Within this basics section, we will define each component of a multi-step income statement, and prepare a multi-step income statement.
Multi-Step Income Statement
A multi-step income statement is a condensed statement of income as opposed to a single-step format, which is the more detailed format. Both single and multi-step formats conform to GAAP standards. Both yield the same net income figure.
The main difference is how they are formatted, not how figures are calculated.
Figure 6.3: Multi-Step Income Statement
- Sales - These are defined as total sales (revenues) during the accounting period. Remember these sales are net of returns, allowances and discounts
- Cost of goods sold (COGS) - These are all the direct costs related to the product or rendered service sold and recorded during the accounting period. (Reminder: matching principle.)
- Operating expenses - These include all other expenses that are not included in COGS but are related to the operation of the business during the specified accounting period. This account is most commonly referred to as "SG&A" (sales general and administrative) and includes expenses such as selling, marketing, administrative salaries, sales salaries, maintenance, administrative office expenses (rent, computers, accounting fees, legal fees), research and development (R&D), depreciation and amortization, etc.
- Other revenues & expenses - These are all non-operating expenses such as interest earned on cash or interest paid on loans.
- Income taxes - This account is a provision for income taxes for reporting purposes.
InvestingA profit and loss statement, also called the income statement, is a financial statement that companies use to report their income and expenses for a quarter or a year.
InvestingA firm’s cash flow statement measures the sources and uses of its cash. The income statement shows how it is financially performing.
InvestingFinancial statements are a picture of a company’s financial health for a given period of time at a given point in time. The statements provide a collection of data about a company’s financial ...
InvestingThe income statement is a measurement of a company's financial performance over a specific period of time. Discover its main components and how they work together.
InvestingNet income and profit both deal with positive cash flow, but there are important differences between the two concepts.
InvestingThe average person uses revenue and income in interchangeable ways. But these terms refer to very specific, and different, concepts.
InvestingLearn how to read Netflix's income statement, calculate net income and interpret EPS to evaluate the company's current financial condition.
InvestingRather than relying solely on net profit figures to evaluate a company's performance, seasoned investors will often look at gross profit and operating profit as well.