, gains, expenses, and losses, and they strictly show operating costs. A multi-step income statement not only provides detailed insights into a company’s profitability but also highlights key areas such as gross profit, operating income, and non-operating activities. By analyzing these components, stakeholders can make more informed decisions regarding operational efficiency, cost control, and investment strategies. One of the important features of the multiple-step income statement is the sub-total for operating income. Notice that net income is the bottom line but it includes a provision for income taxes and also interest expense. Next, operating expenses are deducted from gross profit to arrive at income from operations.

• Understanding these foundational concepts is the first step towards leveraging this powerful financial tool, and it begins with calculating your most direct measure of profitability.
• It is a more detailed alternative to the single-step income statement and uses multiple equations to calculate a business’s net income.
• This section helps measure the health of business and the profitability of core business activities.
• You should add the interest income and non-operating gain and subtract the interest expense and income tax expense from operating profit.
• Moving forward, you should be able to compute the company’s Net Income before tax by adding the sum of operating income with non-operating income.

However, the choice of the format depends on the type of company, its rules, regulations and needs. It should also take into consideration the requirements and preference of users who will refer to the statements for making financial decisions. The What is bookkeeping above are two different ways of presenting the income statement of a company. Gains are the earnings produced outside of the sale of your main goods or services. 7)  The company incurred $800 of interest expense in January that won’t be paid until March. This was incurred in January and will be reported as a January expense When the utility bill will be paid does not matter.

Thus, interim financial statements are prepared for management to check the status of operations during the year. Management also typically prepares departmental statements that break down revenue and expense numbers by business segment. All revenues and gains are presented first, followed by all expenses and losses. The difference is computed and subjected to income tax to get the net income.