Multiple Step Income Statement: Format & Example

On our previous accounting lecture on Income Statement: Definition, Sample & Elements we give you basic guideline about income statement.

Now you will learn following points of information about multiple step income statement:

  • What is Multiple Step Income Statement
  • Example & Template of Multiple Step Income Statement
  • Difference between single & multiple step income statement
  • Format of Multiple Step Income Statement

The multiple-step income statement consists of several steps for determining net income. A multiple-step statement also shows the difference between operating and non-operating activities. The statement also illustrates transitional components of income and shows sub groupings of expenses.

In the multiple income statement there are basically three sections:

  • Gross profit
  • Income from operation and
  • Net income.

Gross profit: gross profit is the most important and first element of multiple income statement. Gross profit is determined by the computation from net sales from the subtraction of cost of goods sold. For this calculation net sale is used as the amount of sales revenue. Suppose ABC company has net sales of $730000 and cost of goods sold is $340000 then the gross profit for ABC company will be ($730000-$340000) =$390000.and this result can be expressed in percentage which is named as gross profit rate and the computation will be division of the amount of gross profit by net sales We also can express a company™s gross profit as a, called the.

For example the ABC company has gross profit $390000 and net sales $740000 then the gross profit rate is ($390000 / $730000) =53.42%.In the normal course of business activities the gross profit rate is more useful than the gross profit amount, because the qualitative relationship between net sales and gross profit could be express more precisely by percentage rate of growth profit. ‘ Gross profit rates give idea about how much cents of each dollar sell goes to gross profit.

Gross profit represents the earnings which come from merchandising of a company. But the gross profit rate does not ensure the total business revenue because operating expenses are including in the gross profit rate. The amount of gross profit rate is more significant amount to the accountants as they compare current gross profit with previous gross profit rate, the competitor™s rate, the rate of industry. The accountant can provide the useful information about purchasing procedures and the pricing policies base on those comparisons.

Operating Expenses & Net Income:

Operating expenses are the next element in multiple income statement. It has two sections the selling expenses (comprise expenses of promoting sales), the general and administrative expenses (comprise expenses of human resource management, financial management and accounting system). Operating expenses determine the net income of a merchandising company. The net income amount is the so-called bottom line of a company™s income statement. Operating expenses are the cost which incurred in the process of earning sales revenue through business activities. The merchandising companies and service enterprises have operating expenses which are similar in nature. Net income of any Company is determined by subtracting operating expenses from gross profit. In ABC company the operating expense is $120000 then the net income will be ($390000-$120000) =$170000.

Nonoprtting Activities:

Nonoperating activities include those various revenues and expenses and gains and losses that are not linked to the main operational activities of any merchandising company. The nonoperating items are named by the title Income from operations or operating income the amount of income from operation amount is determined by subtracting cost of goods sold and operating expenses from net sales.

The results of nonoperating activities are reported in the multiple income statement in two parts: The other revenues and gains (consist of interest revenue, dividend revenue, rent revenue, and gain from assets) and the other expenses and losses (consist of interest expenses, losses of assets disposal, or any other losses). Merchandising companies generally report the nonoperating activities in the income statement immediately after the company’s primary operating activities. If the company has nonoperating activities then the income from operation will be named as net income.

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