07 May Single Step Income Statement
What is a Single Step Income Statement?
Definition: A single step income statement presents a company’s revenues, expenses, and income in a simple form. The calculation involves a single step, hence the statement’s name. Total expenses are subtracted from total revenues to provide the company’s net income.
What does Single Step Income Statement mean?
Small companies, sole proprietorships, and partnership firms often use a single step income statement to present their quarterly or annual financial performance. It is simple to prepare and does not involve any complicated calculations.
In its most basic form, a single step income statement would contain only a few lines. It may list only the following data:
- Revenues (A)
- Expenses (B)
- Net income (C)
The net income (C) would be arrived at by subtracting expenses (B) from revenues (A).
Of course, a company’s expenses may comprise various line items like salaries, raw material purchases, rent, and electricity. The single step income statement would list these as well. Similarly, if the company derives its revenues from more than one source, this information would also be included.
It’s important to understand the difference between a single step income statement and a multiple-step format. The latter is usually used by larger firms and presents greater details about the company’s revenue and expenses.
What exactly is the difference between a single step income statement and a multiple-step income statement? Firstly, a multi-step statement tells you the gross profit as well. The gross profit of a company is the difference between its revenues and its cost of goods sold.
A multiple-step income statement will also tell you the company’s operating profit, which is the gross profit reduced by its operating expenses and depreciation.
A multi-step income statement provides more information than a single step income statement. One crucial advantage of the multi-step format is that it differentiates between revenues from the company’s primary business activity and its non-core operations.
But what the multi-step format gains in providing detailed information, it loses in simplicity. Single step income statements are easy to prepare. They also present information in a straightforward and uncomplicated manner. In fact, many large companies with complex operations present both a single step income statement as well as a multi-step statement.
Example of Single Step Income Statement
Brady & Co., a machine tools manufacturer, presents its income statement in a single step format for the year 2017:
Although this statement presents some basic information, it does not provide details about Brady & Co.’s gross profit and operating profit.
A single step income statement is suitable for small organizations. It is easy to understand and prepare but provides very limited information.