Part 2: Income Statement Components and Format, Classification using nature of expense, Classification using function of expense
Part 3: Single-step Income Statements
Part 4: Multi-step Income Statements
Part 5: Reporting Unusual gains and losses, Other incomes and losses of irregular nature, Discontinued Operations, Extraordinary Item
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:
| PakAccountants Inc. Income Statement For the period ended December 31, 20XX |
||
| Revenue | X | |
| Dividend income | X | |
| Gain on disposal of fixed asset | X | |
| Rental income on leased asset | X | |
| Change in finishged good inventory | X | |
| Raw material consumed | X | |
| Advertising expenses | X | |
| Building rent | X | |
| Salaries | X | |
| Depreciation on macine used for production | X | |
| Depreciation on office equipment | X | |
| Depreciation on Vehicle used for distribution | X | |
| Utility expense | X | |
| Insurance premium | X | |
| Interest on loan | X | |
| Impairment losses | X | |
| Total Expenses | X | |
| Profit before tax | X | |