Question

Describe the three line items of the multi step income statement. Explain why it would be important for a company to break out its income in this manner.

Answer 1

The 3 line items of multiple income statement are as follows:

1.gross profit

Which can be calculated as

Gross profit = net sales- cost of goods sold

2. Operating income

Which can be calculated as follows

Operating income =gross profit -operating expenses

3. Net income

Which can be calculated as

Net income = operating income+non operating income- non operating expenses

The importance for multiple income statement are as follows÷

1.gives information about operational efficiency and profit or gain from primary business activities of an entity.

2. Overview of the efficiency of an entity from operation and non operational activities separately.