Question

There are two broad formats of preparing the income statement: single-step and multiple-step. What is the...

There are two broad formats of preparing the income statement: single-step and multiple-step. What is the main distinguishing feature between the two? Which format is better in your opinion? Do the accounting rules require a certain format? More importantly, which format is predominantly used by most companies?

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Answer #1

Single step income statement first shows revenues (all) and deducts expenses (all) to arrive at profit before tax figure.

Mutliple step income statement first shows gross margin (net revenue-cost of sales). Afterwards, operating income is arrived at by deducting operating expenses) and then finally income before taxes is arrived at by deducting other income and expenditure.

Mutiple income statement is better as it provide detailed analysis of companies profitability.

No particular format is specified by the accounting rules (income statement need to adhere to some other rules regarding disclosure)

Mutliple step income statement is used by most of the companies.

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