Other revenue and expenses examples include interest revenue, gains or losses on sales of assets (buildings, equipment, and machinery), and interest expense. Other revenue and expenses added to (or retained earnings balance sheet deducted from) income from operations produces net income (loss). Unlike a multi-step income statement, the company’s gross profit is not shown as a subtotal. In order to determine a company’s gross profit, someone reading the income statement will need to subtract the cost of sales from net sales. Like a multi-step income statement, a single-step income statement reports the revenue, expenses, and profit (or loss) of a business during a specific period. However, it doesn’t provide the level of detail you get with a multi-step income statement.

Subtracting COGS to Find Gross Profit

This would include cost of goods sold, as well as costs such as advertising expenses, salaries and administrative expenses, including office supplies and rent. The top section of your multi-step income statement covers your total operating activities. First, add your operating revenues, which is the sales revenue generated from selling your goods or services. Net Income can be calculated by adding or subtracting the various non-operating expenses from operating profit.

• With operating expenses broken down into selling and administrative categories, businesses can pinpoint where their operational funds are primarily directed.
• The multi-step income statement helps users in analyzing the performance of the business.
• 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.
• To do this, you add together your operating income and your non-operating items.
• Unlike the balance sheet, the income statement calculates net income or loss over a range of time.
• Single-step income statements are easier to prepare and may provide all the details you’ll need to assess the financial health of your company.
• It would be reported in the non-operating and other section because it doesn’t have anything to do with sales.

What are income statements used for?

• Both types of income statements will show the profits, expenses, and revenues of your business for a given reporting period.
• Investors and creditors want to know how efficiently the retailer sells its merchandise without diluting the numbers with other gains and losses from non-merchandise related sales.
• The users will know the profit earned from the primary activities of buying and selling goods and how it differs from the non-operating activities.
• Having the additional breakdown is useful for lenders and investors to understand the business better and decide whether a company is worth working with.
• In preceding chapters, we illustrated the income statement with only two categories—revenues and expenses.
• Gains are the earnings produced outside of the sale of your main goods or services.

The single-step income statement skips the calculation of gross profit and operating profit, instead focusing on the bottom line– net income. The multi-step income Catch Up Bookkeeping statement calculates gross profit, operating profit, and net income. A single-step income statement presents information in a simplified format. It uses a single subtotal for all revenue line items and a single subtotal for all expense line items, with a net profit or loss appearing at the bottom of the report.

Calculate Net Sales

• A Multi-Step Income Statement is a statement that differentiates among the incomes, expenditures, profits, and losses into two important sub-categories that are known as operating items and non-operating items.
• Thus, while making any decision, it is essential to look at the benefits, limitations, and other documents, statements, and reports that will help determine the entity’s financial stability.
• Creditors are more concerned with a company’s cash flow and if they are generating enough income to pay back their loans.
• A multi-step statement is an income statement prepared to report a company’s sales and revenue, expenses and overall profit or loss for any given period.
• This comprehensive income figure sets the stage for the final step in the income statement preparation, which involves calculating the net income after taxes.

An example of a non-operating expense is a lawsuit claim paid by the company as compensation to an aggrieved party after losing in a court case. Also, a non-operating income can be an multi step income statement insurance compensation paid by an insurance firm to the company’s account as settlement proceeds for damage or loss of a company’s asset. A multi-step (or single-step) income statement is one of three core financial statements. The other core financial statements are the balance sheet and cash flow statement.

• Net profit margin provides a more comprehensive view of overall profitability.
• It provides insights that financial statement users need when reading a profit and loss statement prepared using GAAP accounting standards.
• Once all operating expenses are listed and quantified, the next step is to calculate the total operating expenses.
• Before crafting a multi-step income statement, it is imperative to gather all relevant financial data.
• These can include interest income, interest expense, gains or losses on sales of assets, and other miscellaneous items.
• Embrace the details, analyze the results, and use the insights gained to drive your business towards greater profitability.

The following guide shows you how to prepare a simple multi-step income statement. A multi-step income statement separates operating income and expenses from non-operational gains and losses. Operating income is calculated by subtracting total operating expenses (both selling and administrative) from the gross profit.