Multi Step Income Statement

Here Multi Step Income Statement means that while presenting this Financial Statement, we divide it into different parts so that the Users of Financial Statements can easily understand and find the relevant information in Income statement. We divide the statement into three parts:

ü  Gross Profit / Loss

ü  Operating Income / Loss

ü  Net Income / Loss

ü Gross Profit / Loss

It is obtained as:

Gross Profit / Loss = Net Sales - Cost of Sales

Here Cost of Sales = Opening Inventory + Net Purchases - Closing Inventory

ü Operating Income / Loss

All the Operating Expenses are added up and then deducted from Gross Profit to get Operating Income or Loss for the business.

Operating Income / Loss = Gross Profit – Total Operating Expenses

ü Net Income / Loss

We get Net Income or Loss after adding Other / Non-Operating Income and Gains and deducting Other Expenses / Non-Operating Expenses and Losses.

Numerically we can get Net Income / Loss as shown below:

Net Income / Loss = 

(Net Operating Income / Loss + Other Income and Gains) – (Other Expenses + Losses)

Multiple Income Statement provides relevant details to the users of financial statements. For Example, investors can get information about operating profit and look for investment in the business of the company.

It must be noted that a Company must follow Generally Accepted Accounting (GAAP) in order to give true and fair view of financial statements to its users.