Which is the correct order for items to appear on 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.

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Multiple step income statement definition
How to prepare an income statement
Multi-step income statement example
Should I use a multi-step income statement?
We can help
Example Multiple-Step Income Statement
What is the order of a multi step income statement?
What is the correct order for an income statement?
What are the 3 main parts of a multiple step income statement?
Which is the first step in a multiple 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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A multiple-step income statement presents two important subtotals before arriving at a company's net income. For a company that sells goods (merchandise, products) the first subtotal is the amount of gross profit. The second subtotal is the amount of operating income.

Example Multiple-Step Income Statement

Here is an example of a condensed multiple-step income statement for a hypothetical sole proprietorship:

Notice these items on the multiple-step income statement:

Operating revenues (net sales, service revenues, etc.) and operating expenses (cost of sales, SG&A expenses) appear first
The subtotal Gross profit is the result of subtracting the Cost of sales from the Net sales
The subtotal Operating income is the result of subtracting SG&A exp. from the Gross profit
The nonoperating revenues and expenses and the gains and losses are added/subtracted from the operating income

The important subtotals on the multiple-step income statement are convenient for the reader/user of the income statement.

Multiple-Step vs Single-Step
An alternative income statement format that presents the operating revenues, nonoperating revenues, and gains at the beginning of the income statement, followed by the operating expenses, nonoperating expenses, and losses is the single-step income statement.

What is the order of a multi step income statement?

They are: Net Sales, Cost of Goods Sold, Gross Profit, Total Operating Expenses, net gain/loss from other activities, Income before taxes, Income tax expense, and Net Income.

What is the correct order for an income statement?

To prepare an income statement, you will need to generate a trial balance report, calculate your revenue, determine the cost of goods sold, calculate the gross margin, include operating expenses, calculate your income, include income taxes, calculate net income and lastly finalize your income statement with business ...

What are the 3 main parts of a multiple step income statement?

The multi-step income statement uses three different accounting formulas to arrive at the net income:.

Gross Profit = Net Sales - Cost of Goods Sold. Cost of goods sold is subtracted from net sales. ... .

Operating Income = Gross Profit - Operating Expenses. ... .

Net Income = Operating Income + Non-operating Items..

Which is the first step in a multiple step income statement?

Step 1: Calculating gross profit or gross margin: The first step in a multi-step income statement is calculating gross profit or gross margin. This is done by subtracting the cost of goods sold in the first section of the statement rather than listing it with other expenses.