Single-Step Income Statement
Single-step income statement is one of the two most commonly used income statement formats, the other being the multi-step income statement. A single step income statement uses just one subtraction. This is done by subtotaling all the revenues and gains together at the top of income statement and subtotaling all the expenses and losses together below revenues. The sum of expenses and losses is then subtracted from the sum of revenues and gains to arrive at net income. Thus:
(Revenues + Gains) − (Expenses + Losses)
= Net Income
The net income calculated using the single-step income statement is equal to that calculated using a multi-step income statement.
Example and Format
The following example shows the format of a single-step income statement.
|For the month ended December 31, 2010|
|Gain on Sale of Investments||5,000|
|Cost of Goods Sold||$31,400|
|Loss due to Theft||300|
The major drawback of single-step income statement is that it does not calculate the gross profit of the business. To calculate gross profit, revenues and expenses must be classified. This is why most businesses use the other format of income statement called multi-step income statement.
Written by Irfanullah Jan