Multi-step income statement

Definition

A multi-step income statement is a detailed financial report that separates operating revenues and expenses from non-operating ones. It provides a clearer view of a company's financial performance by categorizing income and expenses into sections like gross profit, operating income, and net income.

5 Must Know Facts For Your Next Test

1. The multi-step income statement includes sections for gross profit, operating income, and net income.
2. Gross profit is calculated as sales revenue minus the cost of goods sold (COGS).
3. Operating income is found by subtracting operating expenses from gross profit.
4. Non-operating items such as interest expense and gains or losses on sales of assets are reported separately from operating activities.
5. This format provides better insight into how core business operations are performing compared to other activities.

Review Questions

• What are the primary sections included in a multi-step income statement?
• How is gross profit calculated in a multi-step income statement?
• Why might a company choose to use a multi-step income statement over a simple one?

Related terms

Gross Profit:

The difference between sales revenue and the cost of goods sold (COGS).

Operating Income:

Income generated from regular business operations, calculated as gross profit minus operating expenses.

Non-Operating Items:

Income or expenses not related to regular business activities, such as interest expense or gains/losses on asset sales.