What is a Multi-Step Income Statement?

Multi-Step Income Statement

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Multi-Step Income Statement

A multi-step income statement is a type of income statement that includes several intermediate steps in the calculation of net income. This format is more complex than the simple, single-step income statement, but it provides more detailed information that can be useful for understanding a company’s financial performance.

The multi-step income statement typically includes the following sections:

By breaking down the income statement in this way, the multi-step format can provide a clearer picture of where a company’s profits are coming from and where its expenses are going. For example, by separating operating and non-operating items, it makes it easier to see how much profit the company is making from its main business activities, as opposed to peripheral activities or one-time events.

Example of a Multi-Step Income Statement

let’s say we have a fictional company called “ABC Widgets Inc.” Below is a simplified example of how ABC Widgets Inc. might prepare a multi-step income statement:

ABC Widgets Inc.
Income Statement
For the Year Ended December 31, 2023

Sales Revenue: $1,000,000
Less: Cost of Goods Sold (COGS): $600,000
Gross Profit: $400,000 (Sales Revenue – COGS)

Operating Expenses:
Selling Expenses: $50,000
Administrative Expenses: $100,000
Total Operating Expenses: $150,000

Operating Income: $250,000 (Gross Profit – Total Operating Expenses)

Non-operating Revenues and Expenses:
Interest Expense: $10,000
Gain on Sale of Equipment: $5,000

Total Non-operating Expenses: $5,000 (Interest Expense – Gain on Sale of Equipment)

Income Before Taxes: $245,000 (Operating Income – Total Non-operating Expenses)

Income Tax Expense: $73,500 (Assuming a tax rate of 30%)

Net Income: $171,500 (Income Before Taxes – Income Tax Expense)

This is a simplified example, and real-world income statements can include additional line items and complexities. However, the basic structure of separating operating from non-operating items, and calculating intermediate figures like gross profit and operating income, is a characteristic feature of the multi-step income statement.

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