Right after computing the total operating income, the other revenues and expenses section is the revenue and expense incurred from non-operating activities. The multi-step income statement format comprises a gross profit section where the cost of sales is deducted from sales, followed by income and expenses to reach an income before tax. Next, add your total operating expenses to the operating activities section. This would include cost of goods sold, as well as costs such as advertising expenses, salaries and administrative expenses, including office supplies and rent. Management accountants use another type of multi step income statement for internal use that separates fixed and variable costs to compute the contribution margin.

Multiple Step Income Statement Format

• This caption represents revenue for the goods sold or services provided during a given period of time.
• The clear segmentation of revenue streams and expense categories assists management in spotting areas for potential growth or improvement and making informed strategic choices.
• It shows the profitability derived specifically from a company’s core operations.
• With the calculation of operating income, you are able to analyze the operations of the business.
• Investors also use the gross profit to determine the profitability of primary business activities and the general health of the company.
• Add the final calculation as a line item at the bottom of your operating activities section, titled Net Operating Income or Income from Operations.
• Also, its compulsory for publicly traded companies to prepare the multi-step income statements based on the government’s requirements for statutory compliance.

The multi-step (short for multiple-step) income statement is the counterpart to the single-step income statement and is used by a business to report its earnings or losses for a reporting period. It is called the multi-step because of the multiple steps taken to arrive at the net income amount. This is also useful to evaluate different companies in the same niche with their ability to generate profits, manage operating and non-operating expenses, and so on. Investors and other stakeholders essentially view these metrics to compare businesses before making crucial financial decisions. A multi-step income statement is a comprehensive financial document that comprises different sections like sources of income, cost of goods sold (COGS), and operating expenses.

• For instance, if your business is charged with 10% of tax expense from a total of $60,000 of net income, thus, your business will have to bear $6,000 of tax expense.
• Some items might have been paid for on credit and the cash is yet to be received or paid.
• The layout of the multi-step will allow the user to see the performance of the operating and non-operating components.
• A multi-step income statement is a detailed financial report that separates operating and non-operating activities to provide a clearer picture of a company’s financial performance.
• This process not only helps in understanding the overall profitability but also in analyzing operational efficiency and cost management.
• In this guide, we show you how to complete an income statement with a template for you to download.

Income statement or statement of comprehensive income?

In addition, the income statement states the financial health of the organization. The income statement examples summarize all the revenues and expenses over the period to ascertain the company’s profit or loss. Every half-yearly to present the company’s different revenues and expenses during the period of half-year to present a financial picture of the company. For the year ended Financial Forecasting For Startups December 31, 2018, Cool Corp’s multi-step income statement is structured to provide a detailed view of the company’s financial performance.

How to Prepare a Multi-Step Income Statement: A Step-by-Step Guide

With the calculation of operating income, you are able to analyze the operations of the business. Upper management, investors, and creditors analyze gross profit since the metric shows how profitable a company is multi step income statement example at selling the products it manufactures. Gross profit and gross profit margin, which is gross profit as a percentage of sales, may reveal the need to increase net sales or decrease costs of goods sold.

• In a multiple-step income statement, the other incomes are recorded in the non-operating section.
• Different ratios such as gross profit margin, operating margin, and net profit margin are calculated precisely and offer a very good understanding of a company’s profitability at different operational levels.
• If this margin, called gross margin, is lower than desired, a company may need to increase its selling prices and/or decrease its COGS.
• The separation of operating items and non-operating items make it easy to see the performance of the core business activities (operating) and what effect non-core activities had of net income (non-operating).
• 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.
• In the income statement, the Operating Expenses can be categorized as either ‘nature’ or ‘function’.
• For many small businesses, the single-step income statement provides all the details you’ll need to assess the financial health of your company.

Non-operating revenues and expenses

GAAP allows this classification for components that are either disposed of or held for sale and that will have a significant impact on the company’s operations and financial performance. It provides critical information on a company’s liquidity, solvency, and capital structure and is vital for assessing the company’s financial stability and capability to handle its obligations. Accounting Periods and Methods On the multi-step income statement, input the COGS divided into purchases, materials, labor and overhead related to the direct production of goods. The purpose of this extended statement is to provide a more in-depth view of a company’s financial position.