A Beginner’s Guide to the Multi-Step Income Statement

multi step income statement

Although Bob and his donut shop are still a small business and would not have otherwise been required to create a multi-step statement, he wants to take out a bank loan of $25,000. The bank has requested that Bob must present the income statement in a multi-step format to get a better picture of his business. It’s an alternative to the single-step income statement that allows users of the statement to better determine the profitability of the company and how much of it is contributed by the core operations. Here the operating income obtained is added to the non-operating expense, revenue, gains, and losses, where the final resultant is the net income for the period. On the other hand, the multi-step income statement requires three steps to complete, resulting in more detail about business operations, making it particularly valuable to investors and financial institutions. An example of a single step income statement is Dana Incorporated’s Consolidated Statement of Operations for the calendar years ended December 31, 2021, 2020, and 2019.

Do multistep and single step income statements have the same output?

The two most popular types of income statements are single step and multi step. Both report revenue and expenses and both will result in the same net income.

Also known as a profit and loss statement, the income statement provides an overview of revenues and expenses incurred during a specific period of time. The multi-step income statement categorizes operating and non-operating incomes and expenses. The users will know the profit earned from the primary activities of buying and selling goods and how it differs from the non-operating activities.

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For example, if I purchase some land to sell but I’m not in the real estate business – that’s something that’s only really going to happen one time. Recording an item as non-operating income shows my investors that they don’t expect this every year. Creating a multi-step income statement compiles 3 accounting formulas to find net income. The critical difference between an income statement vs a balance sheet is revenue recognition. When all business actions are verified, revenue becomes income, and it is reported on the income statement. The articles and research support materials available on this site are educational and are not intended to be investment or tax advice.

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  • The selling and administration expenses from operating activities are captured in the second section of a multi-step income statement.
  • Before you prepare your income statement, you need to select a reporting period.
  • If this margin, called gross margin, is lower than desired, a company may need to increase its selling prices and/or decrease its COGS.

Finally, to arrive at the net income, we add the operating and non-operating income to arrive at the value of $164,000. One of the biggest differences between a single-step income statement and a multi-step income statement is the ability to calculate gross profit. This metric is important for business owners that need more detailed information on both business profitability and financial performance. The Gross profit part of a multi step income statement shows Net Revenues (Net Sales and Net Service Revenues) minus Cost of goods sold. The Operating income part lists operating expenses and subtracts them from Gross profit to equal Operating income. The net income line is calculated as Operating income less net Non-operating expenses.

Components of Multi-Step Income Statement

It tells a company the revenue gained and the expenses incurred in a month, quarter, or year. This financial statement draws a straight line to the viability of a company’s operations by presenting an organized view of earnings. Multi-Step Income Statements take more time than single-step income statements, however, they give the company why do single people have to pay more taxes evaluating them an advantage when it comes to finding trends in the data being represented. If you’re still struggling to track your business revenues and expenses in multiple ledgers, it may be time to move to accounting software. To see some of the best products available, be sure to check out The Ascent’s accounting software reviews.

Margin of safety is the amount of a company’s profit after subtracting its break-even point. Contribution margin is also used internally to analyze or forecast product profitability for new product feasibility, pricing, and decisions on accepting orders with non-standard pricing. They anticipate profits of $550,000 the first year, with the ability to sell franchises in the future. Although they have enough to start the business now as a partnership, cash flow will be an issue as they grow.

Multi-Step Income Statement FAQs

However, a cash flow statement only shows the company’s cash position, not profitability. A cash flow statement is concerned with the literal cash inflows and outflows of a business. A cash flow statement will include payouts like loan premiums, credit card bills, and owner’s draw. Whereas your P&L only shows the revenue streams and expenses that directly affected your profit. As an example, let’s suppose a clothing manufacturing company has an overall net profit for a year.

  • To see some of the best products available, be sure to check out The Ascent’s accounting software reviews.
  • While the single-step income statement is suitable for smaller businesses, other businesses will appreciate the level of detail offered in a multi-step income statement.
  • On the other hand, a multi-step income statement follows a three-step process to calculate the net income, and it segregates operating incomes and expenses from the non-operating incomes.
  • An example of a multi step income statement is Arrow Electronics, Inc.’s Consolidated Statements of Operations for the calendar years ended December 31, 2021, 2020, and 2019.

It’s available as a 10-K company filing in the SEC’s EDGAR database dated February 23, 2022. This sample multi-step income statement from Accounting Coach shows the layout of a multi-step income statement with the separation between operating and non-operating activities. Each of these relationships is important because of the way it relates to an overall measure of business profitability. However, because of large sales commissions and delivery expenses, the owner(s) may realize only a very small amount of the gross margin as profit. Now, we go to the operating expense side and add up expenses to arrive at the total operating expenses.

Advantages of a Multi-Step Income Statement

The amount of detail provided in multi-step formats can be a drawback as it’s a time-consuming and more complex way of preparing an income statement compared to using a single-step format. The important subtotals on the multiple-step income statement are convenient for the reader/user of the income statement. Be sure to only include revenue from sales, as any other revenue will be calculated in a later step. Run a trial balance for the same period that your income statement will cover.

multi step income statement

In doing so, they also calculate gross profit and operating income, which aren’t included on a single-step income statement. In comparison, a single-step income statement gives a simple record of financial activity. Small businesses and companies in the service industry prefer the single-step income statement. Complicating procedures with just a few revenue streams isn’t conducive in accounting. Generally, eCommerce and large mid-level companies prefer the multi-step income statement because it translates the complexity of their high sales volume into a readable P&L.


A multi step income statement is important because it provides the company, investors, lenders, and other stakeholders deep insight into a company’s financial performance during a period of time and its operating trends. These are advantages or pros compared to the single-step income statement format. A multi step income statement is often used to make GAAP financial statements.

What does a multi-step income statement separates routine operating results from?

A multistep income statement separates routine operating results from peripheral or nonoperating items.

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