Single-step Income Statement
As we learnt above that entity’s expenses can be classified on the basis of function i.e. cost of sales, administration and distribution. In real world entity may have several expenses even under one class and thus require several subtotals or subtractions to make information more understandable.
If you compare the two formats above the first one has only one subtotal or subtraction and is an example of single-step format of income statement. Whereas the second classification method involves calculation of gross profit and operating profit before you reach profit before tax calculation and thus is called multi-step format of income statement.
In a single step income statement there is a single subtraction in the whole statement as all the incomes/gains/revenues are added together to calculate total income and on the other hand all the expenses/losses are added up together to calculate total expenses and in the end total expenses are subtracted from total income to determine profit.
Calculation in this format is much like following mathematical equation:
Profit = [Revenue + Gain + Other income] – [Expenses + Losses + Other expenses]
Following is a full blown example of income statement with a single step format:
For the period ended December 31, 20XX
|Gain on disposal of fixed asset||X|
|Rental income on leased asset||X|
|Change in finishged good inventory||X|
|Raw material consumed||X|
|Depreciation on macine used for production||X|
|Depreciation on office equipment||X|
|Depreciation on Vehicle used for distribution||X|
|Interest on loan||X|
|Profit before tax||X|