Income Statement Formats
Part of evaluating the Income Statement is determining if the proper format was used to present the income generating activities of the business. There are two formats being used in preparing a statement about the income and expenses of a company: (1) Single-Step and (2) Multiple-Step.
Proper formatting is important in as much as users would prefer to read an Income Statement that can serve as ready reference for analysis with just a quick glance.
Users of Single-Step Format
A company engaged in a simple business activity of buying and selling commodities has fewer accounts to contend with, in order to present an Income Statement that is intelligible, albeit brief. The same is true with a business that gains income from providing commercial/residential spaces for lease or for rent, as well as businesses engaged in providing services through their profession like architects, accountants, engineers and the likes. Hence, the use of the Single-Step Income Statement can serve their purposes well enough.
Kindly click on the images for a larger view of a Single-Step Income Statement and Multiple-Step Income Statement.
Users of Multiple-Step Format
Multifaceted businesses, engaged in two or more types of income generating activities make use of several descriptive accounts, partly for monitoring purposes. The business operations can be broad and wide-ranged especially if the activities involved include manufacturing, selling, distributing, consigning and all other methods of gaining income from their manufactured goods.
In some cases, the business’s management may desire to have an Income Statement that provides a segment for the income generated by each product line that the company manufactures. The objective is to have a financial report that will present income and expenses in the most all-inclusive structure possible; thus, the Multiple-Step format was introduced as means to attain this objective.
Evaluating an Income Statement will be more effective if you can compare it with a concrete example. You may find Income Statements in template forms at Bright Hub’s Media Gallery; the samples provide the structural features of a Single-Step or the Gross Profit Section and Net Income after Operating Expenses Section of a Multiple-Step Income Statement as shown in the images above.