A single-step income statement reports the revenue, expenses, and profits of a business over a specific period of time. The single-step statement offers a readable, simplified snapshot of a company’s net income at the bottom of the document. The single-step income statement gives a straightforward summary of a business’s financial performance for a specific period of time, focusing on the profit earned. They are most often used by small businesses that have relatively simple operations and few line items to report. Small businesses like sole-proprietors or partnership firms may opt to use single step income statement or multi-step income statement.

Businesses with formal corporate structures or those that are publicly traded use the more detailed multi-step statement. The types of income statements are single-step, which arrives at net income by performing one calculation, and the multi-step format, which reaches net income through multiple calculations. The multi-step statement allows the business owner, as well as outsiders such as lenders and investors, to analyze the business’s operating efficiency by showing gross profit, operating profit, and net income. Once a business becomes bigger or more complex, a single-step statement isn’t adequate, and it must shift to a multi-step income statement. Prospective lenders and investors require this kind of statement as it conforms to generally accepted accounting principles (GAAP). Bookkeeping for the one-step approach is simple, reducing the work an external accountant does to prepare the income statement.

It does not provide a detailed analysis of the operations but is ideal for businesses not having complex operations. The financial reports prepared using the single-step income statement are crisp and clear about the firm’s profitability. Therefore, companies that opt to simplify their accounting process may prepare the single-step income statement.

Multi-step income statements break down operating expenses and operating revenues versus non-operating expenses and revenues. This process separates expenses and revenues directly related to the business’s operations from those not directly related to its operations. A single-step income statement offers a simple report of a business’s profit, using a single equation to calculate net income. A multi-step income statement, on the other hand, separates operational revenues and expenses from non-operational ones and follows a three-step process to calculate net income. Income statements, also called profit and loss statements, are one of the major financial statements prepared by businesses.

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Multi-step income statements also use multiple equations to calculate net income. As we can see, all the revenues and expenses have been listed under one heading. Although a single-step income statement is simpler and easier to understand, it does not provide the level of detail required by an external user. Therefore, public companies and even some private companies to some extent are required to show a multi-step income statement. This is especially a key requirement when these companies go to ask for loan approval from a bank or other financial institutions.

  • A single-step income statement is a method of reporting a business’ financial performance that lists its revenues, expenses, and profit for the period under one single head.
  • A business’s cost to continue operating and turning a profit is known as an expense.
  • It does not provide a detailed analysis of the operations but is ideal for businesses not having complex operations.
  • What works best for each type of entity is different, so be sure to consult with a professional if you’re not sure what to do with the numbers on your income statement.
  • Although this statement provides some necessary information about the company’s finances, it does not provide extensive details about ABC Company’s gross profit and operating profit.

Multi-step income statements offer more information than just net income; these formats offer two more income-related figures that reflect a business’s financial health. Single-step income statements open with a header conveying important information about the document. The header states the name of the company, identifies the report as an income statement and includes the time period covered in the document. Sole proprietorships, simple partnerships and other small, service-based businesses can use single-step income statements to report their profits. Single-step income statements aren’t very helpful for financial decisions that require more in-depth information about a business’s financial health than simply looking at its net income.

Income Statement: How to Read and Use It

Most publicly-traded companies use multiple-step income statements, which categorize expenses as either direct costs (also known as non-operational costs), or indirect costs (also known as operational costs). Direct costs refer to expenses for a specific item, such as a product, service, or project. Contrarily, indirect costs are generalized expenses that go towards a company’s broader infrastructure, and therefore cannot be assigned to the cost of a specific object. Examples of indirect costs include salaries, marketing efforts, research and development, accounting expenses, legal fees, utilities, phone service, and rent. A multi-step income statement reports much of the same information as a single-step income statement, such as a business’s revenue, expenses, and profits. However, a multi-step income statement breaks down operating revenues and operating expenses versus non-operating revenues and non-operating expenses.

Single-step statements give a simple overview of a company’s costs and earnings using a single equation. Advisory services provided by Carbon Collective Investment LLC (“Carbon Collective”), an SEC-registered investment adviser. Throughout this series of financial statements, you can download the Excel template below for free to see how Bob’s Donut Shoppe uses the income statement (and others) to evaluate the performance of his business. This combines expenses of operating the business, such as production and administration, and non-operating expenses, such as interest paid on debt. All publicly traded companies are required to follow Generally Accepted Accounting Principles (GAAP), which include filing an income statement after a given period of time.

Types of Company that Uses the Single-Step Format

An income statement is one of the three important financial statements used for reporting a company’s financial performance over a specific accounting period. The multi-step income statement breaks down operating revenues and operating expenses versus non-operating revenues and non-operating expenses. This separates revenues and expenses that are directly related to the business’s operations from those that are not directly tied to its operations. A single-step income statement is a method of reporting a business’ financial performance that lists its revenues, expenses, and profit for the period under one single head. Moreover, the business concerns also more often want to look into the level of certain expenses falling under certain classes. These classes or heads can be administrative expenses, selling & distribution expenses, financial cost and other expenses.

The main difference between single-step and multiple-step income statements is the level of detail they include. Multi-step income statements report more details about a business’s financial activity than a single-step income statement offers. They separate operating revenues and operating expenses from non-operating revenues and expenses. A multi-step income statement includes much of the information found in a single-step format, but it makes use of multiple equations to determine the profit, or net income, of a business.

Pros of having a Single-step Income Statement

Microsoft had a lower cost for generating equivalent revenue, higher net income from continuing operations, and higher net income applicable to common shares compared with Walmart. A customer may take goods/services from a company on Sept. 28, which will lead to the revenue accounted for in September. The customer may be given a 30-day payment window due to his excellent credit and reputation, allowing until Oct. 28 to make the payment, which is when the receipts are accounted for. We follow ethical journalism practices, which includes presenting unbiased information and citing reliable, attributed resources.

Like COGS, operating expenses are an integral part of the core operating activities of a company. However, operating expenses are not directly related to the revenue model of the company. The owner of this website may be compensated in exchange for featured placement of certain sponsored products and services, or your clicking on links posted on this website. This compensation may impact how and where products appear on this site (including, for example, the order in which they appear).

Non-operating revenue comes from ancillary sources such as interest income from capital held in a bank or income from rental of business property. These are all expenses that go toward a loss-making sale of long-term assets, one-time or any other unusual costs, or expenses toward lawsuits. These are all expenses linked to noncore business activities, like interest paid on loan money.

A single-step income statement gives you a basic understanding of how much money you made in a year. If you’re just starting out and don’t understand accounting, a single-step income statement can be very helpful. An income statement is a document that summarizes the revenue brought in by a business, minus all costs incurred to generate that revenue. For instance, interest expense is a non-operating cost since the item pertains to the financing activities of a company rather than any of its specific operating activities. Contrary to operating costs, non-operating costs are not part of the core, recurring operating activities of a company. The net income metric is inclusive of all costs – operating and non-operating costs – in contrast to the operating profit metric, which only accounts for operating costs (i.e. COGS and Opex).

Most private companies also elect to adhere to GAAP standards, even if they are not required. The single-step income statement is best for businesses that don’t have a lot of expenses and just want to keep track of how much revenue they’re bringing in. A single-step income statement might not be accurate because there are no calculations top 6 strategies to protect your income from taxes related to costs. If your business model has a lot of different expenses, you might not get an accurate number. The single-step income statement has two main categories, “revenue” and “expenses”. These are all expenses incurred for earning the average operating revenue linked to the primary activity of the business.

The multiple-step model separates revenue and expenses into different categories so you can see exactly where your money goes. Though calculations involve simple additions and subtractions, the order in which the various entries appear in the statement and their relationships often get repetitive and complicated. A multi-step income statement reports much of the same general information included in a single-step income statement, but it uses multiple equations to determine the net income, or profit, of the company. Most of the publicly traded companies create multi step income statement as they are complex business entities. Given the gross profit of Apple for each period, the next step is to subtract operating expenses to determine the company’s operating profit in each fiscal year. The Multi-Step Income Statement is a financial reporting format where a company’s revenue, costs, and expenses are classified into separate categories before arriving at net income (the “bottom line”).

Specialties include general financial planning, career development, lending, retirement, tax preparation, and credit. The single-step income statement is the most simplified version of the income statement. Click here to find out more about the in-depth explanation of income statements and the comparison of income statement for various industries. Shopify Balance is a free financial account that lets you manage your business’s money from Shopify admin. Pay no monthly fees, get payouts up to four days earlier, and earn cashback on eligible purchases.