Multi-Step Income Statement (Accounting) - Explained
What is a Multi-Step Income Statement?
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Table of ContentsWhat is the Single-step Income Statement?What is the Multi-step Income Statement?What is Operating versus Non-operating Income?How to Record Journal Entries in a Multi-Step Income Statement
What is the Single-step Income Statement?
The single step income statement generally includes your revenue and you have total revenue out to the side. Then you have your expenses, and you have that out to the side. You subtract total expenses from total revenue. That gives you net income.
What is the Multi-step Income Statement?
Merchandising businesses, businesses that sell products, often require more accounts and specific information to communicate to investors. This gives rise to the multi-step income statement.
The multi-step income statement is a more informative income statement. It breaks things down into a different way. It separates net income into operating income and non-operating income.
The income stays the same - it's still revenues minus expenses. Now, it's operating revenue minus operating expenses gives you operating income. Then non-operating revenue minus non-operating expenses gives you non-operating income.
What is Operating versus Non-operating Income?
Operating income refers to the amount of income that comes from normal reoccurring business operations. These are the things that are day-to-day. The reason why we do this is because, as an investor, I want to know what I can assume is going to happen year after year. For example, your sales revenue is an operating income.
Non-operating income is made up of items that are not expected to recur on a regular basis. They're not part of my normal business. 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.
How to Record Journal Entries in a Multi-Step Income Statement
In a multi-step income statement I'm going to start with operating revenues.
We begin with net sales, subtract allowances, discounts, and returns. Then we subtract our cost of goods sold. This will give us our total operating revenue or gross profit. This number lets my investors know what I've made off of my sales alone.
Now, we go to the operating expense side and add up expenses to arrive at the total operating expenses.
Now, if I subtract my total operating expenses from my total operating revenue to arrive at my total operating income.
That's half of the multi-step income statement. Now, let's look at the non-operating activities.
We're just going to put them all together to arrive at our non-operating income.
If you add your total operating income to your total non-operating income that will give you your net income.
That is your bottom line figure for a multi-step income statement.
- What is Merchandising? – Financial Accounting
- Recognizing Inventory Sales – Financial Accounting
- Perpetual vs Period Systems – Financial Accounting
- Special Merchandising Transactions – Financial Accounting
- Adjustments for Inventory – Financial Accounting
- Multi-Step Income Statement – Financial Accounting
- Accounting Cycle for Merchandising Business Example Part 1
- Accounting Cycle for Merchandising Business Example Part 2
- Accounting Cycle for Merchandising Business Example Part 3