Question

A single step income statement is a format in which only one computation is needed to determine the net income. Some advantages of a single step income statement in businesses with simple structures, such as sole proprietorships and partnerships, often see numerous advantages in using the single step income statement. The simplified statement shows the expenses in a single line for net income,, rather than breaking up the results by gross profit and operating profit. This makes accounting a little less complicated for the accountant who has to prepare the statements." We all know that there is also a multi step income statement as well. In what situations would using a multi step be better than a single step income statement? What is the true purpose of having the 2 different types of statements?

Answer 1

A Multi statement income statement lists down the expenses according to the various criterias and headings.

For example it shows the Gross Profit and expenses classified as Operating expenses,Selling expenses Etc and also shows the breakup of profit like profit before interest & tax,Interest,Tax,Profit after tax etc

Whereas single statement approach shows only the profit after dedcuting various expenses directly.

Hence a Multi step income statement shows the Breakup of profit at different stages.

So when we need the information regarding PBIT,Interest,PBT,Tax,PAT separately or we need to calculate differenr ratios then in that case multi statement income approach is preferred.

So 2 statements are preferred-1 for users who just want the profit information and other for users who want to analyze the ratios,performance etc.