I. Basics
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.


Income Statement Components

Related Articles
  1. Investing

    What's a P&L Statement?

    A 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.
  2. Investing

    Understanding the Income Statement

    The best way to analyze a company—and figure out if it's worth investing in—is to know how to dissect its income statement. Here's how to do it.
  3. Investing

    Understanding the P&L Statement

    A company’s profit and loss statement, also called its income statement, summarizes its income and expenses for a quarter or year.
  4. Investing

    What Is The Difference Between A Cash Flow Statement And An Income Statement?

    A firm’s cash flow statement measures the sources and uses of its cash. The income statement shows how it is financially performing.
  5. Investing

    What are Financial Statements?

    Financial 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 ...
  6. Investing

    Explaining the Common Size Income Statement

    A common size income statement expresses each account as a percentage of net sales.
  7. Investing

    12 Things You Need To Know About Financial Statements

    Discover how to keep score of companies to increase your chances of choosing a winner.
  8. Investing

    Find Investment Quality In The Income Statement

    Use these key attributes to uncover top-level investments.
Trading Center