Income Statement Format

An income statement summarizes a company's financial performance. It shows all revenues and expenses of the company for a period of time.

There are two ways of presenting an income statement. You can either present a (1) single-step income statement, or (2) multi-step income statement.

Without question, a multi-step income statement is more organized (but more complicated) than the single-step format. Here is how each would look like.

Single-Step Income Statement Format

ABC Company
Income Statement
For the Year Ended December 31, 2015
     
Revenues and Gains:  
  Sales $ 120,000
  Interest Income 6,000
  Gain on Sale of Investments 5,000
  Loss on Sale of Equipment (1,000)
  Total Revenues and Gains $ 130,000
     
Expenses and Losses:  
  Cost of Sales $   62,000
  Salaries Expense 18,000
  Utilities Expense 10,000
  Supplies Expense 8,000
  Depreciation Expense 5,000
  Advertising Expense 2,000
  Total Expenses and Losses $ 105,000
     
Income before Tax $   25,000
Less: Income Tax Expense 9,750
Net Income $   15,250

A single step income statement is quite straightforward. All revenues and gains are presented first, followed by all expenses and losses. The difference is computed and subjected to income tax to get the net income.

Multi-Step Income Statement Format

ABC Company
Income Statement
For the Year Ended December 31, 2015
           
Sales     $ 120,000
Less: Cost of Sales     62,000
Gross Profit     $   58,000
           
Less: Operating Expenses      
  Selling Expenses      
    Salaries Expense - Sales $  10,000    
    Utilities Expense - Store 5,000    
    Store Supplies Expense 4,000    
    Depreciation Expense - Store 2,000    
    Advertising Expense 2,000   $   23,000
  Administrative Expenses      
    Salaries Expense - Office $   8,000    
    Utilities Expense - Office 5,000    
    Office Supplies Expense 4,000    
    Depreciation Expense - Office 3,000   20,000
  Total Operating Expenses     $   43,000
           
Operating Income     $   15,000
Other Revenues and Expenses      
  Interest Income $   6,000    
  Gain on Sale of Investments 5,000    
  Loss on Sale of Equipment (1,000)   10,000
Income before Tax     $   25,000
Less: Income Tax Expense     9,750
Net Income     $   15,250

In a multi-step income statement, several steps are taken before we could arrive at the net income. We need to sequentially compute for:

  1. Gross Profit = Sales - Cost of Sales
  2. Total Operating Expenses = Selling Expenses + Administrative Expenses
  3. Operating Income = Gross Profit - Total Operating Expenses
  4. Income before Tax = Operating Income +/- Other Revenues and Expenses
  5. Net Income = Income before Tax - Income Tax

First, the gross profit is computed by deducting cost of sales from sales. Then, all operating expenses are presented. Operating expenses include selling expenses and administrative expenses.

Note: Some expenses are related partly to sales and partly to administration. When presenting selling expenses separately from administrative expenses, the "partly" expenses should be allocated using a reliable basis.

Gross profit minus operating expenses will give us the operating income. Then, we incorporate other revenues and expenses to come up with the income to be subjected to tax. After deducting the tax, we finally have the net income.

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