Multi Step Income Statement With Discontinued Operations

It represents the after tax gain or loss on sale of a segment of business and the after tax effect of the operations of the discontinued segment for the period.

Multi step income statement with discontinued operations. Discontinued operations are the most common type of irregular items in the multi step income statement. Below is a multiple step income statement containing discontinued. A company s income statement summarizes the revenues expenses and profits for an accounting period. Once the non operating section is totaled it is subtracted from or added to the income from operations to compute the net income for the period.

Compute gross profit. As you can see this multi step income statement template computes net income in three steps. A multi step income statement also differs from an income statement in the way that it calculates net income. Income or loss from discontinued operations is a line item on an income statement of a company below income from continuing operations and before net income.

A discontinued operation is a separate major business division or geographical operation that the company has disposed of or is holding for sale. Note that even in a single step format shown above the amount of the discontinued operations is separated out and added to the end of the income statement. Multi step income statement format is any day better than a single step statement as it provides proper detailing. Let s take a look at a multi step income statement example.

But if it is not prepared correctly then it can be misleading. The management of the company might shift the expenses from the cost of goods sold and into the operations to improve their margins artificially. A loss on discontinued operations would be reduced by the income tax savings associated with the loss see net of tax. Discontinued operations result in when a company removes a section of the company that was affecting ongoing operations or there is no more involvement in that section.