How To Prepare A Multistep Income Statement

An alternative to the single step income statement is the multiple step income statement because it uses multiple subtractions in computing the net income shown on the bottom line.

How to prepare a multistep income statement. Select your reporting period. Should i prepare a single step or multi step income statement. This video shows how to create a multi step income statement. Multi step income statement is the income statement of the company which segregates the total operating revenue of the company from non operating revenue and total operating expenses of the company from non operating expenses thereby separating the total revenue and expense of a particular period into two different sub categories i e operating and the non operating.

The most important of which are the gross profit and the operating profit figures. The single step income statement is the easiest income statement format to prepare focusing mainly on net income. This layout makes it easier for readers to aggregate selected types of information within the report especially in regard to the core operations of a business. Compute for the gross profit by subtracting the cost of goods sold from net sales.

Before you prepare your income statement you need to select a reporting period. For instance management might shift expenses out of cost of goods sold and into operations to artificially improve their margins. The video also e. Multi step income statement involves more than one subtraction to arrive at net income and it provides more information than a single step income statement.

Here are the steps you need to follow to create a multiple step income statement for your business. Multi step income statement is divided into two main sections. On the other hand the multi step income statement requires three steps to. The operating section and the non operating.

A list of accounts is used to make a multi step income statement in good form. Write the header which includes the company name the title and the period of the statement. The multiple step profit and loss statement segregates the operating revenues and operating expenses from the nonoperating revenues nonoperating expenses gains and losses. How to prepare a multiple step income statement.

The multistep income statement gives far more detail than the single step statement but it can also be more misleading if not prepared correctly. The usual subtotals are for the gross margin.