Definition: A multiple step income statement formats income and expense into subtotals and comprehensive categories to provide more detail to financial statement readers. In other words, a multi-step statement breaks the entire report into three main sections: gross profit, income from operations, and net income.
What Does Multistep Income Statement Mean?
All three of these sections are subtotaled and listed, so internal and external users can analyze the company’s performance. Let’s take a look at each section in a little more detail.
Example
Gross Profit – The gross profit section lists the sales for the period and subtracts the discounts and returns followed but a subtotaled called net sales. The cost of goods sold is listed separately from the operating costs and is subtracted from the net sales to arrive at the gross profit.
Income from Operations – The second section lists the income from operations. This section takes the gross profit from the previous section and subtracts the operating expenses to arrive at the income or loss from operations. The operating expenses are usually broken out into two main categories: selling expenses and general and administrative expenses. Selling expenses consist of any costs required to produce a sale like salesmen’s salaries, advertising, and sales floor rent. General and admin expenses, on the other hand, consist of costs that don’t directly attribute to sales like office, insurance, and depreciation expenses.
Net Income – The income of loss from operations is then carried down to the third section called the net income section. In this section, the other income and expenses are combined with the operating income to sum the overall net income for the period. Some common other income and expense items include interest income, interest expense, and, gain or loss from the sale of an asset.
As you can see, the multi-step income statement gives the reader much more information about the company’s financial position than the single step income statement.
