# Single-step VS Multi-step Income Statement

## What is an income statement?

The income statement is one of three key financial statements used by all companies, from small businesses to large corporations. A basic income statement along with your cash flow statement and balance sheet gives you a complete insight into your company’s financial position.

People with small businesses need two types of income statements. They can choose between them:

1. Single-step income statement
2. Multi-step income statement

The Single-step format and multi-step format are different depending on the type of business you are running.

Before comparing the two, we first have a look at the term income statement.

## What is the income statement?

An income statement is an accounting document a company prepares to describe its business activities and updates over a given time. It is a kind of financial report a company generates.

Including:

• Revenues
• Expenses
• Profit or loss

## What’s a Single-step income statement?

A single-step income statement focuses on revenue, expenses, and the profit or loss of a business. All of this is possible by using a single equation.

The equation states:

Net income = (revenue + gains) – (expenses + losses)

This statement is straightforward and easy to go with while preparing the financial activity of your business.

## What’s a Multi-step income statement?

A multi-step income statement also focuses on revenue, expenses, and the profit or loss of a business. Still, it uses multiple equations to calculate the net income or yield of the company.

It split down the operational and non-operational revenues and expenses.

Operating expenses and revenues:

Non-operating expenses and revenues:

Three different equations under the multi-step income statement are:

1. Gross profit = net sales – cost of goods sold.
2. Operating income = gross profit – operating expense
3. Net income = operating income + non-operating items

## Single-step vs. Multi-step income statement:

A single-step income statement is a single-step process, whereas a multi-step income statement is a three-step process to calculate the company’s net income and profit.

### Advantages of a single-step income statement:

It is :

#### Quick to prepare:

It involves only one calculative equation. And it’s not necessary to break down operational and non-operational revenue in this process. That’s why it’s easy to prepare.

Its simplicity makes it easy for a person to read it. As it only focuses on the bottom line, net income.

### Advantages of a multi-step income statement:

The multi-Step income statement has the following advantages:

#### Offer great analysis:

It gives a breakdown of operating and non-operating income statements to analyze in detail.

#### Indicate gross profit:

A multi-step income statement helps to give an insight into gross profit, how a business uses labor and supplies to generate revenue.

#### Evaluate operating income:

A multi-step income statement evaluates how a company earns a profit from its initial business activities.

### Disadvantages of a single-step income statement:

• Lack of detailed information
• Absence of gross income details
• Unable to attract investors on first sight
• Causing business to miss out on an opportunity

### Disadvantages of a multi-step income statement:

• Stressful for accounting teams
• Demand extra care while dealing with calculations
• A single mistake can cause a significant loss to the business.

## Example of a single-step income statement:

This example of a single-step income statement gives you an insight into the final report.

## Example of a multi-step income statement:

This example of a multi-step income statement gives you an insight into the final report.

## (A single-step or a multi-step income statement)

• It is recommended for a small business to opt for a single-step income statement as it gives all the details regarding financial health only.
• On the other hand, if small businesses are taking loans and attracting new investments, it is recommended to opt for a multi-step income statement. It gives a detailed financial insight into your business.
• Both ways are best to use while running a small business. It just depends on the dealing and business approach, which makes the difference.