Understanding Income Statements: Single-Step vs. Multiple-Step

💰An income statement summarizes a company's revenues and expenses over a specific period of time.

📊Income statements can be prepared in either a single-step or multiple-step format.

📈The single-step format groups all revenues and gains together, and all expenses and losses together.

🔢The multiple-step format categorizes revenues, gains, expenses, and losses separately, allowing for more detailed analysis.

📚The multiple-step format provides more useful information for financial analysis of a company's profitability.

What is an income statement?

—An income statement is a summary of a company's revenues and expenses over a specific period of time.

What is the difference between a single-step and multiple-step income statement?

—A single-step income statement groups all revenues and gains together, and all expenses and losses together. A multiple-step income statement categorizes revenues, gains, expenses, and losses separately for more detailed analysis.

Which income statement format is more comprehensive?

—The multiple-step income statement is more comprehensive as it provides more detailed information for financial analysis of a company's profitability.

Why do larger businesses prefer the multiple-step income statement format?

—Larger businesses prefer the multiple-step income statement format because it provides investors with more information about the financial performance of the company.

What is the purpose of an income statement?

—The purpose of an income statement is to summarize a company's revenues and expenses and calculate its net income.

00:07An income statement is a summary of revenues and expenses over a period of time.

00:15It can be prepared in either a single-step or multiple-step format.

01:04A multiple-step income statement is more comprehensive and useful for financial analysis.

02:06The first line of a multiple-step income statement is sales.

03:08Gross profit reflects how much profit a company has left after covering the cost of goods sold.

05:01Operating income is income earned from normal business operations.

06:06Net income is the income left after all expenses have been deducted.

06:18Comprehensive income includes all income left after deducting expenses, both operating and non-operating.