Multiple Step Income Statement: Definition, Explanation, and Example

It contains an itemized list of all gains and losses and separates the operating and non-operating activities. The end result helps the company in comparing their performance with their finances in a better and easier manner. An income statement, also referred to as the profit-and-loss statement, is one of the major financial statements used by accountants and businessmen. Other major financial statement samples include the balance sheet, cash flow statement, and stockholder’s equity statement.

In contrast to a multi-step income statement, the Dana Incorporated income statement is single-step mainly. The income statement doesn’t show Gross profit, separate and calculate Total Operating expenses, or calculate Total Operating income. We will use the same adjusted trial balance information for CBS but will now create a simple 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.

What is a Multi-Step Income Statement?

A Multi-Step Income Statement can be used to analyze company performance and allow for a more detailed analysis compared to a single-step income statement. Going from top to bottom here is how to read your multi step income statement. Each metric will help you make more informed decisions and drive action in your company. The critical difference between an income statement vs a balance sheet is revenue recognition.

In short, this approach makes it easier to understand the financial results of a business. A multi-step income statement is more detailed than a simple income statement. Because of the additional detail, it is the option selected by many companies whose operations are more complex. Each revenue and expense account is listed individually under the appropriate category on the statement. The multi-step statement separates cost of goods sold from operating expenses and deducts cost of goods sold from net sales to obtain a gross margin.

Easy to Print Income Statement Template

Barbara is a financial writer for Tipalti and other successful B2B businesses, including SaaS and financial companies. She is a former CFO for fast-growing tech companies with Deloitte audit experience. When she’s not writing, Barbara likes to research public companies and play Pickleball, Texas Hold ‘em poker, bridge, and Mah Jongg. Use of our products and services are governed by our Terms of Use and Privacy Policy. Belle Wong, is a freelance writer specializing in small business, personal finance, banking, and tech/SAAS. Users may want to know how is the current margin against the previous period and industry averages.

In layman’s terms, you earned a sale, the customer received something of value, and there is a receipt to prove that it was done correctly. You can also include taxes in this section, or if you’re looking to https://www.bookstime.com/articles/multi-step-income-statement create EBIT (earnings before income taxes), you can create a separate section for taxes. For even more templates to choose from, you may also want to check out our collection of Cash Flow Statement Template.

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Multi-level income statements are also often produced in compliance with some laws and regulations. This is a guide on how to leverage your income statement and gauge the success of your company. Given its higher level of information content, the multi-step format is usually preferred over the single step format (which does not incorporate sub-totals and so can be more difficult to read). Here the operating income obtained is added to the non-operating expense, revenue, gains, and losses, where the final resultant is the net income for the period.

• When calculating gross profit, no other expenditures are included apart from the cash inflow from the sale of goods and cash outflow from the purchase of goods.
• The Multi-Step Income Statement is very efficient when analyzing a company’s performance.
• In contrast, a multi-step income statement divides both revenues and expenses into operating and nonoperating (other) items.
• When forecasting income, it is important to have detailed historical data for accurate predictions of business.
• Multi-Step Income Statements take more time than single-step income statements, however, they give the company evaluating them an advantage when it comes to finding trends in the data being represented.

If a tree hit the building and the insurance company paid out a small settlement, the income would not be reported with total sales. It would be reported in the non-operating and other section because it doesn’t have anything to do with sales. In a true single-step income statement with no subtotals, line items for net revenues and costs and expenses are listed with a single total for Net income (loss). Businesses may include a subtotal for Total expenses in a single-step income statement.

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There are very few individual accounts and the statement does not consider cost of sales separate from operating expenses. The major sections of a multi-step income statement are the revenue, cost of goods sold, gross profit, operating expenses, operating income, and net income. The total operating expenses are a combination of both selling and admin expenses. These total expenses can then be subtracted from gross profit to arrive at the operating income. In preceding chapters, we illustrated the income statement with only two categories—revenues and expenses.